personnel to publicly offer the pool's participation units to non-
affiliated parties that are not qualified eligible persons.
---------------------------------------------------------------------------

    \1722\ 17 CFR 4.24 (2013).
---------------------------------------------------------------------------

    In taking this more tailored approach to commodity pools that will
be covered funds, the Agencies are more closely aligning the types of
commodity pools that will be covered funds under the final rule with
section 13's definition of a hedge fund and private equity fund by
reference to section 3(c)(1) or section 3(c)(7), and addressing
concerns of commenters that the proposal was

overly broad and would lead to outcomes inconsistent with the words,
structure, and purpose of section 13.\1723\ The Agencies believe that
the types of commodity pools described above generally are similar to
funds that rely on section 3(c)(1) and 3(c)(7) in that, like funds that
rely on section 3(c)(1) or 3(c)(7), these commodity pools may be owned
only by investors who meet certain heightened qualification standards,
as discussed above.\1724\ Further, the Agencies believe that the final
rule's identification of the elements of a commodity pool that is a
covered fund are clearly established and readily ascertainable such
that once it is determined whether an entity is a commodity pool, an
assessment that is already necessary to comply with the Commodity
Exchange Act, then the further determination of whether an entity that
is a commodity pool is also a covered fund can be made based on readily
ascertainable information.
---------------------------------------------------------------------------

    \1723\ See, e.g., SIFMA et al. (Covered Funds) (Feb. 2012);
BlackRock; AHIC; Sen. Carper et al.; Rep. Garrett et al.
    \1724\ Funds relying on section 3(c)(7) must be owned
exclusively by qualified purchasers, as defined in the Investment
Company Act. The Agencies note in this regard that section 4.7 of
the CFTC's regulations use substantially the same definition of a
qualified purchaser in defining the term qualified eligible person.
---------------------------------------------------------------------------

    In adopting this approach, the Agencies also are utilizing the
current regulatory structure promulgated by the CFTC under the CEA. As
the CFTC regulates commodity pools, commodity pool operators, and
commodity trading advisors that advise commodity pools, the Agencies
believe that it is beneficial to utilize an already established set of
rules, regulations, and guidance. The Agencies considered alternative
approaches provided by the commenters, but have adopted the approach
taken in the final rule for the reasons discussed above and because the
Agencies believe that the final rule, by incorporating concepts with
which commodity pools and their operators are familiar, more clearly
delineates the commodity pools that are covered funds.\1725\
---------------------------------------------------------------------------

    \1725\ Operators of commodity pools currently must consider
whether they are required to register with the CFTC as commodity
pool operators, and whether the pools have the characteristics that
would make it possible for the operator to claim an exemption under
section 4.7. These concepts thus should be familiar to commodity
pools and their operators, and including these concepts in the final
rule should allow banking entities more easily to determine if a
particular commodity pools is a covered fund than if the Agencies
were to develop new concepts solely for purposes of the final rule.
---------------------------------------------------------------------------

    The Agencies believe that the final rule's tailored approach to
commodity pools includes in the definition of covered fund commodity
pools that are similar to funds that rely on section 3(c)(1) and
3(c)(7). The Agencies also note in this regard that a commodity pool
that would be a covered fund even under this tailored approach will not
be a covered fund if the pool also qualifies for an exclusion from the
covered fund definition, including the exclusion for registered
investments companies. Accordingly, this approach excludes from covered
funds entities like commercial end users and registered investment
companies, whose activities do not implicate the concerns section 13
was designed to address. Rather, the final rule limits the commodity
pools that will be included as covered funds to those that are similar
to other covered funds except that they are not generally subject to
the Investment Company Act of 1940 due to the instruments in which they
invest. For all of these reasons, the Agencies believe that the final
rule's approach to commodity pools addresses both the Agencies'
concerns about the potential for evasion and commenters' concerns about
the breadth of the proposed rule, and provides that the commodity pools
captured as covered funds are ``such similar funds,'' consistent with
section 13(h)(2) of the BHC Act.
    The Agencies acknowledge that as a result of including certain
commodity pools in the definition of covered fund, the prohibitions
under section 13(f) and Sec.  ----.14 may result in certain structural
changes in the industry. The Agencies note that these changes (e.g.,
bank-affiliated FCMs may not be able to lend money in certain clearing
transactions to affiliated commodity pools that are covered funds) may
result in certain changes in the way related entities do business with
each other. However, the Agencies believe that because the industry is
competitive with a significant number of alternative non-affiliate
competitors, the changes would not result in a less competitive
landscape for investors in commodity pools.
3. Entities Regulated Under the Investment Company Act
    The proposed rule did not specifically include registered
investment companies (including mutual funds) or business development
companies within the definition of covered fund.\1726\ As explained
above, the statute references funds that rely on section 3(c)(1) or
3(c)(7) of the Investment Company Act. Registered investment companies
and business development companies do not rely on either section
3(c)(1) or 3(c)(7) of the Investment Company Act and are instead
registered or regulated in accordance with the Investment Company Act.
---------------------------------------------------------------------------

    \1726\ See proposed rule Sec.  ----.10(b)(1).
---------------------------------------------------------------------------

    Many commenters argued that registered investment companies and
business development companies would be treated as covered funds under
the proposed definition if commodity pools are treated as covered
funds.\1727\ A few commenters argued that the final rule should
specifically provide that all SEC-registered funds are excluded from
the definition of covered fund (and the definition of banking entity)
to avoid any uncertainty about whether section 13 applies to these
types of funds.\1728\
---------------------------------------------------------------------------

    \1727\ See, e.g., Arnold & Porter; BoA; Goldman (Covered Funds);
ICI (Feb. 2012); Putnam; TCW; Vanguard. According to these
commenters, a registered investment company may use security or
commodity futures, swaps, or other commodity interests in various
ways to manage its investment portfolio and be swept into the broad
definition of ``commodity pool'' contained in the Commodity Exchange
Act.
    \1728\ See Arnold & Porter; Goldman (Covered Funds); See also
SIFMA et al. (Covered Funds) (Feb. 2012); SIFMA et al. (Mar. 2012);
ABA (Keating); BoA; ICI (Feb. 2012); JPMC; (requesting clarification
that registered investment companies are not banking entities); TCW.
---------------------------------------------------------------------------

    Commenters also requested that the final rule exclude from the
definition of covered fund entities formed to establish registered
investment companies during the seeding period. These commenters
contended that, during the early stages of forming and seeding a
registered investment company, an entity relying on section 3(c)(1) or
(3)(c)(7) may be created to facilitate the development of a track
record for the registered investment company so that it may be marketed
to unaffiliated investors.\1729\
---------------------------------------------------------------------------

    \1729\ See ICI (Feb. 2012); TCW.
---------------------------------------------------------------------------

    The Agencies did not intend to include registered investment
companies and business development companies as covered funds under the
proposal. Section 13's definition of private equity fund and hedge fund
by reference to section 3(c)(1) and 3(c)(7) of the Investment Company
Act appears to reflect Congress' concerns about banking entities'
exposure to and relationships with investment funds that explicitly are
excluded from SEC regulation as investment companies. The Agencies do
not believe it would be appropriate to treat as a covered fund
registered investment companies and business development companies,
which are regulated by the SEC as investment companies. The Agencies
believe that the proposed rule's inclusion of commodity pools would
have resulted in some registered investment companies and business
development companies being covered

funds, a result the Agencies did not intend. The Agencies, in addition
to narrowing the commodity pools that will be included as covered funds
as discussed above, have also modified the final rule to exclude SEC-
registered investment companies and business development companies from
the definition of covered fund.\1730\
---------------------------------------------------------------------------

    \1730\ See final rule Sec.  ----.10(c)(12).
---------------------------------------------------------------------------

    The Agencies also recognize that an entity that becomes a
registered investment company or business development company might,
during its seeding period, rely on section 3(c)(1) or 3(c)(7). The
Agencies have determined to exclude these seeding vehicles from the
covered fund definition for the same reasons the Agencies determined to
exclude entities that are operating as registered investment companies
or business development companies as discussed in more detail below in
Part IV.B.1.c.12 of this SUPPLEMENTARY INFORMATION.
    The Agencies also understand that registered investment companies
may establish and hold subsidiary entities that rely on section 3(c)(1)
or 3(c)(7) in order to trade in various financial instruments for the
registered investment company parent. If a registered investment
company were itself a banking entity, section 13 and the final rule
would prohibit the registered investment company from sponsoring or
investing in such an investment subsidiary. But a registered investment
company would only itself be a banking entity if it is an affiliate of
an insured depository institution. As explained in the proposal, a
registered investment company, such as a mutual fund or exchange traded
fund, or an entity that has made an effective election to be regulated
as a business development company, would not be an affiliate of a
banking entity for purposes of section 13 of that Act solely by virtue
of being advised, or organized, sponsored and managed by a banking
entity in accordance with the BHC Act (including section 13) and the
Board's Regulation Y.\1731\
---------------------------------------------------------------------------

    \1731\ See Joint Proposal, 76 FR 68,856.
---------------------------------------------------------------------------

    Under the BHC Act, an entity (including a registered investment
company) would generally be considered an affiliate of a banking
entity, and therefore a banking entity itself, if it controls, is
controlled by, or is under common control with an insured depository
institution.\1732\ Pursuant to the BHC Act, a company controls another
company if: (i) The company directly or indirectly or acting through
one or more other persons owns, controls, or has power to vote 25 per
cent or more of any class of voting securities of the company; (ii) the
company controls in any manner the election of a majority of the
directors of trustees of the other company; or (iii) the Board
determines, after notice and opportunity for hearing, that the company
directly or indirectly exercises a controlling influence over the
management or policies of the company.\1733\
---------------------------------------------------------------------------

    \1732\ See final rule Sec.  ----.2(a) (defining ``affiliate''
for purposes of the final rule).
    \1733\ See 12 U.S.C. 1841(a)(2); 12 CFR 225.2(e).
---------------------------------------------------------------------------

    The Board's regulations and orders have long recognized that a bank
holding company may organize, sponsor, and manage a mutual fund such as
a registered investment company, including by serving as investment
adviser to registered investment company, without controlling the
registered investment company for purposes of the BHC Act.\1734\ For
example, the Board has permitted a bank holding company to own up to 5
percent of the voting shares of a registered investment company for
which the bank holding company provides investment advisory,
administrative, and other services, and has a number of director and
officer interlocks, without finding that the bank holding company
controls the fund.\1735\ The Board has also permitted a bank holding
company to own less than 25 percent of the voting shares of a
registered investment company and provide similar services without
finding that the bank holding company controls the fund, so long as the
fund limits its investments to those permissible for the holding
company to make itself.\1736\
---------------------------------------------------------------------------

    \1734\ See, e.g., 12 CFR 211.10(a)(11); 225.28(b)(6)(i);
225.86(b)(3); Unicredito, 86 Fed. Res. Bull. 825 (2000); Societe
Generale, 84 Fed. Res. Bull. 680 (1998); Commerzbank AG, 83 Fed.
Res. Bull. 678 (1997); The Governor and Company of the Bank of
Ireland, 82 Fed. Res. Bull. 1129 (1996); Mellon Bank Corp., 79 Fed.
Res. Bull. 626 (1993); Bayerische Vereinsbank AG, 73 Fed. Res. Bull.
155 (1987).
    \1735\ See, e.g., Societe Generale, 84 Fed. Res. Bull. 680
(1998) (finding that a bank holding company does not control a
mutual fund for which it holds up to 5 percent of the voting shares
and also provides investment advisory, administrative and other
services, has directors or employees who comprise less than 25
percent of the board of directors of the fund (including the
chairman of the board), and has three senior officer interlocks and
a number of junior officer interlocks).
    \1736\ See letter dated June 24, 1999, to H. Rodgin Cohen, Esq.,
Sullivan & Cromwell (First Union Corp.), from Jennifer J. Johnson,
Secretary of the Board of Governors of the Federal Reserve System
(finding that a bank holding company does not control a mutual fund
for which it provides investment advisory and other services and
that complies with the limitations of section 4(c)(7) of the BHC Act
(12 U.S.C. 1843(c)(7)), so long as (i) the bank holding company
reduces its interest in the fund to less than 25 percent of the
fund's voting shares after a six-month period, and (ii) a majority
of the fund's directors are independent of the bank holding company
and the bank holding company cannot select a majority of the board)
(``First Union Letter''); H.R. Rep. No. 106-434 at 153 (1999) (Conf.
Rep.) (noting that the Act permits a financial holding company to
sponsor and distribute all types of mutual funds and investment
companies); See also 12 U.S.C. 1843(k)(1), (6).
---------------------------------------------------------------------------

