# SR 15-13: Supervisory Guidance on the Capital Treatment of Certain Investments in Covered Funds under the Regulatory Capital Rule and the Volcker Rule

> Federal · Agency guidance · In force

URL: https://www.frixlaw.com/law-library/statutes/FRB_SR1513

## Section

- **Citation:** SR 15-13
- **Heading:** Supervisory Guidance on the Capital Treatment of Certain Investments in Covered Funds under the Regulatory Capital Rule and the Volcker Rule
- **Jurisdiction:** Federal
- **Kind:** Agency guidance
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** Federal Reserve SR/CA Letters / Supervisory Guidance on the Capital Treatment of Certain Investments in Covered Funds under the Regulatory Capital Rule and the Volcker Rule

## Text

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BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551

DIVISION OF SUPERVISION
AND REGULATION

SR 15-13
October 29, 2015
Revised June 16, 2022
On June 16, 2022 this letter was revised to modify its applicability. The 2018 enactment of the
Economic Growth, Regulatory Relief, and Consumer Protection Act modified the scope of the
statutory definition of “banking entity” in section 13 of the Bank Holding Company Act (also
referred to as the Volcker Rule) to exclude certain community banks and their affiliates, and in
2019, the regulations implementing the Volcker Rule were updated to reflect the statutory
change. See 84 Fed. Reg. 35008 (July 22, 2019).

In connection with these modifications, the following changes apply to the guidance attached to this
SR letter. For the definition of “banking entity” in the guidance, please refer to the updated
definition in this letter. In terms of reporting deductions of covered funds on regulatory reports,
banking organizations with $100 billion or more in total consolidated assets (rather than $50
billion or more, as noted in the attachment), should reflect this treatment of covered funds on the
FR Y-14 Capital Assessments and Stress Testing Reports, where applicable. Further, the FDIC and
OCC agency-specific Dodd-Frank Act Stress Testing (DFAST) reporting templates described in the
attachment have been eliminated.

TO THE OFFICER IN CHARGE OF SUPERVISION
AT EACH FEDERAL RESERVE BANK

SUBJECT:
Supervisory Guidance on the Capital Treatment of Certain Investments in
Covered Funds under the Regulatory Capital Rule and the Volcker Rule

Applicability: The guidance in this letter and attachment applies to state member banks, bank
holding companies, and savings and loan holding companies (not substantially engaged in insurance
underwriting or commercial activities) supervised by the Federal Reserve and subject to section 13
of the Bank Holding Company Act
Covered Funds under the Regulatory Capital Rule and the Volcker Rule

Applicability: The guidance in this letter and attachment applies to state member banks, bank
holding companies, and savings and loan holding companies (not substantially engaged in insurance
underwriting or commercial activities) supervised by the Federal Reserve and subject to section 13
of the Bank Holding Company Act. See footnotes 2 and 3 for further detail on applicability.
The Federal Reserve (Board), together with the Office of the Comptroller of the Currency
(OCC) and the Federal Deposit Insurance Corporation (FDIC), is issuing the attached Deduction
Methodology for Investments in Covered Funds (guidance) to clarify the interaction between the
agencies’ regulatory capital rule and the Volcker Rule with respect to the appropriate capital

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treatment for investments in certain private equity funds and hedge funds (“covered funds”).1 In
particular, the guidance clarifies supervisory expectations on how a banking organization’s
regulatory capital deductions of investments in covered funds made pursuant to section 13 of the
Bank Holding Company Act (also referred to as the Volcker Rule) and implementing regulations
relate to deductions of these investments pursuant to the regulatory capital rule.2
Federal Reserve Banks are asked to distribute this letter to financial institutions supervised
by the Federal Reserve, particularly banking entities covered by the Volcker Rule,3 as well as to
their own supervisory and examination staff. Questions concerning the deduction mechanics
described in the attached guidance should be sent via the Board’s public website.4

