Alert September 30, 2008

OCC Issues Interim Final Rule Concerning Risk-Based Capital Treatment of Asset-Backed Commercial Paper Purchased from Money Market Funds

As discussed in the September 23 Alert, on September 29, 2008 to reduce liquidity strains being experienced by money market mutual funds (“MM Funds”), the FRB established a special lending facility (the “Facility”) that allows depository institutions (“DIs”, and each a “DI”) to borrow on a nonrecourse basis from the Federal Reserve Bank of Boston (“FRB-Boston”) if the DI uses the proceeds from the loan to purchase asset-backed commercial paper (“ABCP”) from MM Funds.  The ABCP purchased using proceeds from the Facility must be pledged to secure the loan from the FRB‑Boston.

On September 26, 2008, the OCC issued an interim final rule (the “Interim Rule”), under which a DI may assign a zero percent risk weight to the ABCP purchased by the DI during the period from September 19, 2008 and January 31, 2009.  The Interim Rule became effective on September 19, 2008, and comments may be submitted to the OCC until October 31, 2008.