    The BHC Act, as amended by the Gramm-Leach-Bliley Act, and the
Board's Regulation Y authorize a bank holding company that qualifies as
a financial holding company to engage in a broader set of activities,
and to have a broader range of relationships or investments with
entities, than bank holding companies.\1737\ For instance, a financial
holding company may engage in, or acquire shares of any company engaged
in, any activity that is financial in nature or incidental to such
financial activity, including any activity that a bank holding company
is permitted to engage in or acquire by regulation or order.\1738\ In
light of the foregoing, for purposes of section 13 of the BHC Act a
financial holding company may own more than 5 percent (and less than 25
percent) of the voting shares of a registered investment company for
which the holding company provides investment advisory, administrative,
and other services and has a number of director and officer interlocks,
without controlling the fund for purposes of the BHC Act.\1739\
---------------------------------------------------------------------------

    \1737\ See, e.g., H.R. Rep. No. 106-434 at 153 (1999) (Conf.
Rep.) (noting that the Act permits a financial holding company to
sponsor and distribute all types of mutual funds and investment
companies).
    \1738\ See 12 U.S.C. 1843(k)(1); 12 CFR 225.86.
    \1739\ See First Union Letter (June 24, 1999); See also 12 CFR
225.86(b)(3) (authorizing a financial holding company to organize,
sponsor, and manage a mutual fund so long as (i) the fund does not
exercise managerial control over the entities in which the fund
invests, and (ii) the financial holding company reduces its
ownership in the fund, if any, to less than 25 percent of the equity
of the fund within one year of sponsoring the fund or such
additional period as the Board permits).
---------------------------------------------------------------------------

    So long as a bank holding company or financial holding company
complies with these limitations, it would not, absent other facts and
circumstances, control a registered investment company and the
registered investment company for purposes of section 13 (and any
subsidiary thereof) would not itself be a banking entity subject to the
restrictions of section 13 of the BHC Act and any final implementing
rules (unless the registered investment company itself otherwise
controls an insured depository institution). Also consistent with the
Board's precedent regarding bank holding company control of and
relationships with funds, a seeding vehicle that will become a
registered investment company or SEC-regulated business development

company would not itself be viewed as violating the requirements of
section 13 during the seeding period so long as the banking entity that
establishes the seeding vehicle operates the vehicle pursuant to a
written plan, developed in accordance with the banking entity's
compliance program, that reflects the banking entity's determination
that the vehicle will become a registered investment company or SEC-
regulated business development company within the time period provided
by section 13(d)(4) and Sec.  ----.12 for seeding a covered fund.\1740\
---------------------------------------------------------------------------

    \1740\ See final rule Sec. Sec.  ----.10(c)(12) and ----.20(e).
Under the final rule, these Seeding vehicles also must comply with
the limitations on leverage under the Investment Company Act that
apply to registered investment companies and SEC-regulated business
development companies. See final rule Sec.  ----.10(c)(12).
---------------------------------------------------------------------------

c. Entities Excluded From Definition of Covered Fund
    As noted above, the final rule excludes a number of entities from
the definition of covered fund.\1741\ As discussed in more detail
below, these exclusions more effectively tailor the definition of
covered fund to those types of entities that section 13 was designed to
focus on. The exclusions thus are designed to provide certainty,
mitigate compliance costs and other burdens, and address the potential
over-breadth of the covered fund definition and related requirements
without such exclusions by permitting banking entities to invest in and
have other relationships with entities that do not relate to the
statutory purpose of section 13. These exclusions, described in more
detail below, take account of information provided by many commenters
regarding entities that would likely be included within the proposed
definition of a covered fund, but that are not traditionally thought of
as hedge funds or private equity funds.\1742\ Finally, the Agencies
note that providing exclusions from the covered fund definition, rather
than providing permitted activity exemptions as proposed in some cases,
aligns the final rule with the statute in applying the restrictions
imposed by section 13(f) on transactions with covered funds only to
transactions with issuers that are defined as covered funds and thus
raise the concerns section 13 was designed to address.
---------------------------------------------------------------------------

    \1741\ See final rule Sec.  ----.10(c).
    \1742\ See 156 Cong. Rec. H5226 (daily ed. June 30, 2010)
(statement of Reps. Himes and Frank) (noting intent that
subsidiaries or joint ventures not be included within the definition
of covered fund); 156 Cong. Rec. S5904-05 (daily ed. July 15, 2010)
(statement of Sens. Boxer and Dodd) (noting broad definition of
hedge fund and private equity fund and recommending that the
Agencies take steps to ensure definition is reasonably tailored);
See also FSOC study at 61-63.
---------------------------------------------------------------------------

    The Agencies recognize, however, that the final rule's definition
of covered fund does not include certain pooled investment vehicles.
For example, the definition of covered fund excludes business
development companies, entities that rely on section 3(c)(5)(C),
3(c)(3), or 3(c)(11) of the Investment Company Act, and certain foreign
public funds that are subject to home-country regulation. The Agencies
expect that the types of pooled investment vehicles sponsored by the
financial services industry will continue to evolve, including in
response to the final rule, and the Agencies will be monitoring this
evolution to determine whether excluding these and other types of
entities remains appropriate. The Agencies will also monitor use of the
exclusions for attempts to evade the requirements of section 13 and
intend to use their authority where appropriate to prevent evasions of
the rule.
1. Foreign Public Funds
    As discussed above, under the proposal a covered fund was defined
to include the foreign equivalent of any covered fund in order to
address the potential for circumvention. Many commenters argued that
the proposed definition could capture non-U.S. public retail funds,
such as UCITS.\1743\ These commenters contended that non-U.S. public
retail funds should be excluded from the definition of covered fund
because they are regulated in their home jurisdiction; commenters noted
that similar funds registered in the United States, such as mutual
funds, are not covered funds.\1744\
---------------------------------------------------------------------------

    \1743\ As discussed above, the proposed rule generally included
in the covered fund definition a foreign fund that, were it
organized or offered under the laws of the United States or offered
to U.S. residents, would meet the definition of a domestic covered
fund (i.e., would need to rely section 3(c)(1) or 3(c)(7) of the
Investment Company Act). Many commenters argued that this definition
is too broad and could include as covered funds various types of
foreign funds, like UCITS, that commenters argued should not be
included. See, e.g., JPMC; BlackRock.
    \1744\ See SIFMA et al. (Covered Funds) (Feb. 2012); Hong Kong
Inv. Funds Ass'n.; UBS; ICI Global; BlackRock; TCW; State Street
(Feb. 2012); SSgA (Feb. 2012); IAA; JPMC; Goldman (Covered Funds);
BoA; Credit Suisse (Williams); BNY Mellon, et al.; Union Asset;
EFAMA; BVI; IRSG, SEB; IIB/EBF; GE (Feb. 2012) (commenting on the
overbreadth of the definition because of the effect on foreign
issuers of asset-backed securities); Allen & Overy (on behalf of
Foreign Bank Group).
---------------------------------------------------------------------------

    Some commenters were concerned that the proposed definition could
inadvertently capture exchange-traded funds trading in foreign
jurisdictions,\1745\ separate accounts set up to fund foreign pension
plans,\1746\ non-U.S. issuers of asset-backed securities,\1747\ and
non-U.S. regulated funds specifically designed for institutional
investors.\1748\ Commenters also provided several potential effects of
capturing foreign public funds under the covered fund definition: U.S.
banking entities would incur unnecessary and substantial costs to
rebrand and restructure their non-U.S. regulated funds,\1749\ banking
entities could be eliminated from the potential pool of counterparties,
thereby affecting pricing and efficiency,\1750\ U.S. banking entities
may exit the UCITS market and lose competitiveness,\1751\ the growth of
mutual fund formation in foreign countries could be limited,\1752\ and
market liquidity in foreign jurisdictions could be impaired.\1753\
---------------------------------------------------------------------------

    \1745\ See BlackRock; Vanguard.
    \1746\ See BlackRock.
    \1747\ See ASF (Feb. 2012).
    \1748\ See Union Asset; EFAMA; BVI.
    \1749\ See Goldman (Covered Funds).
    \1750\ See AFMA.
    \1751\ See BoA.
    \1752\ See BVI.
    \1753\ See Goldman (Covered Funds).
    See AFMA.
    See BoA.
---------------------------------------------------------------------------

    Some commenters supported excluding any foreign public fund that is
organized or formed under non-U.S. law, authorized for public sale in
the jurisdiction in which it is organized or formed, and regulated as a
public investment company in that jurisdiction.\1754\ In light of the
proposal's broad definition of covered fund, some commenters
recommended explicitly excluding non-U.S. regulated funds based on
characteristics to distinguish the foreign funds that should be treated
as covered funds.\1755\ Several commenters recommended excluding non-
U.S. funds based upon whether the funds are subject to a regulatory
framework comparable to that which is imposed on SEC-registered
funds;\1756\ one commenter specifically identified European UCITS,
Canadian mutual funds, Australian unit trusts, and Japanese investment
trusts as examples of regulated funds to be excluded.\1757\
---------------------------------------------------------------------------

    \1754\ See ICI Global; ICI (Feb. 2012); SSgA (Feb. 2012); BNY
Mellon et al.
    \1755\ See UBS; ICI Global; ICI (Feb. 2012); Allen & Overy (on
behalf of Foreign Bank Group); T. Rowe Price; HSBC Life; Union
Asset; EFAMA; BVI; EBF; Hong Kong Inv. Funds Ass'n.; IMA; Ass'n. of
Institutional Investors (Feb. 2012); Katten (on behalf of Int'l
Clients); Credit Suisse (Williams).
    \1756\ See T. Rowe Price; Credit Suisse (Williams); SSgA (Feb.
2012); BNY Mellon et al.
    \1757\ See T. Rowe Price.
---------------------------------------------------------------------------

    To address these concerns, the final rule generally excludes from
the definition of covered fund any issuer

that is organized or established outside of the United States and the
ownership interests of which are authorized to be offered and sold to
retail investors in the issuer's home jurisdiction and are sold
predominantly through one or more public offerings outside of the
United States.\1758\ Foreign funds that meet these requirements will
not be covered funds, except that an additional condition applies to
U.S. banking entities\1759\ with respect to the foreign public funds
they sponsor. The foreign public fund exclusion is only available to a
U.S. banking entity with respect to a foreign fund sponsored by the
U.S. banking entity if, in addition to the requirements discussed
above, the fund's ownership interests are sold predominantly to persons
other than the sponsoring banking entity, affiliates of the issuer and
the sponsoring banking entity, and employees and directors of such
entities.
---------------------------------------------------------------------------

    \1758\ See final rule Sec.  ----.10(c)(1).
    \1759\ Although the discussion of this condition generally
refers to U.S. banking entities for ease of reading, the condition
also applies to foreign affiliates of a U.S. banking entity. See
final rule Sec.  ----.10(c)(1)(ii) (applying this limitation
``[w]ith respect to a banking entity that is, or is controlled
directly or indirectly by a banking entity that is, located in or
organized under the laws of the United States or of any State and
any issuer for which such banking entity acts as sponsor'').
---------------------------------------------------------------------------

    For purposes of this exclusion, the Agencies note that the
reference to retail investors, while not defined, should be construed
to refer to members of the general public who do not possess the level
of sophistication and investment experience typically found among
institutional investors, professional investors or high net worth
investors who may be permitted to invest in complex investments or
private placements in various jurisdictions. Retail investors would
therefore be expected to be entitled to the full protection of
securities laws in the home jurisdiction of the fund, and the Agencies
would expect a fund authorized to sell ownership interests to such
retail investors to be of a type that is more similar to a U.S.
registered investment company rather than to a U.S. covered fund.
    In order to help maintain this distinction and to avoid
circumstances that could result in an evasion of section 13 and the
final rule, the ownership interests of the fund must be sold
predominantly in one or more public offerings outside of the United
States to qualify for the exclusion. Given this restriction, a U.S.
banking entity therefore could not rely on this exclusion to set up a
foreign public fund for the purpose of selling a significant amount of
ownership interests in the fund through one or more offerings conducted
on an unregistered basis (whether in a foreign jurisdiction or in the
United States). The Agencies generally expect that an offering is made
predominantly outside of the United States if 85 percent or more of the
fund's interests are sold to investors that are not residents of the
United States.
    The requirements that a foreign public fund both be authorized for
sale to retail investors and sold predominantly in public offerings
outside of the United States are based in part on the Agencies' view
that foreign funds that meet these requirements generally will be
sufficiently similar to U.S. registered investment companies such that
it is appropriate to exclude these foreign funds from the covered fund
definition. A foreign fund authorized for sale to retail investors that
is also publicly offered may, for example, provide greater information
than funds that are sold through private offerings like funds that rely
on section 3(c)(1) or 3(c)(7). Such foreign funds also may be subject
to various restrictions, as deemed appropriate by foreign regulators in
light of local conditions and practices, that exceed those applicable
to privately offered funds. Foreign regulators may apply these or other
enhanced restrictions or other requirements to funds that are offered
on a broad basis to the general public for the protection of investors
in those jurisdictions.
    A foreign fund that purports to publicly offer its shares but in
fact offers them on a more limited basis, however, may be less likely
to resemble a registered investment company in these and other
respects. In order to limit the foreign public fund exclusion to funds
that publicly offer their shares on a sufficiently broad basis, the
final rule defines the term ``public offering'' for purposes of this
exclusion to mean a ``distribution'' (as defined in Sec.  ----.4(a)(3)
of subpart B) of securities in any jurisdiction outside the United
States to investors, including retail investors, provided that (i) the
distribution complies with all applicable requirements in the
jurisdiction in which such distribution is being made; (ii) the
distribution does not restrict availability to investors having a
minimum level of net worth or net investment assets; and (iii) the
issuer has filed or submitted, with the appropriate regulatory
authority in such jurisdiction, offering disclosure documents that are
publicly available.\1760\
---------------------------------------------------------------------------