Michael S. Gibson
Director
Division of Supervision and Regulation

Attachment:
• Deduction Methodology for Investments in Covered Funds

1 See 12 CFR part 217 (regulatory capital rule). See also 12 U.S.C. 1851; 12 CFR part 248 (Volcker Rule)
ination staff. Questions concerning the deduction mechanics
described in the attached guidance should be sent via the Board’s public website.4

Michael S. Gibson
Director
Division of Supervision and Regulation

Attachment:
• Deduction Methodology for Investments in Covered Funds

1 See 12 CFR part 217 (regulatory capital rule). See also 12 U.S.C. 1851; 12 CFR part 248 (Volcker Rule).
2 “Banking organizations” include national banks, state member banks, state non-member banks, federal savings
associations, state savings associations, and top-tier bank holding companies and savings and loan holding companies
domiciled in the United States not subject to the Federal Reserve’s Small Bank Holding Company and Savings and
Loan Holding Company Policy Statement (12 CFR part 225, appendix C), other than certain savings and loan holding
companies that are substantially engaged in insurance underwriting or commercial activities.
3 The term “banking entity” is defined by statute to include, with limited exceptions: (i) any insured depository
institution (IDI) (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)); (ii) any company that
controls an IDI (including, for example, a bank holding company or savings and loan holding company); (iii) any
company that is treated as a bank holding company for purposes of section 8(a) of the International Banking Act of
1978 (for example, any foreign bank operating a branch or agency in the United States); and (iv) any affiliate or
subsidiary of any of the foregoing. The rule excludes from the definition of IDI an insured depository institution if it
has, and every company that controls it has, total consolidated assets of $10 billion or less and total trading assets and
trading liabilities, on a consolidated basis, that are 5 percent or less of total consolidated assets. See 12 U.S.C
States); and (iv) any affiliate or
subsidiary of any of the foregoing. The rule excludes from the definition of IDI an insured depository institution if it
has, and every company that controls it has, total consolidated assets of $10 billion or less and total trading assets and
trading liabilities, on a consolidated basis, that are 5 percent or less of total consolidated assets. See 12 U.S.C.
1851(h)(1); 12 CFR 44.2(c) and (r) (OCC), 12 CFR 248.2(c) and (r) (Board), 12 CFR 351.2(c) and (r) (FDIC), 17 CFR
255.12(c) and (r) (Securities and Exchange Commission), and 17 CFR 75.12(c) and (r) (Commodity Futures Trading
Commission).
4 http://www.federalreserve.gov/apps/contactus/feedback.aspx.

