On November 5, 2014, the Federal Reserve Board (FRB) issued a final rule implementing Section 622 of the Dodd-Frank Act, which generally prohibits a financial institution from engaging in mergers, consolidations or acquisitions that would result in a single financial company whose total liabilities exceed 10% of the aggregate liabilities of all "financial companies." The final rule also establishes reporting requirements for financial institutions that do not otherwise report consolidated financial information to the FRB or to another appropriate federal agency to implement section 14 of the Bank Holding Company Act.

A covered acquisition under the final rule is a transaction in which one company merges with, consolidates with, or otherwise obtains all of the assets of another company, and the resulting entity is a financial company.

A "financial company" includes any of the following:

Companies that are not affiliated with an insured depository institution, such as stand-alone brokers or insurance companies, are not subject to the concentration limit unless they have been designated for supervision by the FRB.

The final rule measures consolidated liabilities of a US company subject to applicable risk-based capital rules as equal to:

Currently, only insured depository institutions and bank holding companies are subject to applicable risk-based capital rules.

For US financial companies not subject to consolidated risk-based capital rules, the FRB will measure the liabilities using GAAP or other applicable accounting standards deemed appropriate by the FRB.

The final rule provides exceptions to the rule, upon the FRB's prior written consent, for covered acquisitions:

Excluded from covered acquisition liabilities calculation, provided certain other conditions are met, are liabilities that are, among others:

The final rule adds an exception for securitization transactions to the definition of "covered acquisition" that permits a financial company to continue sponsoring securitizations after its liabilities reach or exceed the concentration limit, consistent with the requirements of the Dodd-Frank Act. Specifically, a "covered acquisition" excludes an acquisition of ownership or control of a company that is, or will be, an issuer of asset-backed securities (ABS) so long as the financial company that retains the ownership interest complies with Dodd-Frank credit risk retention requirements issued under Exchange Act Section 15G (see Practice Note, US Risk Retention Requirements for Asset-Backed Securities (ABS)).

The concentration limit also does not constrain internal growth by a financial company, so long as that growth does not involve a covered acquisition such that the resulting company would exceed the limit.

As of July 1 of a given year, aggregate financial sector liabilities are equal to the average of the year-end financial sector liabilities figure for the preceding two calendar years. The measure of financial sector liabilities will be in effect until June 30 of the following calendar year. The FRB modified the final rule to provide that, for the period beginning on July 1, 2015 and ending on June 30, 2016, financial sector liabilities are equal to the year-end financial sector liabilities figure as of December 31, 2014.

The effective date for this final rule is January 1, 2015.