• The Federal Reserve Board (Fed) recently issued a proposed rule regarding Regulation A (Extensions of Credit by Federal Reserve Banks). Section 1101 of the Dodd Frank Act amended the Fed's emergency lending authority in section 13(3) of the Federal Reserve Act (FRA). This proposed rule would implement the Dodd-Frank Act changes and was developed in consultation with the U.S. Treasury.
• Specifically, this proposed rule is intended to ensure that the Fed’s emergency lending program or facility is for the purpose of providing liquidity to the financial system, and is not to aid an individual failing financial company. These changes are not intended to affect discount window lending to depository institutions, such as banks and credit unions, because much of that statutory framework is contained in section 10B of the FRA.
• Effective July 21, 2010, the Dodd-Frank Act amended section 13(3) of the FRA to:
1. Remove the Fed’s general authority to lend to an individual, partnership, or corporation, and limit the Fed’s emergency lending to extending credit to participants in a program or facility with broad-based eligibility;
2. Require the Fed to obtain the approval of the Treasury Secretary prior to extending emergency credit under section 13(3) of the FRA;
3. Provide that a program or facility structured to remove assets from the balance sheet of a single and specific company, or is established to assist a single company avoid bankruptcy, would not be considered broad-based; and
4. Require the Fed, in consultation with the Treasury Secretary, to adopt policies and procedures to ensure emergency lending is for the purpose of providing liquidity to the financial system, and not to aid a failing company; the security for such loans is sufficient to protect taxpayers from losses; any such program or facility is terminated in a timely and orderly way; a Reserve Bank assigns a lendable value to collateral; and borrowing by insolvent entities is prohibited.
• Comments for the proposed rule are due to the Fed by March 7, 2014; please submit your comments to CUNA by February 24, 2014.
• If you have any questions or comments, please contact CUNA Assistant General Counsel for Regulatory Research Dennis Tsang at firstname.lastname@example.org.
• For further details, please see the Fed’s proposed rule.