February 13, 2012

Re: Comments on Notice of Proposed Rulemaking on Prohibitions and Restrictions on

Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds
and Private Equity Funds
1





Ladies and Gentlemen:

Bank of America Corporation, together with its subsidiaries and affiliates (Bank
of America), appreciates the opportunity to comment on the Agencies
2
notice of
proposed rulemaking
3
(the Proposal) implementing the statutory text of the Volcker
Rule.
4
We recognize that the Agencies have sought to implement the Volcker Rule within
the framework established by Congress while at the same time limiting negative
consequences for the financial markets and the broader economy. The difficult challenge
that the Agencies faced in achieving these goals is reflected in the 1,347 questions in the
Proposal on which the Agencies have sought public input.

Despite the Agencies commendable efforts under difficult circumstances and a
compressed time frame, we believe that the Proposal is rife with unintended consequences,
many of which would undermine the safety and soundness of U.S. banking entities and
U.S. financial stability if left unaddressed. We expect that additional unintended
consequences for the products and services we provide to our customers will be revealed as
we continue to assess the complex and extraordinarily far-reaching impact of the Volcker
Rules prohibitions on proprietary trading and sponsoring or investing in what the Proposal
deems to be hedge funds and private equity funds.


1
RIN 1557-AD44; RIN 7100 AD 82; RIN 3064-AD85; RIN 3235-AL07.
2
As used in this letter, the Agencies refers to the Board of Governors of the Federal Reserve System
(the Federal Reserve), the Commodity Futures Trading Commission (the CFTC), the Federal Deposit
Insurance Corporation (the FDIC), the Office of the Comptroller of the Currency (the OCC) and the
Securities and Exchange Commission (the SEC).
3
See Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships
With, Hedge Funds and Private Equity Funds, 76 Fed. Reg. 68,846 (Nov. 7, 2011).
4
See Bank Holding Company Act 13 (as added by Dodd-Frank 619).
2

We believe that alternatives to the approaches taken in the Proposal are available
that would fulfill the requirements of the statute, are within the authority of the Agencies to
adopt, more closely reflect congressional intent and cause less damage to our individual
and corporate customers, market liquidity, cost of capital, the availability of credit, U.S.
competitiveness, safety and soundness and U.S. financial stability. We respectfully submit
that the Agencies should use the discretion and authority granted to them by Congress to
implement the Volcker Rule in a less burdensome and needlessly costly manner.

In doing so, the Agencies should adopt a principle of do no harm to the safety
and soundness of U.S. banking entities and U.S. financial stability as they consider the
final rule. The United States enjoys the deepest and most liquid financial markets in the
world. When weighing the range of policy alternatives available to them to craft
regulations that faithfully implement the Volcker Rule, the Agencies should make every
effort to preserve the ability of corporations, municipalities and other institutions to raise
capital efficiently and inexpensively in the United States, and should continue to encourage
and support investment in the United States by domestic and foreign institutions and
individuals. Moreover, we believe that the Agencies should be informed by the
cost/benefit analysis required by the Business Roundtable decision.
5
The Agencies need
not sacrifice any of the policy goals underlying the Volcker Rule. To proceed otherwise
risks causing irreparable harm to the U.S. and global financial systems and the individuals
and institutions served by them. One cannot assume that if the final rules get it wrong, any
harm created can easily be undone by subsequent Agency action.

Bank of America also believes that the Agencies should reconsider the timeline for
implementation to provide market participants with greater clarity, avoid unnecessary
market disruption and comply with congressional intent. It is also critical that the
Agencies establish an appropriate supervisory framework among the five Agencies in
order to avoid crippling interpretive uncertainty, increased risk of regulatory inconsistency
and avoidable costs.