    \1760\ See final rule Sec.  ----.10(c)(1)(iii).
---------------------------------------------------------------------------

    Under the final rule, therefore, a foreign fund's distribution
would not be a public offering for purposes of the foreign public fund
exclusion if the distribution imposes investor restrictions based on a
required minimum level of net worth or net investment assets. This
would not be affected by any suitability requirements that may be
imposed under applicable local law. In addition, the final rule
requires that, in connection with a public offering by a foreign public
fund, the offering disclosure documents must be ``publicly available.''
This requirement will provide assurance regarding the transparency for
such an offering and will generally be satisfied where the documents
are made accessible to all persons in such jurisdiction. Disclosure
documents may be made publicly available in a variety of means, such as
through a public filing with a regulatory agency or through a Web site
that provides broad accessibility to persons in such jurisdiction.
    In addition and as discussed above, the final rule also places an
additional condition on a U.S. banking entity's ability to rely on the
foreign public fund exclusion with respect to the foreign public funds
it sponsors. For a U.S. banking entity to rely on the foreign public
fund exclusion with respect to a foreign public fund it sponsors, the
ownership interests in the fund must be sold predominantly to persons
other than the sponsoring U.S. banking entity and certain persons
connected to that banking entity. Consistent with the Agencies' view
concerning whether a foreign public fund has been sold predominantly
outside of the United States, the Agencies generally expect that a
foreign public fund will satisfy this additional condition if 85
percent or more of the fund's interests are sold to persons other than
the sponsoring U.S. banking entity and certain persons connected to
that banking entity.
    This additional condition reflects the Agencies' view that the
foreign public fund exclusion is designed to treat foreign public funds
consistently with similar U.S. funds and to limit the extraterritorial
application of section 13 of the BHC Act, including by permitting U.S.
banking entities and their foreign affiliates to carry on traditional
asset management businesses outside of the United States. The exclusion
is not intended to permit a U.S. banking entity to establish a foreign
fund for the purpose of investing in the fund as a means of avoiding
the restrictions imposed by section 13. Permitting a U.S. banking
entity to invest in a foreign public fund under this exclusion only

when that fund is sold predominantly to persons other than the
sponsoring U.S. banking entity and certain persons connected to that
banking entity permits U.S. banking entities to continue their asset
management businesses outside of the United States while also limiting
the opportunity for evasion of section 13 as discussed below.
    This additional condition only applies to U.S. banking entities
with respect to the foreign public funds they sponsor because the
Agencies believe that a foreign public fund sponsored by a U.S. banking
entity may present heightened risks of evasion. Absent the additional
condition, a U.S. banking entity could establish a foreign public fund
for the purpose of itself investing substantially in that fund and,
through the fund, making investments that the banking entity could not
make directly under section 13. The Agencies believe it is less likely
that a U.S. banking entity effectively could evade section 13 by
investing in third-party foreign public funds that the banking entity
does not sponsor. In those cases it is less likely that the U.S.
banking entity would be able to control the investments of the fund,
and the fund thus likely would be a less effective means for the
banking entity to engage in proprietary trading through the fund. The
Agencies therefore have declined to apply this additional condition
with respect to any foreign public fund in which a U.S. banking entity
invests but does not act as sponsor.
    The Agencies note that the foreign public fund exclusion is not
intended to permit a banking entity to sponsor a foreign fund for the
purpose of selling ownership interests to any banking entity
(affiliated or unaffiliated) that is, or is controlled directly or
indirectly by a banking entity that is, located in or organized under
the laws of the United States or of any State (or to a limited group of
such banking entities). The Agencies intend to monitor banking
entities' investments in foreign public funds to ensure that banking
entities do not use the exclusion for foreign public funds in a manner
that functions as an evasion of section 13 in this or any other way.
The Agencies expect that one area of focus for such monitoring would be
significant investments in a foreign public fund, including a fund that
is unaffiliated with any banking entity located in or organized under
the laws of the United States or of any State, where such investments
represent a substantial percentage of the ownership interests in such
fund.
    In order to conduct this monitoring more effectively, the Agencies
also are adopting certain documentation requirements concerning U.S.
banking entities' investments in foreign public funds, as discussed in
more detail below in Part IV.C.1 of this SUPPLEMENTARY INFORMATION.
Under the final rule, a U.S. banking entity with more than $10 billion
in total consolidated assets will be required to document its
investments in foreign public funds, broken out by each foreign public
fund and each foreign jurisdiction in which any foreign public fund is
organized, if the U.S. banking entity and its affiliates' ownership
interests in foreign public funds exceed $50 million at the end of two
or more consecutive calendar quarters. This requirement thus is
tailored to apply only to U.S. banking entities above a certain size
that also have substantial investments in foreign public funds.\1761\
The Agencies believe this approach appropriately balances the Agencies'
evasion concerns and the burdens that documentation requirements
impose.
---------------------------------------------------------------------------

    \1761\ See final rule Sec.  ----.20(e).
---------------------------------------------------------------------------

    For all of the reasons discussed above, the Agencies believe that
the final rule's approach to foreign public funds is consistent with
the final rule's exclusion of registered or otherwise exempt (without
reliance on the exemptions in section 3(c)(1) or 3(c)(7)) funds in the
United States. It also limits the extraterritorial application of
section 13 of the BHC Act and reduces the potential economic and other
burdens commenters argued would result for banking entities. The
Agencies believe that this exclusion represents an appropriate
balancing of considerations that should not significantly increase the
risks to the U.S. financial system that section 13 was designed to
limit.
2. Wholly-Owned Subsidiaries
    Under the proposed rule, a banking entity would have been permitted
to invest in or sponsor a wholly-owned subsidiary that relies on the
exclusion contained in section 3(c)(1) or 3(c)(7) of the Investment
Company Act to avoid being an investment company under that Act if the
subsidiary was carried on the balance sheet of its parent and was
engaged principally in performing bona fide liquidity management
activities.\1762\
---------------------------------------------------------------------------

    \1762\ See proposed rule Sec.  ----.14(a)(2)(iv); Joint
Proposal, 76 FR 68,913.
---------------------------------------------------------------------------

    Commenters argued that, instead of providing a permitted activity
exemption for banking entities to invest in or sponsor certain wholly-
owned subsidiaries as proposed, all wholly-owned subsidiaries should be
excluded from the definition of covered fund under the final rule
because wholly-owned subsidiaries are typically used for organizational
convenience and generally do not have the characteristics, risks, or
purpose of a hedge fund or private equity fund, which involves
unaffiliated investors owning interests in the structure for the
purpose of sharing in the profits and losses from investment
activities.\1763\ Commenters explained that publicly traded companies
often establish wholly-owned intermediate companies for the purpose of
holding securities of operating entities or other corporate vehicles
necessary to the business of the entity. Because these intermediate
companies invest entirely (or substantially) in the securities of other
entities, these intermediate companies may be investment companies for
purposes of the Investment Company Act but for the exclusion provided
by section 3(c)(1) or 3(c)(7) of the Investment Company Act.\1764\
---------------------------------------------------------------------------

    \1763\ See, e.g., SIFMA et al. (Covered Funds) (Feb. 2012),
JPMC; Goldman (Covered Funds), NAIB et al.; GE (Feb. 2012); BoA;
Chamber (Feb. 2012); Wells Fargo (Covered Funds); ABA (Keating);
Ass'n. of Institutional Investors (Feb. 2012); Credit Suisse
(Williams); Rep. Himes; BOK.
    \1764\ See 15 U.S.C. 80a-3(a)(1)(A) & (C).
---------------------------------------------------------------------------

    Commenters contended that requiring banking entities to divest
their interests in wholly-owned subsidiaries and cease certain
intercompany transactions would have a material adverse effect on the
safety, soundness, efficiency and stability of the U.S. and global
financial systems, which could in turn have a material adverse effect
on the wider economy in terms of reduced credit, increased unemployment
and reduced output.\1765\ Commenters also argued that an exclusion for
wholly-owned subsidiaries is necessary in order to avoid a conflict
with other important requirements in the Dodd-Frank Act. For example,
commenters alleged that including wholly-owned subsidiaries within the
definition of covered fund for purposes of section 13 would create a
conflict with the requirement that a banking entity that is a bank
holding company serve as a source of strength to its subsidiaries
because the prohibition in section 13(f) on transactions between a
banking entity and covered funds owned or sponsored by the banking
entity would effectively prohibit the banking entity from providing
financial resources to wholly-owned intermediate holding companies and
their subsidiaries.\1766\ Other commenters argued that banking entities
would bear extensive compliance costs and operational burdens and
likely would be

restricted from structuring themselves effectively.\1767\
---------------------------------------------------------------------------

    \1765\ See, e.g., SIFMA et al. (Covered Funds) (Feb. 2012).
    \1766\ See SIFMA et al. (Covered Funds) (Feb. 2012); BoA; Rep.
Himes.
    \1767\ See, e.g., Goldman (Covered Funds); BoA.
---------------------------------------------------------------------------

    Commenters proposed several alternatives to address these concerns.
For instance, commenters recommended that the final rule exclude all
wholly-owned subsidiaries from the definition of covered fund.\1768\
Commenters also urged that the final rule include ownership interests
held by employees of a banking entity with any ownership interests held
directly by the banking entity for purposes of qualifying for any
exclusion granted by the rule for wholly-owned subsidiaries.\1769\
Another commenter recommended the exclusion of subsidiaries, wholly
owned or not, that engage in bona fide liquidity management.\1770\
---------------------------------------------------------------------------

    \1768\ See Rep. Himes; Fin. Services Roundtable (June 14, 2011);
SIFMA et al. (Covered Funds) (Feb. 2012); BOK; Chamber (Feb. 2012);
ABA (Keating); GE (Feb. 2012); Wells Fargo (Covered Funds); Goldman
(Covered Funds); Ass'n. of Institutional Investors (Feb. 2012); BoA;
NAIB et al.
    \1769\ See Wells Fargo (Covered Funds); Credit Suisse
(Williams).
    \1770\ See Credit Suisse (Williams).
---------------------------------------------------------------------------

    In light of these comments and consistent with the purposes of
section 13 and the terms of the Dodd-Frank Act as discussed in more
detail above, the Agencies have revised the final rule to exclude
wholly-owned subsidiaries from the definition of covered fund,
including those not engaged in liquidity management.\1771\ A wholly-
owned subsidiary, as defined in the final rule, is an entity, all of
the outstanding ownership interests of which are owned directly or
indirectly by the banking entity (or an affiliate thereof), except that
(i) up to five percent of the entity's ownership interests may be owned
by directors, employees, and certain former directors and employees of
the banking entity (or an affiliate thereof); and (ii) within the five
percent ownership interests described in clause (i), up to 0.5 percent
of the entity's outstanding ownership interests may be held by a third
party if the ownership interest is held by the third party for the
purpose of establishing corporate separateness or addressing
bankruptcy, insolvency, or similar concerns.\1772\
---------------------------------------------------------------------------

    \1771\ Although not a condition of the exclusion, banking
entities may use wholly-owned subsidiaries to engage in bona fide
liquidity management. As discussed below, however, a wholly-owned
subsidiary is itself a banking entity, and thus is subject to all of
the requirements that apply to banking entities, including the
requirements applicable to a banking entity's liquidity management
activities under Sec.  ----.3(d)(3).
    \1772\ See final rule Sec.  ----.10(c)(2).
---------------------------------------------------------------------------