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________________________________________________________________________________
Office of the Comptroller of the Currency
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
________________________________________________________________________________
November 6, 2015
Deduction Methodology for Investments in Volcker Rule Covered Funds
Purpose
The Office of the Comptroller of the Currency (OCC), Federal Reserve Board (FRB), and
the Federal Deposit Insurance Corporation (FDIC) are issuing this guidance to clarify the
interaction between the agencies’ regulatory capital rule and the Volcker Rule with respect to the
appropriate capital treatment for investments in certain private equity funds and hedge funds
(covered funds)
s
Purpose
The Office of the Comptroller of the Currency (OCC), Federal Reserve Board (FRB), and
the Federal Deposit Insurance Corporation (FDIC) are issuing this guidance to clarify the
interaction between the agencies’ regulatory capital rule and the Volcker Rule with respect to the
appropriate capital treatment for investments in certain private equity funds and hedge funds
(covered funds).
Background
In July 2013, the FRB and OCC issued a final rule (regulatory capital rule) that increased the
quality and quantity of regulatory capital held by banking organizations and strengthened the
framework for calculating regulatory capital to better reflect the underlying risks taken by banking
organizations.1 The FDIC adopted an interim final rule that was substantively identical to the
regulatory capital rule in July 2013 and later issued a final rule in April 2014 identical to the FRB’s
and the OCC’s final rule.2 In December 2013, the FDIC, OCC, and FRB, along with the U.S.
Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission,
adopted a final rule to implement section 13 of the Bank Holding Company Act, also known as the
Volcker rule, which was added by section 619 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, and which prohibits any banking entity3 from engaging in proprietary
1 “Banking organization” includes national banks, state member banks, state non-member banks, federal savings
associations, state savings associations, and top-tier bank holding companies domiciled in the United States not subject
to the Federal Reserve’s Small Bank Holding Company Policy Statement (12 CFR part 225, appendix C), as well as
top-tier savings and loan holding companies domiciled in the United States, other than (i) savings and loan holding
companies subject to the FRB’s Small Bank Holding Company Policy Statement and (ii) certain savings and loan
holding companies that are substantially engaged in insurance underwriting or commercial activities
lding Company Policy Statement (12 CFR part 225, appendix C), as well as
top-tier savings and loan holding companies domiciled in the United States, other than (i) savings and loan holding
companies subject to the FRB’s Small Bank Holding Company Policy Statement and (ii) certain savings and loan
holding companies that are substantially engaged in insurance underwriting or commercial activities.
2 78 Fed. Reg. 62018 (October 11, 2013) (FRB and OCC); 78 Fed. Reg. 20754 (April 14, 2014) (FDIC). These rules
are codified at OCC - 12 CFR part 3 (national banks and federal savings associations); FRB - 12 CFR part 217 (state
member banks, bank holding companies, and savings and loan holding companies); and FDIC - 12 CFR part 324 (state
non-member banks and state savings associations).
3 A “banking entity” is defined by statute as any insured depository institution, any company affiliated with an insured
depository institution, as well as any foreign bank that has a branch, agency, or commercial lending company in the
United States, with certain limited exceptions. Any banking organization that is subject to the regulatory capital rule
would be included within the definition of banking entity under the Volcker rule. 12 U.S.C. 1851(h)(1).

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trading or from acquiring or retaining an ownership interest in, sponsoring, or having certain
relationships with, a covered fund.4
Certain covered funds could be subject, under the regulatory capital rule and the Volcker
rule, to overlapping tier 1 capital deductions. Specifically, the Volcker rule requires a banking
organization to deduct the full amount of the banking organization’s investment in a covered fund
from tier 1 capital.5 Simultaneously, under the regulatory capital rule, a covered fund that meets the
definition of an “investment in the capital of an unconsolidated financial institution”6 (a covered
fund UFI) also could be subject to a deduction from tier 1 capital
ker rule requires a banking
organization to deduct the full amount of the banking organization’s investment in a covered fund
from tier 1 capital.5 Simultaneously, under the regulatory capital rule, a covered fund that meets the
definition of an “investment in the capital of an unconsolidated financial institution”6 (a covered
fund UFI) also could be subject to a deduction from tier 1 capital. The potential overlapping capital
treatment for covered funds is discussed in the preambles of both the Volcker rule and the
regulatory capital rule, and the preamble to the Volcker rule explains that the federal banking
agencies would review the interaction between the requirements of the Volcker rule and the
requirements of the regulatory capital rule and reconcile the two rules.7 To clarify the interaction
between the two rules with respect to these capital treatments, the methodology described in this
guidance outlines mechanics aimed at reconciling the treatment across these rules. A banking
organization should be able to demonstrate to its primary federal regulatory agency that the banking
organization is in compliance with the Volcker rule and that all amounts of investments in covered
funds have been deducted from tier 1 capital.
The Volcker rule, including the required capital deduction for investments in a covered fund,
became effective on July 21, 2015, for investments in and relationships with a covered fund made
after December 31, 2013.8 The FRB acted to give banking entities until July 21, 2016, to conform
investments in and relationships with covered funds that were in place prior to December 31, 2013
(legacy covered funds) and announced its intention to grant banking entities an additional one-year
extension of the conformance period until July 21, 2017, to conform ownership interests in and
relationships with legacy covered funds. As a result, for legacy covered funds, the Volcker rule
capital deduction will not become effective until July 21, 2017
ere in place prior to December 31, 2013
(legacy covered funds) and announced its intention to grant banking entities an additional one-year
extension of the conformance period until July 21, 2017, to conform ownership interests in and
relationships with legacy covered funds. As a result, for legacy covered funds, the Volcker rule
capital deduction will not become effective until July 21, 2017.

