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Federal Register / Vol. 86, No. 44 / Tuesday, March 9, 2021 / Rules and Regulations
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dividends, on non-senior securities and any other payments on a share of stock or other equity or equivalent interest, ii payments, including interest payments, on non-senior securities that the issuer has full discretion to permanently or temporarily suspend without triggering a default, iii redemptions or repurchases of nonsenior securities or iv any similar transaction that Treasury determines to be in substance a capital distribution.
Excluded from this definition, however, are a redemptions or repurchases of shares that are part of an employee stock ownership plan for an ECIP recipient that is not publicly traded, provided that the repurchase is required solely by virtue of the Employee Retirement Income Security Act of 1974, as amended; b in the case of federally insured credit unions, payments of dividends and interest as defined by 12
CFR 707.2h and o on accounts held by their members and redemptions of membership share interests upon voluntary or involuntary terminations of membership by a credit union or its members, as applicable; and c solely in the case of the earnings test described below, redemptions or repurchases of non-senior securities if the issuer of the non-senior securities being repurchased or redeemed funds the redemption or repurchase by issuing at least a corresponding amount of new nonsenior securities that rank equally in liquidation with, receive the same capital treatment as and, if applicable, have a stated maturity date no earlier than the non-senior securities being redeemed or repurchased. An extraordinary or special dividend which excludes an ordinary dividend on a special share account by a federally insured credit union is a capital distribution and is not subject to the exclusion for payments of dividends and interest by credit unions on accounts held by their members.
ii. Limit on the Amount of Capital Distributions Under the interim final rule, an ECIP
recipient will be required to obtain prior approval from Treasury in order to make capital distributions in excess of the following earnings-based tests.
Treasury determined that the limits on capital distributions are appropriate based on a review of publicly available data regarding average dividend rates among banking organizations with $10
billion or less in total assets, in the period before the Covid-19 pandemic.
Thus, the limitation on capital distributions strikes an appropriate balance between allowing ECIP
recipients to make capital distributions
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and helping to ensure that the proceeds of the ECIP investment are used to expand lending to lowand moderateincome and other targeted populations.
A. Earnings Test for Insured Depository Institutions, Bank Holding Companies, and Savings and Loan Holding Companies The interim final rule provides that, without prior approval from Treasury, an ECIP recipient that is an insured depository institution, bank holding company, or savings and loan holding company may not make a capital distribution if the total capital distributions made during the calendar year, including the proposed capital distribution, exceeds its eligible distributable income, which is calculated as the sum of the ECIP
recipients a year-to-date net income as of the end of the most recent calendar quarter, plus net income for the two preceding calendar years, less b any dividends or capital distributions for the year to date as of the end of the most recent calendar quarter, and for the two preceding calendar years, where each amount is calculated in accordance with the instructions to the Call Report or applicable reporting form. While approval may be awarded by Treasury to make capital distributions, the interim final rule confirms that such approval does not supersede any applicable regulatory requirements of the ECIP recipients appropriate Federal banking agency, or other actions taken by such agency.
The eligible distributable income limit is similar to other existing earnings limitations on payments of dividends that apply to certain insured depository institutions.18 In light of this similarity, an ECIP recipient could calculate eligible distributable income with respect to capital distributions, by applying the methodology set forth in 12 CFR 5.64 or 12 CFR 208.5, as applicable, with respect to dividends, by substituting capital distributions for dividends. In addition, in the case of 12 CFR 208.5, an ECIP recipient that is not an insured depository institution would use net income, as reported in the ECIP recipients FR Y9C or FR Y
9SP, instead of net income as reported in the Reports of Condition and Income.
Treasury anticipates that the operational impact the capital distribution approval requirement will be nominal and that the approval requirement will provide 18 See, e.g., 12 U.S.C. 60 national banks, 12 CFR
5.64 national banks, and 12 CFR 208.5 state member banks.

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meaningful support for the objectives of the Program.
B. Earnings Test for Federally Insured Credit Unions Consistent with existing distribution limitations applicable to federally insured credit unions,19 the interim final rule provides that, without prior approval by Treasury, an ECIP recipient that is a federally insured credit union may not make a capital distribution on any non-senior securities if the distribution would i in the case of a dividend, be payable from retained earnings as defined in 12 CFR 702.2f other than undivided earnings; or ii cause the credit unions net worth classification to fall below adequately capitalized as defined in 12 CFR
702.102a2.
3. Exemptive Relief Under the interim final rule, Treasury retains authority to grant waivers or exemptions from the restrictions under the interim final rule on dividends, share buybacks, and other capital distributions. Such relief may be granted broadly to all ECIP recipients or to particular entities. In considering whether to grant exemptive relief, Treasury will consider whether the relief is necessary or appropriate to achieve the goals of the ECIP or to protect the public interest. Such relief may be granted based on terms and conditions as determined by Treasury, and in making determinations regarding requests for exemptive relief, Treasury may consult with the primary Federal regulator when deemed appropriate.
4. Annual Certification and Enforcement Each ECIP recipient will be required to submit to Treasury on an annual basis a certification executed by two senior executive officers one of which must be either the ECIP recipients principal executive officer or principal financial officer that the ECIP recipient is in compliance with each of the excessive compensation, severance payments, excessive or luxury expenditures requirements and restrictions on capital distributions set forth in the interim final rule. If an ECIP recipient certifies that it satisfies the severance payments requirements, Treasury expects that the certification will address only compliance with the requirements and will neither address whether the ECIP
recipient is in troubled condition for purposes of 12 CFR parts 359 and 750, as applicable, nor contain any confidential supervisory information subject to applicable disclosure 19 See
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12 CFR 702.403.

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