    Although the final rule includes ownership interests held by
certain former directors and employees for purposes of qualifying for
the exclusion, the exclusion requires that an interest held by a former
(or current) director or employee must actually be held by that person
(or by the banking entity) and must have been acquired while employed
by or in the service of the banking entity. For example, if a former
employee subsequently transfers his/her interest to a third party
(other than to immediate family members of the employee or through
intestacy of the employee), then the ownership interest would no longer
be held by the banking entity or persons whose ownership interests may
be aggregated with interests held by the banking entity for purposes of
the exclusion for wholly-owned subsidiaries under the final rule.
    The final rule also permits up to 0.5 percent of the ownership
interest of a wholly-owned subsidiary to be held by a third party if
the interest is held by the third party for the purpose of establishing
corporate separateness or addressing bankruptcy, insolvency, or similar
concerns, and the ownership interest is included when calculating the
five percent cap on employee and director ownership. The Agencies
understand that it is often important, or in certain circumstances
required, under the laws of various jurisdictions for a parent company
to establish corporate separation of a subsidiary through the issuance
of a small amount of ownership interest to a third party.
    The Agencies believe that permitting limited employee and director
ownership of a vehicle and accommodating the foreign law requirements
discussed above is consistent with a vehicle's treatment as a wholly-
owned subsidiary. Under the final rule, the banking entity (or an
affiliate thereof) will control the vehicle because it must, as
principal, own at least 95% of the vehicle.\1773\ These conditions are
designed to exclude from the covered fund definition vehicles that are
formed for corporate and organizational convenience, as discussed
above, and that thus do not engage in the investment activities
prohibited by section 13. The exclusion also should reduce the
disruption to the operations of banking entities that commenters
asserted would result from the proposed rule.\1774\
---------------------------------------------------------------------------

    \1773\ Cf. Section 2(a)(43) of the Investment Company Act
(defining a ``wholly-owned subsidiary'' of a person to mean ``a
company 95 per centum or more of the outstanding voting securities
of which are owned by such person, or by a company which, within the
meaning of this paragraph, is a wholly-owned subsidiary of such
person'').
    \1774\ The Agencies also note that depositors for asset-backed
securities offerings are important to the process of securitization.
See, e.g., ASF (July 2012) (noting that a depositor, as used in a
securitization structure, is an entity that generally acts only as a
conduit to transfer the loans from the originating bank to the
issuing entity for the purpose of facilitating a securitization
transaction and engages in no discretionary investment or securities
issuance activities). See also, Rule 191 under the Securities Act of
1933 (17 CFR 230.191) (depositor as issuer for registered asset-
backed securities offerings). Commenters raised a question about the
treatment of depositors under the Investment Company Act, and
therefore, whether they would technically fall within the definition
of covered fund. See ASF (July 2012); GE (Aug. 2012). For purposes
of the covered fund prohibitions, the Agencies note that depositors
may fall within the wholly-owned subsidiary exclusion from the
covered fund definition.
---------------------------------------------------------------------------

    Importantly, the Agencies note that a wholly-owned subsidiary of a
banking entity--although excluded from the definition of covered fund--
still would itself be a banking entity, and therefore remain subject to
the prohibitions and other provisions of section 13 of the BHC Act and
the final rule.\1775\ Accordingly, a wholly-owned subsidiary of a
banking entity would remain subject to the restrictions of section 13
and the final rule (including the ban on proprietary trading) and may
not engage in activity in violation of the prohibitions of section 13
and the final rule.
---------------------------------------------------------------------------

    \1775\ See 12 U.S.C. 1851(h)(1) (defining banking entity to
include any affiliate or subsidiary of a banking entity).
---------------------------------------------------------------------------

3. Joint Ventures
    The proposed rule would have permitted a banking entity to invest
in or manage a joint venture between the banking entity and any other
person, provided that the joint venture was an operating company and
did not engage in any activity or any investment not permitted under
the proposed rule. As noted in the proposal, many joint ventures rely
on the exclusion contained in section 3(c)(1) or 3(c)(7) of the
Investment Company Act.\1776\ Joint ventures are a common form of
business, especially for firms seeking to enter new lines of business
or new markets, or seeking to share complementary business expertise.
---------------------------------------------------------------------------

    \1776\ See Joint Proposal, 76 FR 68,913.
---------------------------------------------------------------------------

    Commenters supported this aspect of the proposal and argued that
joint ventures do not share the same characteristics as a hedge fund or
private equity fund. However, they expressed concern that joint
ventures were defined too narrowly under the proposal because the
exclusion was limited to joint ventures that were operating
companies.\1777\ Some

commenters criticized the lack of guidance regarding the meaning of
operating company.\1778\ One commenter proposed defining operating
company as any company engaged in activities that are permissible for a
financial holding company under sections 3 or 4 of the BHC Act, other
than a company engaged exclusively in investing in securities of other
companies for resale or other disposition.\1779\
---------------------------------------------------------------------------

    \1777\ See, e.g., ABA (Keating); Chamber (Feb. 2012); SIFMA et
al. (Covered Funds) (Feb. 2012); GE (Aug. 2012); Goldman (Covered
Funds); NAIB et al.; Rep Himes; Sen. Bennet; See also 156 Cong Rec.
H5226 (daily ed. June 30, 2010) (statement of Rep. Himes).
    \1778\ See, e.g., ABA (Keating); NAIB et al.; GE (Aug. 2012);
Chamber (Feb. 2012); SIFMA et al. (Covered Funds) (Feb. 2012); Wells
Fargo (Covered Funds); Credit Suisse (Williams); Goldman (Covered
Funds).
    \1779\ See SIFMA et al. (Covered Funds) (Feb. 2012).
---------------------------------------------------------------------------

    Another commenter argued that joint ventures are often used to
share risk from non-performing loans, credit card receivables, consumer
loans, commercial real estate loans or automobile loans.\1780\
According to this commenter, these joint ventures, while not generally
viewed as operating companies, promote safety and soundness by allowing
a banking entity to limit the size of its exposure to permissible
investments or to more efficiently transfer the risk of existing assets
to a small number of partners. Commenters stated that banking entities
often employ similar types of non-operating company joint ventures to
engage in merchant banking activities or other permissible banking
activities, and that the final rule should not prevent a banking entity
from sharing the risk of a portfolio company investment with third
parties.\1781\ A number of commenters argued that treating joint
ventures as covered funds would create the same inconsistencies with
other provisions and principles embodied in the Dodd-Frank Act noted
for wholly-owned subsidiaries, were they to be treated as covered
funds.\1782\ Several commenters argued that the proposed exemption, as
drafted, was unworkable because it did not appear to provide an
exception to the intercompany limitations on transactions under section
13(f), which prohibits transactions between a banking entity and a
related covered fund.\1783\
---------------------------------------------------------------------------

    \1780\ See Goldman (Covered Funds).
    \1781\ See ABA (Keating); SIFMA et al. (Covered Funds) (Feb.
2012).
    \1782\ See SIFMA et al. (Covered Funds) (Feb. 2012); Goldman
(Covered Funds); ABA (Keating); Chamber (Feb. 2012).
    \1783\ See, e.g., SIFMA et al. (Covered Funds) (Feb. 2012);
Goldman (Covered Funds); ABA (Keating); GE (Feb. 2012); Chamber
(Feb. 2012).
---------------------------------------------------------------------------

    Commenters proposed several alternatives to address these issues.
Several commenters recommended that the final rule eliminate the
operating company condition under the proposed exemption.\1784\ Other
commenters recommended excluding joint ventures that have an
unspecified but limited number of partners (such as five or fewer joint
venture partners).\1785\ One commenter recommended excluding all
``controlled joint ventures'' but did not provide an explanation of how
to define that term.\1786\ Another commenter suggested defining a joint
venture in one of the following ways: (1) Any company with a limited
number of co-venturers that is managed pursuant to a shareholders'
agreement, as opposed to managed by a general partner; \1787\ or (2) a
joint venture in which: (a) There are a limited number of unaffiliated
partners; (b) the parties operate the venture on a joint basis or in
proportion to their relative ownership, including pursuant to a
shareholders' agreement; (c) material decisions are made by one party
(for example, a general partner); and (d) the joint venture does not
engage in any activity or investment not permitted under section 13,
other than activities or investments incidental to its permissible
business.\1788\
---------------------------------------------------------------------------

    \1784\ See SIFMA et al. (Covered Funds) (Feb. 2012); ABA
(Keating); Credit Suisse (Williams).
    \1785\ See SIFMA et al. (Covered Funds) (Feb. 2012); Credit
Suisse (Williams); GE (Feb. 2012).
    \1786\ See Goldman (Covered Funds).
    \1787\ See ABA (Keating); Credit Suisse (Williams); SIFMA et al.
(Covered Funds) (Feb. 2012); SIFMA et al. (Mar. 2012); See also GE
(Feb. 2012); NAIB et al.
    \1788\ See Goldman (Covered Funds).
---------------------------------------------------------------------------

    In response to commenter concerns, the final rule excludes joint
ventures from the definition of covered fund with some modifications
from the proposal to more clearly identify entities that are excluded.
Under the final rule, a joint venture is excluded from the definition
of covered fund if the joint venture is between the banking entity or
any of its affiliates and no more than 10 unaffiliated co-venturers, is
in the business of engaging in activities that are permissible for the
banking entity other than investing in securities for resale or other
disposition, and is not, and does not hold itself out as being, an
entity or arrangement that raises money from investors primarily for
the purpose of investing in securities for resale or other disposition
or otherwise trading in securities.\1789\ Banking entities, therefore,
will continue to be able to share the risk and cost of financing their
banking activities through these types of entities which, as noted by
commenters as discussed above, may allow banking entities to more
efficiently manage the risk of their operations.
---------------------------------------------------------------------------

    \1789\ See final rule Sec.  ----.10(c)(3).
---------------------------------------------------------------------------

    The Agencies have specified a limit on the number of joint venture
partners at the request of many commenters that suggested such a limit
be added (though typically without suggesting the specific number of
partners). The Agencies believe that a limit of 10 partners allows
flexibility in structuring larger business ventures without involving
such a large number of partners as to suggest the venture is in reality
a hedge fund or private equity fund established for investment
purposes. The Agencies will monitor joint ventures--and other excluded
entities--to ensure that they are not used by banking entities to evade
the provisions of section 13.
    The final rule's requirement that a joint venture not be an entity
or arrangement that raises money from investors primarily for the
purpose of investing in securities for resale or other disposition or
otherwise trading in securities prevents a banking entity from relying
on this exclusion to evade section 13 of the BHC Act by owning or
sponsoring what is or will become a covered fund. Consistent with this
restriction and to prevent evasion of section 13, a banking entity may
not use a joint venture to engage in merchant banking activities
because that involves acquiring or retaining shares, assets, or
ownership interests for the purpose of ultimate resale or disposition
of the investment.\1790\
---------------------------------------------------------------------------

    \1790\ See 12 U.S.C. 1843(k)(4)(H).
---------------------------------------------------------------------------

    As with wholly-owned subsidiaries, if a banking entity owns 25
percent or more of the voting securities of the joint venture or
otherwise controls an entity that qualifies for the joint venture
exclusion, the joint venture would then itself be a banking entity and
would remain subject to the restrictions of section 13 and the final
rule (including the ban on proprietary trading).
    The Agencies note that the statute defines banking entity to
include not only insured depository institutions and bank holding
companies, but also their affiliates. In the context of a company that
owns an insured depository institution but is not a bank holding
company or savings and loan holding company, the insured depository
institution's affiliates may engage in commercial activities
impermissible for banks and bank holding companies. However, section 13
of the BHC Act and the final rule do not authorize a banking entity to
engage in otherwise impermissible activities. Because of this, the
scope of activities in which a joint venture may engage under the final
rule will depend on the status and identity of its co-venturers. For
instance, a joint venture between a bank holding

company and unaffiliated companies may not engage in commercial
activities impermissible for a bank holding company.
4. Acquisition Vehicles
    Similar to wholly-owned subsidiaries and joint ventures, the
proposed rule would have permitted a banking entity to invest in or
sponsor an acquisition vehicle provided that the sole purpose and
effect of the acquisition vehicle was to effectuate a transaction
involving the acquisition or merger of an entity with or into the
banking entity or one of its affiliates. As noted in the proposal,
banking entities often form corporate vehicles for the purpose of
accomplishing a corporate merger or asset acquisition.\1791\ Because of
the way they are structured, acquisition vehicles may rely on section
3(c)(1) or 3(c)(7) of the Investment Company Act.\1792\
---------------------------------------------------------------------------

