Alert April 24, 2012

OCC Issues Notice of Proposed Rulemaking that Would Revise Requirements for Short-Term Investment Funds

The OCC issued a notice of proposed rulemaking (the “Proposed Rule”) that would revise the requirements of the OCC’s short-term investment fund (“STIF”) rule, 12 CFR 9.18(b)(4)(ii)(B).  The OCC said that the Proposed Rule would add to and revise the requirements for collective investment funds that are STIFs by requiring banks’ STIFs to

  • “operate with a primary objective of a stable net asset value (NAV) of $1.00 per participating interest;
  • have a dollar-weighted average portfolio maturity of 60 days (revised down from 90 days);
  • have a dollar-weighted average portfolio life maturity of 120 days;
  • adopt (1) portfolio and issuer qualitative standards and concentration restrictions and (2) standards to address contingency funding needs;
  • adopt shadow pricing procedures—one that reflects the value of a fund’s assets at amortized cost and another that reflects the market value of the fund’s assets—and calculate the difference at least on a weekly basis;
  • adopt procedures for stress testing the STIF’s ability to maintain a stable NAV and report adverse stress testing results to the managing bank’s senior risk management;
  • provide a monthly disclosure to STIF plan participants and the OCC;
  • adopt procedures that require a bank that administers a STIF to notify the OCC prior to or within one business day after the occurrence of one or more of six specific events;
  • use mark-to-market value accounting, instead of amortized cost accounting, if the market value of the portfolio falls below a NAV of $0.995 per participating interest; and
  • adopt procedures to take certain actions if a bank suspends or limits withdrawals and initiates liquidation of the STIF as a result of redemptions.”

The OCC stated that the general objective of the changes to STIF requirements set forth in the Proposed Rule is intended to add safeguards that would mitigate the risk of loss to a STIF’s principal.

Comments on the Proposed Rule are due by June 8, 2012.