The remainder of this letter proceeds as follows: we first provide an overview of
proprietary trading, which we believe is essential background in considering the potential
harmful, unintended consequences of the Proposal. We then highlight some of these
unintended consequences, providing specific examples of how the Proposal could harm
activities of banking entities that should be viewed as permitted under the Volcker Rule.
More specifically, we discuss the potential impact of the Proposals approach to
proprietary trading on critical market making, underwriting, hedging and risk management
activities of banking entities. We also focus on several issues relating to the Proposals
limitations on investing in and sponsoring hedge funds and private equity funds, including
the overbroad scope of the Proposals definition of covered funds, and some of the
significant, harmful results of this approach. Finally, we discuss the need for clarity
regarding the conformance period for compliance with any final rules and, to avoid
unnecessary uncertainty, duplicative costs and opportunities for regulatory arbitrage, the

5
Business Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011). Please see Part III of Appendix B for a
discussion of the need for a cost/benefit analysis of the type required by the D.C. Circuit in the Business
Roundtable case, which was not conducted in connection with the issuance of the Proposal.
3

need to designate one Agency as responsible for implementing, interpreting, and ensuring
compliance with the final rules.
6


At the end of each of these sections, we provide recommendations to address the
unintended consequences of the Proposal; for convenience, these recommendations are
collected in Appendix A. The technical supplement attached as Appendix B provides a
more detailed discussion of each of these topics, and includes factual information on
anticipated impacts and discusses the Agencies authority under the statute to avoid them.
A link to the relevant section of Appendix B is embedded in the text box section headings
of sections II through XVIII, and in some subheadings of subsection XIII, of this letter.
Appendix A includes links to the relevant discussions in this letter and in Appendix B.



I. Proprietary Trading Overview


The Volcker Rule prohibits covered banking entities from engaging in certain types
of proprietary trading. In response, Bank of America, like many other banking entities, has
disbanded its segregated proprietary trading unit well in advance of the statutes effective
date. At the same time, however, the statute acknowledges the importance of market
makers as liquidity providers and expressly permits market making-related activities, risk-
mitigating hedging, underwriting, trading on behalf of customers and trading in
government securities.
7
While we recognize the Agencies struggle to reconcile the
general prohibition with these permitted activities, the narrow and overly prescriptive
definitions, conditions and descriptive factors in the Proposal will negatively impact
markets in direct contravention of the clear language of the statute. In short, we believe
that the Proposals restrictive interpretation of the permitted activities provided by the
statute will increase volatility and reduce liquidity for many types of assets, impair the
fragile economic recovery, raise costs for corporations, municipalities and other issuers
seeking capital markets solutions to their funding needs and reduce the availability of
credit.

Covered banking entities serve a crucial function as market intermediaries,
particularly in markets like the fixed income markets, where several million individual
securities exist that are not fungible with one another and generally are not listed or traded
on an exchange. Investors look to market maker intermediaries, like Bank of America, to
provide liquidity by standing ready to offer to purchase or sell such securities, even when

6
The Proposal raises many issues that we have not addressed in this comment letter. These issues, many
of which are important for Bank of Americas customers, the stability of financial markets and safety and
soundness considerations, are raised by trade association letters, including those of the Securities Industry and
Financial Markets Association (SIFMA), The Clearing House, The Financial Services Roundtable, the
American Bankers Association, the American Bankers Association Securities Association, the International Swaps
and Derivatives Association, the Investment Company Institute, the U.S. Chamber of Commerce, the Loan
Syndication and Trading Association, the American Securitization Forum and the letter submitted by Cleary,
Gottlieb, Steen & Hamilton LLP on behalf of a group of dealers, asset managers, pension funds, hedge funds and
other clients and customers of dealers, whose recommendations Bank of America supports.
7
See Bank Holding Company Act 13(d)(1).
4

the market marker has not identified another party to enter the offsetting trade.
8
Given the
Proposals restrictions on this intermediary function, banking entities likely will either
refrain from providing liquidity for some instruments or be forced to pass on their
additional risks and costs to investors by changing the prices at which they are willing to
transact with those investors. This would increase costs for both retail and institutional
investors. As a result, it will be more expensive for issuers to raise money to meet their
capital needs. These costs, which could be substantial, could in turn threaten our economic
recovery. As described more fully in the Oliver Wyman study, a reduction in liquidity in
just the corporate bond market could have an impact on the scale of tens of billions of
dollars annually for issuers.
9
When the costs to investors in this and other markets, like
municipal securities, mortgage-backed securities and equities also are factored in, the real
economic costs of the Proposal could easily exceed $100 billion.
10