    \1791\ Cf. Joint Proposal, 76 FR 68,897.
    \1792\ See Joint Proposal, 76 FR 68,913; SIFMA et al. (Covered
Funds) (Feb. 2012).
---------------------------------------------------------------------------

    Commenters supported the exclusion of acquisition vehicles from the
restrictions governing covered funds, and argued that acquisition
vehicles do not share the same characteristics as a hedge fund or
private equity fund.\1793\ However, similar to concerns articulated
above with respect to wholly-owned subsidiaries and joint ventures,
commenters argued that the proposed rule, as drafted, left uncertain
how other provisions of section 13 would apply to these vehicles.\1794\
---------------------------------------------------------------------------

    \1793\ See, e.g., JPMC; SIFMA et al. (Covered Funds) (Feb.
2012); GE (Feb. 2012); Sen. Bennet; Sen. Carper et al.
    \1794\ See, e.g., SIFMA et al. (Covered Funds) (Feb. 2012);
JPMC; GE (Feb. 2012).
---------------------------------------------------------------------------

    In light of the comments, the final rule has been modified to
exclude acquisition vehicles from the definition of covered fund,
rather than provide a permitted activity exemption for banking entities
to invest in or sponsor the vehicles, so long as the vehicle is formed
solely for the purpose of engaging in a bona fide merger or acquisition
transaction and the vehicle exists only for such period as necessary to
effectuate the transaction.\1795\ The final rule thus reflects
modifications from the exemption for acquisition vehicles in the
proposal, which was available for acquisition vehicles where the sole
purpose and effect of the entity was to effectuate a transaction
involving the acquisition or merger of one entity with or into the
banking entity.\1796\ The Agencies modified the conditions in the final
rule, as discussed above, to more clearly reflect the limited
activities in which an excluded acquisition vehicle may engage and to
exclude acquisition vehicles from the definition of covered fund,
rather than only permit banking entities to invest in or sponsor them
pursuant to an exemption.
---------------------------------------------------------------------------

    \1795\ See final rule Sec.  ----.10(c)(4).
    \1796\ The proposed rule contained an exemption for investments
in acquisition vehicles, provided that the ``the sole purpose and
effect of such entity is to effectuate a transaction involving the
acquisition or merger of one entity with or into the covered banking
entity or one of its affiliates.'' See proposed rule Sec.  --
--.14(a)(2)(ii). The final rule excludes an acquisition vehicle,
which is defined as an issuer that is ``[f]ormed solely for the
purpose of engaging in a bona fide merger or acquisition
transaction'' and that ``exists only for such period as necessary to
effectuate the transaction.'' See final rule Sec.  ----.10(c)(4).
---------------------------------------------------------------------------

    The Agencies also note that an acquisition vehicle that survives a
transaction would likely be excluded from the definition of covered
fund under the separate exclusion for either joint ventures or wholly-
owned subsidiaries described above. An acquisition vehicle that is
controlled by a banking entity would be a banking entity itself and
would be subject to the restrictions of section 13 and the final rule
that apply to a banking entity.
5. Foreign Pension or Retirement Funds
    Under the proposed rule, a foreign pension plan that relied on
section 3(c)(1) or 3(c)(7) of the Investment Company Act to avoid being
an investment company (or that was a commodity pool), would have been a
covered fund. Commenters argued that including pension funds within the
definition of covered fund would produce many unexpected results for
pension plans as well as plan participants.\1797\
---------------------------------------------------------------------------

    \1797\ As explained above, commenters also argued that a foreign
pension plan should not be considered a banking entity if the plan
is sponsored by a banking entity or is established for the benefit
of employees of the banking entity. If deemed a banking entity, the
pension plan could become subject to the limits on section 13 on
investing in covered funds. See Allen & Overy (on behalf of Canadian
Banks); Arnold & Porter; Credit Suisse (Williams). The final rule
addresses these comments with the exclusions described above.
---------------------------------------------------------------------------

    Commenters generally argued that foreign pension or retirement
funds are established by a foreign company or foreign sovereign for the
purpose of providing a specific group of foreign persons with income
during retirement or when they reach a certain age or meet certain
predetermined criteria and are typically eligible for preferential tax
treatment, and are not formed for the same purposes as hedge funds or
private equity funds.\1798\ Commenters argued that the definition of
covered fund should not include certain foreign pension or retirement
funds, including managed investment arrangements and wrap platforms,
such as so-called ``superannuation funds,'' that are managed by foreign
banks as part of providing retirement or pension schemes to foreign
citizens pursuant to foreign law and are generally not available for
sale to U.S. citizens. Commenters asserted that many foreign banking
entities act as sponsor to and organize and offer foreign pension funds
abroad as part of a foreign sovereign program to provide retirement,
pension, or similar benefits to its citizens or workforce.\1799\ These
commenters contended that a foreign pension plan might itself rely on
the exclusion in section 3(c)(1) or 3(c)(7) in order to avoid being an
investment company if it is offered to citizens of the foreign
sovereign present in the United States.\1800\
---------------------------------------------------------------------------

    \1798\ See, e.g., Allen & Overy (on behalf of Canadian Banks).
    \1799\ See Allen & Overy (on behalf of Canadian Banks); Arnold &
Porter; UBS; Hong Kong Inv. Funds Ass'n.
    \1800\ See Allen & Overy (on behalf of Canadian Banks); Arnold &
Porter; UBS; Hong Kong Inv. Funds Ass'n.; Credit Suisse (Williams).
---------------------------------------------------------------------------

    Several commenters argued that foreign pension and retirement plans
should be excluded from the definition of covered fund on the same
basis as U.S. pension and retirement funds that are ERISA-qualified
funds that rely on the exclusion from the definition of investment
company provided under section 3(c)(11) of the Investment Company
Act.\1801\ Commenters alleged that without an exclusion for foreign
pension or retirement funds, section 13 of the BHC Act would have an
extra-territorial effect on pension or retirement benefits abroad that
would be severe and beyond what was contemplated by section 13 of the
BHC Act.
---------------------------------------------------------------------------

    \1801\ See Arnold & Porter; UBS; Hong Kong Inv. Funds Ass'n.;
Credit Suisse (Williams).
---------------------------------------------------------------------------

    In light of comments received on the proposal, the final rule
excludes from the definition of covered fund a plan, fund, or program
providing pension, retirement, or similar benefits that is: (i)
Organized and administered outside of the United States; (ii) a broad-
based plan for employees or citizens that is subject to regulation as a
pension, retirement, or similar plan under the laws of the jurisdiction
in which the plan, fund, or program is organized and administered; and
(iii) established for the benefit of citizens or residents of one or
more foreign sovereign or any political subdivision thereof.\1802\ This
is similar to the treatment provided to U.S. pension funds by virtue of
the exclusion from the definition of investment company under the
Investment Company Act for certain broad-based

employee benefit plans provided by section 3(c)(11) of that Act. The
exclusion from the covered fund definition for foreign plans would be
available for bona fide plans established for the benefit of employees
or citizens outside the U.S. even if some of the beneficiaries of the
fund reside in the U.S. or subsequently become U.S. residents.
---------------------------------------------------------------------------

    \1802\ See final rule Sec.  ----.10(c)(5).
---------------------------------------------------------------------------

    The Agencies believe this exclusion is appropriate in order to
facilitate parallel treatment of domestic and foreign pension and
retirement funds to the extent possible and to assist in ensuring that
section 13 of the BHC Act does not apply to foreign pension,
retirement, or similar benefits programs.\1803\
---------------------------------------------------------------------------

    \1803\ Additionally and as discussed above, the prohibitions of
section 13 and the final rule do not apply to an ownership interest
that is acquired or retained by a banking entity through a deferred
compensation, stock-bonus, profit-sharing, or pension plan of the
banking entity that is established and administered in accordance
with the law of the United States or a foreign sovereign, if the
ownership interest is held or controlled directly or indirectly by a
banking entity as trustee for the benefit of persons who are or were
employees of the banking entity.
---------------------------------------------------------------------------

6. Insurance Company Separate Accounts
    Under the proposed rule, insurance company separate accounts would
have been covered funds to the extent that the separate accounts relied
on section 3(c)(1) or 3(c)(7). Such reliance would generally occur in
circumstances where policies funded by the separate account are
distributed in an unregistered securities offering solely to qualified
purchasers or on a limited basis to accredited investors. While the
proposed rule did not generally exclude insurance company separate
accounts from the definition of covered fund, the proposed rule did
provide a limited exemption for investing in or acting as sponsor to
separate accounts that were used for the purpose of allowing a banking
entity to purchase bank owned life insurance (``BOLI''), subject to
certain restrictions.\1804\
---------------------------------------------------------------------------

    \1804\ See proposed rule Sec.  ----.14(a)(1).
---------------------------------------------------------------------------

    Various state or foreign laws allow regulated insurance companies
to create separate accounts that are generally not separate legal
entities but represent a segregated pool of assets on the balance sheet
of the insurance company that support a specific policy claim on the
insurance company. These accounts have assets and obligations that are
separate from the general account of the insurance company. Insurance
companies often utilize these separate accounts to allow policyholders
of variable annuity and variable life insurance to allocate premium
amounts for the purpose of engaging in various investment strategies
that are tailored to the requirements of the individual policyholder.
The policyholder, and not the insurance company, primarily benefits
from the results of investments in the separate account. These separate
accounts are generally investment companies for purposes of the
Investment Company Act, unless an exclusion from that definition is
applicable,\1805\ and, as noted above, may rely on the exclusion
contained in section 3(c)(1) or 3(c)(7) of the Investment Company Act.
---------------------------------------------------------------------------

    \1805\ See In re The Prudential Ins. Co. of Am., 41 S.E.C. 335,
345 (1963), aff'd, The Prudential Ins. Co. of Am. v. SEC, 326 F.2d
383 (3d Cir.), cert. denied, 377 U.S. 953 (1964).
---------------------------------------------------------------------------

    While most commenters supported the proposal's recognition that
interests in BOLI separate accounts should be permitted, commenters
generally argued that the final rule should also provide a broader
exclusion from the definition of covered fund for all insurance company
separate accounts. Commenters argued that covering separate accounts
could lead to unintended consequences and was inconsistent with the
statutory recognition that the business of insurance should continue to
be accommodated.\1806\ These commenters argued that covering separate
accounts within the definition of covered fund would disrupt a
substantial portion of customer-driven insurance or retirement planning
activity and pose a burden on insurance companies and holders of
insurance policies funded by separate accounts, a result commenters
alleged Congress did not intend.\1807\
---------------------------------------------------------------------------

    \1806\ See ACLI (Jan. 2012); Nationwide; Sutherland (on behalf
of Comm. of Annuity Insurers); See also STANY.
    \1807\ See ACLI (Jan. 2012); Nationwide; Sutherland (on behalf
of Comm. of Annuity Insurers); See also STANY.
---------------------------------------------------------------------------

    In response to commenter concerns and in order to more
appropriately accommodate the business of insurance in a regulated
insurance company, the final rule excludes an insurance company
separate account from the definition of covered fund under certain
circumstances. To prevent this exclusion from being used to evade the
restrictions on investments and sponsorship of covered funds by a
banking entity, the final rule provides that no banking entity other
than the insurance company that establishes the separate account may
participate in the account's profits and losses.\1808\ In this manner,
the final rule appropriately accommodates the business of insurance by
permitting an insurance company that is a banking entity to continue to
provide its customers with a variety of insurance products through
separate account structures in accordance with applicable insurance
laws while protecting against the use of separate accounts as a means
by which banking entities might take a proprietary or beneficial
interest in an account that engages in prohibited proprietary trading
and thereby evade the requirements of section 13 of the BHC Act. The
exclusion of insurance company separate accounts from the definition of
covered fund therefore is designed to reduce the potential burden of
the final rule on insurance companies and holders of insurance policies
funded by separate accounts while also continuing to prohibit banking
entities from taking ownership interests in, and sponsoring or having
certain relationships with, entities that engage in investment and
trading activities prohibited by section 13.
---------------------------------------------------------------------------

    \1808\ See final rule Sec.  ----.10(c)(6).
---------------------------------------------------------------------------

7. Bank Owned Life Insurance Separate Accounts
    As explained above, bank owned life insurance (``BOLI'') is
generally offered through a separate account held by an insurance
company. In recognition of the fact that banking entities have for many
years invested in life insurance policies that covered key employees,
in accordance with supervisory policies established by the Federal
banking agencies, the proposal contained a provision that would permit
banking entities to invest in and sponsor BOLI separate accounts.\1809\
---------------------------------------------------------------------------

    \1809\ See proposed rule Sec.  ----.14(a)(1).
---------------------------------------------------------------------------