4 See 12 U.S.C. 1851; 12 CFR part 44 (OCC); 12 CFR part 248 (FRB); 12 CFR part 351 (FDIC). For defining hedge
fund and private equity fund, see 12 U.S.C. 1851(h)(2). For defining covered fund, see 12 CFR 44(10)(b)-(c) (OCC),
12 CFR 248.10(b)-(c) (FRB), and 12 CFR 351.10(b)-(c) (FDIC).

5 See 12 CFR 44.12(d) (OCC), 12 CFR 248.12(d) (FRB), and 12 CFR 351.12(d) (FDIC); see also 12 CFR 44.12(b)-(c)
(OCC), 12 CFR 248 10(b)-(c) (FRB), and 12 CFR 351.10(b)-(c) (FDIC).

6 See definitions of “financial institution,” “non-significant investment in the capital of an unconsolidated financial
institution,” and “significant investment in the capital of an unconsolidated financial institution” in 12 CFR 3.2 (OCC),
12 CFR 217.2 (FRB), and 12 CFR 324.2 (FDIC). For an explanation of the regulatory capital treatment that applies to
investments in the capital of an unconsolidated financial institution, which includes covered fund UFIs, see 12 CFR
3.22 (OCC), 12 CFR 217.22 (FRB), and 12 CFR 324.22 (FDIC).

7 See 78 Fed. Reg. at 62072 (October 11, 2013). See also 79 Fed. Reg. at 5731 (January 31, 2014).

8 See FRB Order Approving Extension of Conformance Period (Dec. 10, 2013), available at
http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20131210b1.pdf; see also FRB Order Approving
Extension of Conformance Period under Section 13 of the Bank Holding Company Act (December 18, 2014), available
at http://www.federalreserve.gov/newsevents/press/bcreg/20141218a.htm.
(January 31, 2014).

8 See FRB Order Approving Extension of Conformance Period (Dec. 10, 2013), available at
http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20131210b1.pdf; see also FRB Order Approving
Extension of Conformance Period under Section 13 of the Bank Holding Company Act (December 18, 2014), available
at http://www.federalreserve.gov/newsevents/press/bcreg/20141218a.htm.

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Deduction Methodology

1. The banking organization determines the amount of its investment in covered funds9 that is
subject to a full deduction from tier 1 capital pursuant to section ___.12(d) of the Volcker
rule.10
2. If the amount in step 1 is greater than zero, the banking organization must determine
whether any investment in a covered fund is also an investment in a covered fund UFI under
the regulatory capital rule.
3. If the banking organization determines in step 2 that no covered fund is an investment in a
covered fund UFI under the regulatory capital rule, the banking organization must fully
deduct the amount calculated in step 1 from tier 1 capital pursuant to the Volcker rule and
proceed to step 5.11
4. If the banking organization determines in step 2 that an investment in a covered fund is also
an investment in a covered fund UFI, such that a part or the aggregate of its covered funds is
deducted from common equity tier 1 capital or additional tier 1 capital under
sections ___.22(c) and (d) of the regulatory capital rule,12 such deducted amounts count
toward the amount required to be deducted that was calculated in step 1.
5. Any remaining amount of covered funds that is not deducted from either common equity tier
1 capital or additional tier 1 capital under the regulatory capital rule in accordance with step
4 must be fully deducted from tier 1 capital pursuant to the Volcker rule. A banking
organization must deduct the full amount of covered funds required to be deducted under
section ___.12(d) according to the valuation methodology specified therein.

