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contravention of congressional intent, posing risks of material interruption of credit markets

Many issuers of asset-backed or related securities (“ABS”) and other intermediate entities necessary for securitization structures rely upon Section 3(c)(1) or 3(c)(7) for an exemption from the Investment Company Act. Given the overly broad definition of “covered fund,” these securitization vehicles will be captured by the Volcker Rule, even though they are not hedge funds or private equity funds as commonly understood. As a result, banking entities will be forced to rely on one of the permitted activities in the Proposal to sponsor or acquire an ownership interest in such vehicles, despite the fact that many customary securitization activities would not fit within these exceptions. For example, the loan securitization exception is drafted so narrowly that it would inappropriately prohibit (or, at a minimum, render impractical) legitimate securitization activities, such as the issuance of municipal securities, financings by asset-backed commercial paper conduits and securitization structures that necessitate the use of one or more intermediate vehicles that issue ABS backed by permissible loans. As other commenters have noted, the Proposal's effect on securitization could have a severe impact on credit markets. One effect would be to impede the ability of a syndicate of lenders to providing funding to borrowers with a collateralized loan obligation.

Super 23A and Securitization

Critically, Super 23A would prohibit a banking entity from entering into “covered transactions” with any such related securitization vehicle. Prohibiting the making of customary servicing advances or the provision of liquidity facilities or guarantees would force banking entities to abandon many customary, and in most cases necessary, structural features without which a securitization is not viable. In addition, it is anticipated that, for most securitization transactions, complying with the risk retention rules to be finalized pursuant to Section 941 of the Dodd-Frank Act or which already are or will be finalized in some

39 _{For a definition of “hedge fund” and “private equity fund” as those terms are commonly understood, see} the SIFMA comment letter on covered funds.

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jurisdictions outside the United States, such as the countries of the European Union, will require the sponsor or depositor to purchase securities issued by the securitization vehicle, which, in many circumstances, would also be a “covered transaction” under Super 23A.40 Similarly, many existing securitization vehicles have scheduled maturities that exceed the Proposal’s conformance and extension periods. Capturing such vehicles within the definition of “covered fund” would require banking entities either to violate the prohibitions of the Volcker Rule after such periods or breach their contractual obligations in order to bring their activities into compliance. This would open banking entities to significant damage claims and could also result in significant losses to investors. The careful assessment and monitoring of existing securitization vehicles and contractual obligations to determine the appropriate course of action (potentially including seeking guidance or requesting waivers from the Agencies) would also require dedication of significant resources and expense without advancing the objectives of the Volcker Rule.

Recommendations

Bank of America agrees with other commenters who note that Congress recognized the crucial role that securitization plays in financing credit, and therefore made clear in Section 13(g)(2) of the Volcker Rule that the rule is not to be “construed to limit or restrict the ability of banking entities or nonbank financial companies . . . to sell or securitize loan.”41 The Financial Stability Oversight Council (“FSOC”) acknowledged congressional intent in its study, describing Section 13(g)(2) as “an inviolable rule of construction [designed to] ensure that the economically essential activity of loan creation is not infringed upon by the Volcker Rule,” and recommended that the Agencies be guided by the exclusion in crafting the Proposal.42

Bank of America therefore recommends that, to address harmful effects on the securitization market that Congress did not intend, the Agencies revise the Proposal to:

 provide an exception for securitization vehicles from the definition of “covered fund” and grandfather preexisting sponsorship of, investment in and other relationships with such vehicles;

 if the Agencies do not provide an exception for securitization vehicles from the definition of “covered fund,” provide an exception from Super 23A to ensure that banking entities are not inadvertently prevented from engaging in customary transactions with related securitization vehicles or required to choose between compliance with the Volcker Rule and fulfilling contractual obligations;

40 _{Even for the narrow category of “loan securitizations” permitted under § _.13(d) of the Proposal, any risk} retention in this form in excess of the Dodd-Frank regulatory minimum would constitute a “covered transaction” under Super 23A.

41 _{See Bank Holding Company Act § 13(g)(2).} 42 _{See FSOC Study, supra note 9, at 47.}

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 clarify that the definition of “ownership interest” does not include debt asset- backed securities;

 provide exceptions for asset-backed commercial paper and municipal tender option bond programs; and

 revise the exception permitting ownership interests in an issuer of asset-backed securities so that it:

 encompasses risk retention requirements under regimes outside the United States as well as under Dodd-Frank;

 recognizes the different form taken by risk retention requirements in jurisdictions outside the United States (i.e., not a legal retention obligation of the sponsor or originator but rather a required condition of investment by any regulated investor, which would include credit institutions, investment and insurance companies); and

 permits the amount of risk retention to exceed regulatory minimums of Dodd-Frank or foreign jurisdictions.

8. As an advisor and sponsor to money market funds subject to Rule 2a-7 of