    Many commenters supported the exemption in the proposal for BOLI
separate accounts, arguing that permitting this kind of activity was
appropriate and consistent with safety and soundness as well as
financial stability.\1810\ Conversely, one commenter objected to the
proposed rule's exemption for investments in BOLI separate accounts,
contending that such an exemption did not promote and protect the
safety and soundness of banking entities or the financial stability of
the United States.\1811\
---------------------------------------------------------------------------

    \1810\ See ACLI (Jan. 2012); Mass. Mutual; Jones of
Northwestern; AALU; BBVA; BoA; Chris Barnard; Clark Consulting (Feb.
7, 2012); Clark Consulting (Feb. 13, 2012); Gagnon of GW Financial.
    \1811\ See Occupy.
---------------------------------------------------------------------------

    After considering comments received on the proposal, the final rule
excludes BOLI separate accounts from the definition of covered fund but
maintains the substance of the conditions from the proposal designed to
ensure that BOLI investments are not conducted in a manner that raises
the concerns that

section 13 of the BHC Act was designed to address. In particular, in
order for a separate account to qualify for the BOLI exclusion from the
definition of covered fund, the final rule requires that the separate
account be used solely for the purpose of allowing one or more banking
entities (which by definition includes their affiliates) to purchase a
life insurance policy for which such banking entity(ies) is a
beneficiary.\1812\ Additionally, if the banking entity is relying on
this exclusion, the banking entity that purchases the insurance policy
(i) must not control the investment decisions regarding the underlying
assets or holdings of the separate account,\1813\ and (ii) must
participate in the profits and losses of the separate account in
compliance with applicable supervisory guidance regarding BOLI.\1814\
---------------------------------------------------------------------------

    \1812\ See final rule Sec.  ----.10(c)(7).
    \1813\ This requirement is not intended to preclude a banking
entity from purchasing a life insurance policy from an affiliated
insurance company.
    \1814\ See, e.g., Bank Owned Life Insurance, Interagency
Statement on the Purchase and Risk Management of Life Insurance
(Dec. 7, 2004).
---------------------------------------------------------------------------

    When made in the normal course, investments by banking entities in
BOLI separate accounts do not involve the types of speculative risks
section 13 of the BHC Act was designed to address. Rather, these
accounts permit the banking entity to effectively hedge and cover costs
of providing benefits to employees through insurance policies related
to key employees. Moreover, applying the prohibitions of section 13 to
investments in these accounts would eliminate an investment that helps
banking entities to efficiently reduce their costs of providing
employee benefits, and therefore potentially introduce a burden to
banking entities that would not further the statutory purpose of
section 13. The Agencies expect this exclusion to be used by banking
entities in a manner consistent with safety and soundness.
8. Exclusion for Loan Securitizations and Definition of Loan
a. Definition of Loan
    The proposal defined the term ``loan'' for purposes of the
restrictions on proprietary trading and the covered funds provisions
and, as discussed in more detail below, provided an exemption for loan
securitizations in two separate sections of the proposed rule. As
proposed, loan was defined as ``any loan, lease, extension of credit,
or secured or unsecured receivable.'' \1815\ The definition of loan in
the proposed rule was expansive, and included a broad array of loans
and similar credit transactions, but did not include any asset-backed
security issued in connection with a loan securitization or otherwise
backed by loans.
---------------------------------------------------------------------------

    \1815\ See proposed rule Sec.  ----.2(q).
---------------------------------------------------------------------------

    Some commenters requested that the Agencies narrow the proposed
definition of ``loan.'' \1816\ One of these commenters was concerned
that the proposed definition could apply to any banking activity and
argued that the definition of loan for purposes of the final rule
should not include securities.\1817\ Another commenter, citing a
statement made by Senator Merkley, asserted that Congress did not
intend the rule of construction for the sale and securitization of
loans in section 13(g)(2) to include ``loans that become financial
instruments traded to capture the change in their market value.''
\1818\
---------------------------------------------------------------------------

    \1816\ See AFR et al. (Feb. 2012); Occupy; Public Citizen.
    \1817\ See Public Citizen. This commenter argued that the loan
definition should be limited to the plain meaning of the term
``loan'' and noted that a loan is not a security. Id.
    \1818\ See Occupy (citing 156 Cong. Rec. S5895 (daily ed. July
15, 2010)).
---------------------------------------------------------------------------

    Other commenters requested that the Agencies expand the proposed
definition of ``loan'' to capture many traditional extensions of credit
that the proposal would otherwise exclude.\1819\ Examples of
traditional credit extensions that commenters requested be specifically
included within the definition of ``loan'' included loan
participations,\1820\ variable funding notes or certificates,\1821\
note purchase facilities,\1822\ certain forms of revolving credit
lines,\1823\ corporate bonds,\1824\ municipal securities,\1825\
securities lending agreements and reverse repurchase agreements,\1826\
auto lease securitizations,\1827\ and any other type of credit
extension that banking entities traditionally have been permitted to
issue under their lending authority.\1828\
---------------------------------------------------------------------------

    \1819\ See Allen & Overy (on behalf of Foreign Bank Group); ASF
(Feb. 2012); Credit Suisse (Williams); GE (Feb. 2012); Goldman
(Covered Funds); ICI (Feb. 2012); Japanese Bankers Ass'n.; JPMC;
LSTA (Feb. 2012); RBC; SIFMA et al. (Covered Funds) (Feb. 2012);
SIFMA (Securitization) (Feb. 2012). One individual commenter
supported the proposed definition of loan. See Alfred Brock. For
example, one commenter requested that definition of ``loan'' be
revised to include ``(i) any loan, lease (including any lease
residual), extension [of] credit, or secured or unsecured
receivables, (ii) any note, bond or security collateralized and
payable from pools of loans, leases (including Lease residuals),
extensions of credit or secured or unsecured receivables, and (iii)
any contractual rights arising from, or security interests or liens,
assets, property guarantees, insurance policies, letters of credit,
or supporting obligations underlying or relating to any of the
foregoing.'' See RBC. Another commenter requested that the
definition of ``loan'' be revised to include ``any type of credit
extension (including bonds, other [banking entity-eligible] debt
securities, asset-backed securities [as defined in their letter],
variable funding notes and securities lending agreements, repurchase
agreements, reverse repurchase agreements and other similar
extensions of credit) that a banking entity could hold or deal in.''
See SIFMA (Securitization) (Feb. 2012).
    \1820\ See JPMC.
    \1821\ See ASF (Feb. 2012); Credit Suisse (Williams); JPMC
(arguing that such notes operate in economic substance as loans);
SIFMA (Securitization) (Feb. 2012).
    \1822\ See ASF (Feb. 2012). This commenter asserted that a note
purchase facility is negotiated by the asset-backed commercial paper
conduit and allows the asset-backed commercial paper conduit to
purchase asset-backed securities issued by an intermediate special
purpose vehicle and backed by loans or asset-backed securities
backed by loans. Id.
    \1823\ See ASF (Feb. 2012).
    \1824\ See Allen & Overy (on behalf of Foreign Bank Group); ASF
(Feb. 2012); Credit Suisse (Williams); JPMC.
    \1825\ See ASF (Feb. 2012). This commenter argued that certain
municipal securities may be ABS, including revenue bonds that
involve the issuance of senior and subordinate bonds. Id.
    \1826\ See Credit Suisse (Williams); SIFMA (Securitization)
(Feb. 2012).
    \1827\ See SIFMA (Securitization) (Feb. 2012). This commenter
contended that because securitization transactions have been viewed
by the Agencies and courts as `legally transparent' (i.e., as simply
another way for banking entities to buy and sell the loans or other
assets underlying such securities), auto lease securitizations
supported by a beneficial interest in a titling trust should be
treated as securitizations of the underlying auto leases and should
fall within the loan securitization exemption. This commenter also
argued that if the definition of ``loan'' is not expanded to include
securities, then banking entities could not act as sponsors for auto
lease securitizations (including resecuritizations) supported by a
beneficial interest in a titling trust.
    \1828\ See Credit Suisse (Williams); Goldman (Covered Funds);
SIFMA et al. (Covered Funds) (Feb. 2012); SIFMA (Securitization)
(Feb. 2012).
---------------------------------------------------------------------------

    The definition of ``loan'' in the final rule applies both in the
context of the proprietary trading restrictions as well as in
determining the scope of the exclusion of loan securitizations and
asset-backed commercial paper conduits from the definition of covered
fund. The final rule modifies the proposed definition and defines
``loan'' as ``any loan, lease, extension of credit, or secured or
unsecured receivable that is not a security or derivative.'' \1829\ The
definition of loan in the final rule specifically excludes loans that
are securities or derivatives because trading in these instruments is
expressly included in the statute's definition of proprietary
trading.\1830\ In addition, the Agencies believe these instruments, if
not excluded from the definition of loan, could be used to circumvent
the restrictions on proprietary trading.
---------------------------------------------------------------------------

    \1829\ See final rule Sec.  ----.2(s).
    \1830\ 12 U.S.C. 1851(h)(4).
---------------------------------------------------------------------------

    The definition of loan in the final rule excludes loans that are
securities or derivatives, including securities or derivatives of or
based on such instruments. The definition of ``loan''

does not specify the type, nature or structure of loans included within
the definition, other than by excluding securities and derivatives. In
addition, the definition of loan does not limit the scope of parties
that may be lenders or borrowers for purposes of the definition. The
Agencies note that the parties' characterization of an instrument as a
loan is not dispositive of its treatment under the federal securities
laws or federal laws applicable to derivatives. The determination of
whether a loan is a security or a derivative for purposes of the loan
definition is based on the federal securities laws and the Commodity
Exchange Act. Whether a loan is a ``note'' or ``evidence of
indebtedness'' and therefore a security under the federal securities
laws will depend on the particular facts and circumstances, including
the economic terms of the loan.\1831\ For example, loans that are
structured to provide payments or returns based on, or tied to, the
performance of an asset, index or commodity or provide synthetic
exposure to the credit of an underlying borrower or an underlying
security or index may be securities or derivatives depending on their
terms and the circumstances of their creation, use, and
distribution.\1832\ Regardless of whether a party characterizes the
instrument as a loan, these kinds of instruments, which may be called
``structured loans,'' must be evaluated based on the standards
associated with evaluating derivatives and securities in order to
prevent evasion of the restrictions on proprietary trading and
ownership interests in covered funds.
---------------------------------------------------------------------------

    \1831\ See 15 U.S.C. 77b(a)(1) and 15 U.S.C. 78c(a)(10); Reves
v. Ernst & Young, 494 U.S. 56 (1990); Trust Company of Louisiana v.
N.N.P. Inc., 104 F.3d 1478 (5th Cir. 1997); Pollack v. Laidlaw
Holdings, 27 F.3d 808 (2d Cir. 1994); but See Marine Bank v. Weaver,
455 U.S. 551 (1982) ; Banco Espanol de Credito v. Security Pacific
National Bank, 973 F.2d 51 (2d Cir. 1992); Bass v. Janney Montgomery
Scott, Inc., 210 F.3d 577 (6th Cir. 2000); Piaubert v. Sefrioui,
2000 WL 194140 (9th Cir. 2000).
    \1832\ Id.
---------------------------------------------------------------------------

b. Loan Securitizations
    An exemption for loan securitizations was contained in two separate
sections of the proposed rule. The first, in section ----.13(a), was
proposed as part of ``other permitted covered fund activities and
investments.'' The second, in Sec.  ----.14(d), was proposed as part of
``covered fund activities determined to be permissible.'' These
proposed provisions would have acted in concert to permit a banking
entity to acquire and retain an ownership interest in, or act as
sponsor to, a loan securitization regardless of the relationship that
the banking entity had with the securitization. The Agencies have
evaluated all comments received on securitizations. These sections of
the proposed rule were intended to implement the rule of construction
contained in section 13(g)(2) of the BHC Act which provides that
nothing in section 13 of the BHC Act shall be construed to limit or
restrict the ability of a banking entity or nonbank financial company
supervised by the Board to sell or securitize loans in a manner that is
otherwise permitted by law.\1833\ The language of the proposed
exemption for loan securitizations would have permitted a banking
entity to acquire and retain an ownership interest in a covered fund
that is an issuer of asset-backed securities, the assets or holdings of
which were solely comprised of: (i) Loans (as defined); (ii) rights or
assets directly arising from those loans supporting the asset-backed
securities; and (iii) interest rate or foreign exchange derivatives
that (A) materially relate to the terms of such loans or rights or
assets and (B) are used for hedging purposes with respect to the
securitization structure.\1834\ The proposed rule in Sec.  ----.13(d)
was further augmented by the proposed rule in Sec.  ----.14(a)(2) so
that a banking entity would be permitted to purchase loan
securitizations and engage in the sale and securitization of loans.
This was accomplished through the authorization in proposed section --
--.14(a)(2) of a banking entity's acquisition or retention of an
ownership interest in such securitization vehicles that the banking
entity did not organize and offer, or for which it did not act as
sponsor, provided that the assets or holdings of such vehicles were
solely comprised of the instruments or obligations identified in the
proposed exemption.
---------------------------------------------------------------------------