6
not deducted from either common equity tier
1 capital or additional tier 1 capital under the regulatory capital rule in accordance with step
4 must be fully deducted from tier 1 capital pursuant to the Volcker rule. A banking
organization must deduct the full amount of covered funds required to be deducted under
section ___.12(d) according to the valuation methodology specified therein.

6. A banking organization may exclude from risk-weighted assets (for calculating risk-based
capital ratios), average total consolidated assets (for calculating the tier 1 leverage ratio),
total leverage exposure (for calculating the supplementary leverage ratio), and total assets
(for calculating whether a bank is critically undercapitalized for prompt corrective action
purposes), amounts that are deducted from capital (i) under paragraphs (c) and (d) of
section ___.22 of the regulatory capital rule (step 4) or (ii) under paragraph (d) of section 12
of the Volcker rule (steps 3 or 5).

9 See 12 CFR 44.12(d) (OCC), 12 CFR 248.12(d) (FRB), and 12 CFR 351.12(d) (FDIC).

10 See 12 CFR 44.12(d) (OCC), 12 CFR 248.12(d) (FRB), and 12 CFR 351.12(d) (FDIC).

11 Id. The Volcker rule requires that deductions be made from tier 1 capital. A banking organization can comply with
this rule through a deduction from additional tier 1 capital or common equity tier 1 capital. See 12 CFR 44.12(d)
(OCC), 12 CFR 248.12(d) (FRB), and 12 CFR 351.12(d) (FDIC).

12 Certain investments in the capital of unconsolidated financial institutions must be deducted from common equity tier
1 capital while others may be deducted from additional tier 1 capital, the two elements that comprise tier 1 capital,
under the regulatory capital rule. See 12 CFR 3.22(c)-(d) (OCC), 12 CFR 217.22(c)-(d) (FRB), and 12 CFR 324.22(c)-
12(d) (FRB), and 12 CFR 351.12(d) (FDIC).

12 Certain investments in the capital of unconsolidated financial institutions must be deducted from common equity tier
1 capital while others may be deducted from additional tier 1 capital, the two elements that comprise tier 1 capital,
under the regulatory capital rule. See 12 CFR 3.22(c)-(d) (OCC), 12 CFR 217.22(c)-(d) (FRB), and 12 CFR 324.22(c)-
(d) (FDIC).

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Reporting of Volcker Rule Deductions
A banking organization should report deductions of covered funds made pursuant to the
Volcker rule under steps 3 or 5 in line items 17 (BHCAP857 and RCFA/RCOAP857) and 24
(BHCAP864 and RCFA/RCOAP864) of Schedule HC-R of the FR Y-9C Consolidated Financial
Statements for Holding Companies report form or Schedule RC-R of the FFIEC 031 or 041
Consolidated Reports of Condition and Income (Call Report forms), as applicable.13 In addition,
banking organizations with $50 billion or more in total consolidated assets should reflect this
treatment on the applicable DFAST reporting templates as follows: (i) DFAST-14A (OCC), (ii)
DFAST-14(A) (FDIC); or (iii) the FR Y-14Q and FR Y-14A, Capital Assessment and Stress-
Testing forms, Regulatory Capital Transitions Schedules, line items 24 (CQCDP857) and 30
(CQCDP864) and on the FR Y-14A’s Summary Schedule for Capital – DFAST and Capital –
CCAR Worksheets on line items 65 (CASDP857 and CPSDP857) and 72 (CASDP864 and
CPSDP865) (FRB). Further, banking organizations that are required to complete the FFIEC 101
Regulatory Capital Reporting for Institutions Subject to the Advanced Capital Adequacy
Framework should reflect this treatment in line items 27 (AAABP857) and 41 (AAABP898) of
schedule A of the FFIEC 101.

13 Reporting forms and instructions for holding companies are available at
http://www.federalreserve.gov/apps/reportforms/default.aspx and for insured depository institutions at
http://www.ffiec.gov/ffiec_report_forms.htm.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FRB_SR1513. Check the current official text before relying on it. Not legal advice.