    \1833\ See 12 U.S.C. 1851(g)(2).
    \1834\ See proposed rule Sec.  ----.13(d); Joint Proposal, 76 FR
68,912.
---------------------------------------------------------------------------

    The proposed rules would have allowed a banking entity to engage in
the sale and securitization of loans by acquiring and retaining an
ownership interest in certain securitization vehicles (which could be a
covered fund for purposes of the proposed rules) that the banking
entity organized and offered, or acted as sponsor to, without being
subject to the ownership and sponsor limitations contained in the
proposed rule.\1835\ As noted in the proposing release, the Agencies
recognized that by defining ``covered fund'' broadly, and, in
particular, by reference to sections 3(c)(1) and 3(c)(7) of the
Investment Company Act, securitization vehicles may be affected by the
restrictions and requirements of the proposed rule. The Agencies
attempted to mitigate the potential adverse impact on the
securitization market by excluding loan securitizations from the
restrictions on sponsoring or acquiring and retaining ownership
interests in covered funds, consistent with the rule of construction
contained in section 13(g)(2) of the BHC Act.\1836\ As a result, under
the proposal, loan securitizations would not be limited or restricted
because banking entities would be able to find investors or buyers for
their loans or loan securitizations. The proposing release included
several requests for comment on the proposed loan securitization
exemption and the application of the covered fund prohibitions to
securitizations.
---------------------------------------------------------------------------

    \1835\ Id.
    \1836\ See Joint Proposal, 76 FR 68,931.
---------------------------------------------------------------------------

    Some commenters supported a narrow exemption for loan
securitizations and in some cases suggested that the proposed exemption
could be narrowed even further. For example, one commenter argued that
the definition of ``loan'' for purposes of the exemption could include
any extension of credit and any banking activity.\1837\ Also, in
response to the proposing release,\1838\ some commenters suggested that
any exemption for securitizations should seek to prevent evasion of the
covered fund prohibitions by issuers with ``hedge-fund or private
equity fund-like characteristics'' or issuers with ``hidden proprietary
trading operations.'' \1839\
---------------------------------------------------------------------------

    \1837\ See, e.g., Public Citizen. This commenter argued that any
exemption should prevent evasion, should ensure that each exempted
securitization reduces risk and should be designed to only serve
client needs. A different commenter recommended a safe harbor
available only to a particular pre-specified, transparent and
standardized securitization structure, where Agencies would need to
justify why the specified structure protects against the systemic
risks associated with securitization. See AFR (Nov. 2012).
    \1838\ See Request for Comment No. 231 in the Proposing Release
(noting that many issuers of asset-backed securities have features
and structures that resemble some of the features of hedge funds and
private equity funds (e.g., CDOs are managed by an investment
adviser that has the discretion to choose investments, including
investments in securities) and requesting comment on how to prevent
hedge funds or private equity funds from structuring around an
exemption for asset-backed securities from the covered fund
prohibitions).
    \1839\ See, e.g., AFR et al. (Feb. 2012); Occupy; Public
Citizen. But See Credit Suisse (Williams) (arguing it would be
difficult to use the typical structure and operation of
securitizations to avoid the prohibition on proprietary trading
because the structures are not set up to engage in the kind of
proprietary trading about which Congress was concerned).
---------------------------------------------------------------------------

    On the other hand, many commenters believed that the proposed
exemption

from the covered fund prohibitions for loan securitizations should be
expanded to cover securitizations generally and not just loan
securitizations. These commenters provided various arguments for their
request to exempt all securitizations from the covered fund
prohibitions, including that the regulation of securitizations was
addressed in other areas of the Dodd-Frank Act,\1840\ that
securitization is essentially a lending activity,\1841\ and that
securitizations have ``long been recognized as permissible activities
for banking entities.'' \1842\
---------------------------------------------------------------------------

    \1840\ See AFME et al.; Ass'n. of German Banks; Cleary
Glottlieb; Credit Suisse (Williams); GE (Feb. 2012); IIB/EBF; RBC;
SIFMA (Securitization) (Feb. 2012).
    \1841\ See, e.g., Credit Suisse (Williams).
    \1842\ See Credit Suisse (Williams); JPMC. These commenters
cited the sponsoring of asset-backed commercial paper conduits as an
example of permissible bank securitization activity.
---------------------------------------------------------------------------

    Commenters recommending a broader exclusion for securitizations
also provided a wide variety of specific suggestions or concerns. Some
commenters suggested that permissible assets for a loan securitization
include assets other than loans acquired in the course of collecting a
debt previously contracted, restructuring a loan, during a loan work
out or during the disposition of a loan or other similar
situation.\1843\ Commenters noted that, for example, rules 2a-7 and 3a-
7 under the Investment Company Act define eligible assets for a
securitization as not only including financial assets but also ``any
rights or other assets designed to assure the servicing or timely
distribution of proceeds to security holders.'' \1844\ Commenters
requested that various additional rights or assets be added to the list
of permissible assets held by a loan securitization such as cash and
cash accounts,\1845\ cash equivalents,\1846\ and various other high
quality short term investments, liquidity agreements or credit
enhancements, certain beneficial interests in titling trusts used in
lease securitizations or lease residuals.\1847\ One commenter suggested
that a loan securitization be permitted to include ``any contractual
rights arising from or supporting obligations underlying or relating to
the loans.'' \1848\
---------------------------------------------------------------------------

    \1843\ See Allen & Overy (on behalf of Foreign Bank Group);
Credit Suisse (Williams); JPMC.
    \1844\ See GE (Feb. 2012); GE (Aug. 2012); ICI (Feb. 2012).
    \1845\ See Allen & Overy (on behalf of Foreign Bank Group); ASF
(Feb. 2012); Cleary Gottlieb; Credit Suisse (Williams) (including
cash that did not arise directly from the underlying loans); JPMC;
LSTA (Feb. 2012); LSTA (July 2012); RBC; SIFMA (Securitization)
(Feb. 2012).
    \1846\ See Cleary Gottlieb; Credit Suisse (Williams).
    \1847\ See JPMC (requesting high quality, highly liquid
investments, including Treasury securities and highly rated
commercial paper); LSTA (Feb. 2012); LSTA (July 2012) (requesting
short-term highly liquid investments such as obligations backed by
the full faith and credit of the United States, deposits insured by
the Federal Deposit Insurance Corporation, various obligations of
U.S. financial institutions and investments in money market funds);
ASF (Feb. 2012); Commercial Real Estate Fin. Council; RBC
(requesting short-term, high quality investments); Allen & Overy (on
behalf of Foreign Bank Group) (requesting short-term eligible
investments); Credit Suisse (Williams) (requesting government
guaranteed securities, money market funds and other highly credit-
worthy and liquid investments); Cleary Gottlieb (requesting money-
market interests; SIFMA (Securitization) (Feb. 2012) (requesting
associated investments which are customarily employed in
securitization transactions). One commenter further noted that such
investments are required by securitization documents. See Commercial
Real Estate Fin. Council.
    \1848\ RBC. This commenter argued that the loan securitization
exemptions as proposed would not permit ``traditional
securitizations and securitizations with the characteristics of
traditional securitizations'' and ``would effectively eliminate a
substantial portion of the very securitization activities carried on
by banks that the [loan securitization exemptions] are designed to
preserve.''
---------------------------------------------------------------------------

    Others requested that loan securitizations also be permitted to
hold repurchase agreements or unlimited amounts of various forms of
securities, including municipal securities, asset-backed securities,
credit-linked notes, trust certificates and ``equity like-rights.''
\1849\ Some commenters requested that loan securitizations be permitted
to hold a limited amount of certain rights such as securities.\1850\
Commenters also had suggestions about the types of derivatives that an
exempted securitization vehicle be permitted to hold.\1851\ For
example, one industry association requested that the loan
securitization exemption include securitizations where up to 10 percent
of the assets are held in the form of synthetic risk exposure that
references ``loans that could otherwise be held directly'' under the
proposal in order to achieve risk diversification.\1852\ This commenter
stated its belief that the rule of construction requires that synthetic
exposures be permitted because they are used in certain types of loan
securitizations.
---------------------------------------------------------------------------

    \1849\ See Allen & Overy (on behalf of Foreign Bank Group); ASF
(Feb. 2012); Credit Suisse (Williams); GE (Feb. 2012); JPMC; RBC;
SIFMA et al. (Covered Funds) (Feb. 2012); SIFMA (Securitization)
(Feb. 2012).
    \1850\ See, e.g., ASF (Feb. 2012); Cleary Gottlieb; LSTA (Feb.
2012). LSTA (Feb. 2012) specifically requested that entities issuing
collateralized loan obligations that are primarily backed by loans
or loan participations also be permitted to hold a limited amount of
corporate credit obligations. This commenter provided
recommendations about such limitations--if the amount of such
corporate credit obligations exceeded 10 percent, a CLO would not be
able to purchase any assets other than senior, secured syndicated
loans and temporary investments (as defined in the letter). If the
amount of such assets exceeded 30 percent, the entity should not be
able to purchase any assets other than loans.
    \1851\ See AFME et al.; Allen & Overy (on behalf of Foreign Bank
Group); Credit Suisse (Williams); Japanese Bankers Ass'n.; LSTA
(Feb. 2012); SIFMA (Securitization) (Feb. 2012).
    \1852\ See ASF (Feb. 2012). Permissible synthetic exposure would
include ``credit default swaps, total return swaps or other
agreements referencing corporate loans or corporate bonds pursuant
to which the issuer is the seller of credit protection or otherwise
`long' the credit exposure of the reference corporate loan or bond,
and receives a yield derived from the yield on the reference
corporate loan or bond.''
---------------------------------------------------------------------------

    In addition to requests that specific types of underlying assets be
permitted under the loan securitization exemption, the Agencies also
received comments about specific types of asset classes or structures.
Some commenters suggested certain asset classes or structures should be
an excluded securitization from the covered fund prohibitions including
insurance-linked securities, collateralized loan obligations, tender
option bonds, asset-backed commercial paper conduits (ABCP conduits),
resecuritizations of asset-backed securities, and corporate debt re-
packagings.\1853\ In some cases, commenters believed that the Agencies
should use their authority under section 13(d)(1)(J) of the BHC Act to
exempt these types of vehicles. Some commenters identified other
vehicles such as credit funds and issuers of covered bonds that they
believed should be excluded from the covered fund prohibitions.\1854\
On the other hand, the Agencies also received comment letters that
argued that certain securitizations should not be exempted from the
covered fund prohibitions, including resecuritizations, CDO-squared,
and CDO-cubed securitizations because of concern about their complexity
and lack of reliable performance data or ability to value those
securities.\1855\
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    \1853\ See AFME et al.; ASF (July 2012); GE (Aug. 2012); Capital
Group; Goldman (Covered Funds); LSTA (Feb. 2012); SIFMA et al.
(Covered Funds) (Feb. 2012).
    \1854\ See Goldman (Covered Funds) (requesting exclusion for
credit funds). AFME et al. (requesting exclusion for covered bonds);
FSA (Apr. 2012) (requesting exclusion for covered bonds); UKRCBC
(requesting exclusion for covered bonds).
    \1855\ See Sens. Merkley & Levin (Feb. 2012). These commenters
argued that there should be increased capital charges in line with
the complexity of a securitization and using the ``high risk asset
limitations on permitted activities to bar any securitization by a
bank from using complex structures, re-securitization techniques,
synthetic features, or other elements that may increase risk or make
a risk analysis less reliable.''
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    Because a loan securitization could still be a covered fund,
several commenters expressed concern that the proposed loan
securitization exemption, as drafted, did not exempt loan
securitizations from the prohibitions of

section 13(f) of the BHC Act. As a result, one commenter noted that the
proposed loan securitization exemptions would not have their intended
result of excluding loan securitizations from the BHC Act restrictions
applicable to covered funds.\1856\
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    \1856\ See AFME et al.; SIFMA (May 2012) (arguing that because
of the narrowness of the proposed exemption and because it would not
exempt securitizations from prohibitions on covered transactions
imposed by section 13(f), the rule as proposed ``will effectively
prevent banking entities from sponsoring and owning a large variety
of asset-backed securities, in contravention of the rule of
construction.'')
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    Certain securitization transactions may involve the issuance of an
intermediate asset-backed security that supports the asset-backed
securities that are issued to investors, such as in auto lease
securitizations and ABCP conduits. Commenters suggested that the
Agencies should look through intermediate securitizations to the assets
that support the intermediate asset-backed security to determine if
those assets would satisfy the definition of ``loan'' for purposes of
the loan securitization exemption. If those assets are loans, these
commenters suggested that the entire securitization transaction should
be deemed a loan securitization, even if the assets supporting the
asset-backed securities issued to investors are not loans.\1857\
However, some commenters argued that each step in a multi-step
securitization should be viewed separately to ensure compliance with
the specific restrictions in the proposal because otherwise a multi-
step securitization could include impermissible assets.\1858\ Some
commenters also raised question about whether depositors would fall
within the definition of ``investment company'' under the Investment
Company Act and, therefore, may fall within the proposed definition of
covered fund.\1859\
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    \1857\ See AFME et al.; ASF (Feb. 2012); SIFMA (Securitization)
(Feb. 2012).
    \1858\ See Occupy; Public Citizen. Occupy contended that the
structured security issued in a multi-step securitization can hide
underlying risks under layers of structured complexity. See Occupy.
Public Citizen argued that prohibiting such activity would ensure
that securitizations do not become proprietary trading vehicles for
banking entities that are effectively off-balance sheet. See Public
Citizen. See infra Part IV.B.1.c.8.b.iv. of this SUPPLEMENTARY
INFORMATION.
    \1859\ A depositor, as used in a securitization structure, is an
entity that generally acts only as a conduit to transfer the loans
from the originating bank to the issuing entity for the purpose of
facilitating a securitization transaction and engages in no
discretionary investment or securities issuance activities. See ASF
(July 2012); GE (Aug. 2012). For purposes of this rule, the Agencies
believe the wholly owned subsidiary exclusion is available for
depositors. See supra note 1774.
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    After considering carefully the comments received on sections of
the proposed rule, the Agencies have determined to adopt a single
section in the final provision relating to loan securitizations that
would exclude loan securitizations that meet certain criteria contained
in the rule from the definition of covered fund. The rule, as adopted,
takes into account comments received on each of the conditions
specified in the two loan securitization sections of the proposed
provisions and has adopted those conditions with some clarifying
changes from the proposed language. In addition, in response to
comments, as discussed more fully below, the Agencies are adopting
additional exclusions from the definition of covered fund for certain
types of vehicles if they are backed by the same types of assets as the
assets that are permitted to be held in the loan securitization
exclusion. These additional exclusions are tailored to vehicles that
are very similar to loan securitizations but have particular structural
issues, which are described in more detail below.
    In light of the comments received on the proposal, the final rule
was revised to exclude from the definition of covered fund an issuing
entity of asset-backed securities, as defined in Section 3(a)(79) of
the Exchange Act,\1860\ if the underlying assets or holdings are
comprised solely of: (A) loans, (B) any rights or other assets (i)
designed to assure the servicing or timely distribution of proceeds to
security holders or (ii) related or incidental to purchasing or
otherwise acquiring, and holding the loans, (C) certain interest rate
or foreign exchange derivatives, and (D) certain special units of
beneficial interests and collateral certificates (together, ``loan
securitizations'').\1861\ In addition, as discussed below, the Agencies
are adopting specific exclusions for certain vehicles that issue short
term asset-backed securities and for pools of assets that are part of
covered bond transactions which pools also meet the conditions
delineated above.\1862\
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    \1860\ 15 U.S.C. 78c(a)(79). This definition was added by
Section 941 of the Dodd-Frank Act.
    \1861\ See final rule Sec.  ----.10(c)(8). Consistent with the
proposal, certain securitizations, regardless of asset composition,
would not be considered covered funds because the securitization
issuer is deemed not to be an investment company under Investment
Company Act exclusions other than section 3(c)(1) or 3(c)(7) of the
Investment Company Act. For example, this would include issuers that
meet the requirements of section 3(c)(5) or rule 3a-7 of the
Investment Company Act, and the asset-backed securities of such
issuers may be offered in transactions registered under the
Securities Act.
    \1862\ As discussed below, the Agencies are adopting an
exclusion from the definition of covered funds for the pools of
assets that are involved in the covered bond financings. Although
the cover pools must satisfy the same criteria as the excluded loan
securitizations, a separate exclusion is needed because the
securities involved in the covered bond issuance are not asset-
backed securities.
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    Although commenters argued that various types of assets should be
included within the definition of loan or otherwise permitted to be
held under the loan securitization exclusion, the loan securitization
exclusion in the final rule has not been expanded to be a broad
exclusion for all securitization vehicles. Although one commenter
suggested that any securitization is essentially a lending
activity,\1863\ the Agencies believe such an expansion of the exclusion
would not be consistent with the rule of construction in section
13(g)(2) of the BHC Act, which specifically refers to the ``sale and
securitization of loans.'' The Agencies believe that a broad definition
of loan and therefore a broad exemption for transactions that are
structured as securitizations of pooled financial assets could
undermine the restrictions Congress intended to impose on banking
entities' covered fund activities, which could enable market
participants to use securitization structures to engage in activities
that otherwise are constrained for covered funds. The Agencies believe
the purpose underlying section 13 is not to expand the scope of assets
in an excluded loan securitization beyond loans as defined in the final
rule and the other assets that the Agencies are specifically permitting
in a loan securitization.
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    \1863\ See, e.g., Credit Suisse (Williams).
---------------------------------------------------------------------------

    While not expanding the permitted assets under the loan
securitization exclusion, the Agencies have made modifications in
response to commenters to ensure that the provisions of the final rule
appropriately accommodate the need, in administering a loan
securitization transaction on an ongoing basis, to hold various assets
other than the loans that support the asset-backed securities.
Moreover, the Agencies do not believe that the assets permitted under
the loan securitization need to be narrowed further to prevent evasion
and hidden proprietary trading as requested by certain commenters
because the Agencies believe that the potential for evasion has been
adequately addressed through modifications to the definition of loan
and more specific limitations on the types of securities and
derivatives permitted in an excluded loan securitization. The Agencies
have revised the scope of the loan securitization exclusion to
accommodate existing market practice for securitizations as discussed
by

commenters while limiting the availability of the exclusion for these
particular types of securitization transactions to issuers of asset-
backed securities supported by loans.
    The Agencies are not adopting specific exclusions for other
securitization vehicles identified by commenters, including insurance-
linked securities, collateralized loan obligations, and corporate debt
re-packagings.\1864\ The Agencies believe that providing such
exclusions would not be consistent with the rule of construction in
section 13(g)(2)of the BHC Act, which specifically refers to the ``sale
and securitization of loans.'' These other types of securitization
vehicles referenced by commenters are used to securitize exposures to
instruments which are not included in the definition of loan as adopted
by the final rule. Moreover, the Agencies note in response to
commenters that resecuritizations of asset-backed securities and CDO-
squared and CDO-cubed securitizations could be used as a means of
evading the prohibition on the investment in the ownership interests of
covered funds.
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    \1864\ Commenters' concerns regarding credit funds are discussed
below in Part IV.B.1.d.6. of this SUPPLEMENTARY INFORMATION.
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    As with the proposed rules, the Agencies are excluding certain loan
securitizations from the definition of covered fund and therefore the
prohibitions applicable to banking entities' involvement in covered
funds in order to implement Congressional intent expressed in the rule
of construction in section 13(g)(2) of the BHC Act.\1865\ The Agencies
believe that, as reflected in the rule of construction, the continued
ability of banking entities to participate in loan securitizations is
important to enable banks of all sizes to be able to continue to
provide financing to loan borrowers at competitive prices. Loan
securitizations provide an important avenue for banking entities to
obtain investor financing for existing loans, which allows such banks
greater capacity to continuously provide financing and lending to their
customers. The Agencies also believe that loan securitizations that
meet the conditions of the rule as adopted do not raise the same types
of concerns as other types of securitization vehicles that could be
used to circumvent the restrictions on proprietary trading and
prohibitions in section 13(f) of the BHC Act.
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    \1865\ As discussed below, the Agencies are excluding those loan
securitizations that hold only loans (and certain other assets
identified in the final rule), consistent with the rule of
construction in section 13(g)(2) of the BHC Act.
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    Under the rule as adopted, loan securitizations that meet the
conditions of the rule as adopted are excluded from the definition of
covered fund and, consequently, banking entities are not restricted as
to their ownership of such entities or their ongoing relationships with
such entities by the final rule. As the Agencies stated in the
proposal, permitting banking entities to acquire or retain an ownership
interest in these loan securitizations will allow for a deeper and
richer pool of potential participants and a more liquid market for the
sale of such securitizations, which in turn should result in the
continued availability of funding to individuals and small businesses,
as well as provide an efficient allocation of capital and sharing of
risk. The Agencies believe that excluding these loan securitizations
from the definition of covered fund is consistent with the terms and
the purpose of section 13 of the BHC Act, including the rule of
construction regarding loan securitizations.\1866\
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    \1866\ The Agencies note that the loan securitization and other
securitization exclusions apply only to the definition of covered
fund, and therefore the covered fund-related provisions of the rule,
and not to its prohibition on proprietary trading. The Agencies
recognize that trading in loans is not subject to the proprietary
trading restrictions.
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i. Loans
    The first condition of the loan securitization exclusion from the
definition of covered fund is that the underlying assets or holdings
are comprised of loans. In the proposal, ``loan'' was a defined term
for purposes of the restrictions on proprietary trading and the covered
funds provisions. As proposed, a loan was defined as a loan, lease,
extension of credit, or secured or unsecured receivable.\1867\ The
definition of loan in the proposed rule was expansive, and included a
broad array of loans and similar credit transactions, but did not
include any asset-backed security that is issued in connection with a
loan securitization or otherwise backed by loans.
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    \1867\ See proposed rule Sec.  ----.2(q).
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    As discussed above under ``Definition of Loan,'' the Agencies
received comments regarding the loan definition in the securitization
context. In particular, one commenter, citing a statement made by
Senator Merkley, argued that Congress did not intend the loan
securitization exemption to include ``loans that become financial
instruments traded to capture the change in their market value.''
\1868\
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    \1868\ See Occupy (citing 156 Cong. Rec. S5895 (daily ed. July
15, 2010)).
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    The Agencies, after considering carefully the comments received,
have adopted a definition of loan that is revised from the proposed
definition. The final rule defines ``loan'' as ``any loan, lease,
extension of credit, or secured or unsecured receivable that is not a
security or derivative.'' \1869\ The definition of loan in the final
rule specifically excludes loans that are securities or derivatives
because trading in these instruments is expressly included in the
statute's definition of proprietary trading.\1870\ In addition, the
Agencies believe these instruments, if not excluded from the definition
of loan, could be used to circumvent the restrictions on proprietary
trading. Further, for purposes of the loan securitization exclusion,
the loan securitization must own the loan directly; a synthetic
exposure to a loan, such as through holding a derivative, such as a
credit default swap, will not satisfy the conditions for the loan
securitization exclusion.\1871\ As such, a securitization that owns a
tranche of another loan securitization is not itself a loan
securitization, even if the ownership of such tranche by a banking
entity would otherwise be permissible under the final rule.
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    \1869\ See Sec.  ----.2(r).
    \1870\ 12 U.S.C. 1851(h)(4).
    \1871\ Under the final provision, the issuing entity for the
SUBIs and collateral certificate may rely on the loan securitization
exclusion because of the separate provisions allowing such a
holding.
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    As discussed above under ``Definition of Loan,'' the definition of
loan in the final rule has not been expanded as requested by some
commenters but has been clarified in some respects in response to
comments. The final rule explicitly excludes securities or
derivatives.\1872\ In addition, the definition of loan has not been
modified to include repurchase agreements or reverse repurchase
agreements regardless of the character of the underlying asset. The
Agencies are concerned that parties, under the guise of a ``loan''
might instead create instruments that provide the same exposures to
securities and derivatives that otherwise are prohibited by section 13
and might attempt to use the loan securitization exclusion to acquire
ownership interests in covered funds holding those types of
instruments,

counter to the terms and the purpose of section 13 of the BHC Act. As
the Agencies have noted previously, the rules relating to covered funds
and to proprietary trading are not intended to interfere with
traditional lending practices or with securitizations of loans
generated as a result of such activities. Although the Agencies have
revised the definition of loan in response to commenters' concerns as
discussed above, the Agencies are not adopting a separate definition of
loan for securitization transactions as requested by commenters. The
Agencies believe that the definition of loan adopted in the final rule
appropriately encompasses the financial instruments that result from