Moreover, if covered banking entities can no longer offer such services because
they are deemed to be prohibited proprietary trading, it is unrealistic to believe that hedge
funds or other non-covered entities would rapidly fill the immense liquidity gap left by
covered banking entities, if they could do so at all. Bank of Americas fixed income and
equities sales forces employ more than 1,500 salespeople globally to cover institutional
clients that include investment advisors for retirement accounts, pension funds, collective
trust funds, mutual funds and other similar investment vehicles. Hedge funds and other
non-covered entities, which are not subject to the same scrutiny and regulatory oversight as
covered banking entities, are not scaled for and not in the business of meeting the liquidity
demands of customers. Hedge funds are purely proprietary traders. Covered banking
entities, on the other hand, are expected to provide liquidity to their clients, even in
distressed markets, and the Agencies should not introduce new risks to the economy by
assuming that these other unproven and untested sources of liquidity will materialize.



II. The Proposals market making-related activities exception is too
restrictive, based on inaccurate assumptions regarding how banking
entities engage in market making, and would diminish market liquidity


The Proposals approach to market making reflects a bias towards an agency-based
model that is not appropriate for most markets and asset classes. Thus, the Proposal would
implement the market making-related activities exception by reference to a series of factors
that make sense only in the context of an agency-based trading model that exists in just
certain segments of highly liquid equity markets rather than the principal-based trading

8
A single issuer may raise capital over time through numerous bond issues; none of these bonds will be
identical to any other bond of the issuer. Bank of America Corporation, for example, has nearly seven thousand
distinct bond issuances in the market, each with its own maturity, interest rate and other characteristics.
9
See Oliver Wyman, The Volcker Rule Restrictions on Proprietary Trading (2011).
10
The Oliver Wyman study estimated the costs from a reduction of liquidity to be $90 billion to $315
billion for investors, based on existing holdings, and $12 billion to $43 billion annually for corporate issuers.
Based on this analysis, which was limited solely to the U.S. corporate credit market, we extrapolate that the
liquidity impact to markets more broadly could easily exceed $100 billion.
5

model that prevails in virtually all corporate and sovereign (including U.S. government)
debt, swap, commodity and equity markets.

The Proposal treats principal trading, which involves price making and the
provision of liquidity to customers, and is a fundamental part of market making, as
prohibited proprietary trading for which the market making-related activities exception is
largely unavailable. In particular, the limits on the extent of and sources of revenue arising
from principal trading on behalf of customers will materially restrict this essential
customer service. As discussed further below, the Proposals requirements that
anticipatory positions be related to the clear, demonstrable trading interests of clients
11

and that market making-related activities be designed to generate revenues primarily from
bid/ask spreads and certain other fees and commissions, rather than price appreciation or
hedging,
12
simply do not work for most asset classes.

The model for principal-based market making we describe is the model employed
for most segments of the U.S. Treasury and other U.S. government agency securities
markets. While the U.S. Treasury market is regarded as one of the most liquid in the
world, many segments of it, depending on the characteristics of a particular debt security,
are far from liquid. Moreover, the market making function in this market operates in the
same fashion as it does for other debt markets, where distinguishing a bid/ask spread from
price appreciation is generally not possible. Based on the restrictive market making
requirements included in the Proposal, Bank of America believes that, but for the Volcker
Rules express carve-out for proprietary trading of U.S. Treasury and other government
agency securities, it would be constrained in providing liquidity to these important
securities markets. We respectfully request that the Agencies carefully consider this
disparate treatment and broaden the permitted market making-related activities exception.


Anticipatory Positioning


A market maker buys or sells securities and other instruments not only in response
to, but also frequently in anticipation of, client demand. In the principal-based trading
model, a market maker must acquire inventory to sell to clients that want to buy. Given
the vast number of available financial instruments and individual CUSIPs
13
within a
particular asset class, a market maker cannot wait for a customer order or inquiry before
acquiring this inventory. The need to hold inventory to meet future customer demand is
greatest in low-volume markets, such as the corporate debt market, resulting in a conflict
with the Proposals requirements that anticipatory positions be related to the clear,
demonstrable trading interests of clients. Difficulties in fulfilling this condition also may

11
See Preamble to the Proposal, 76 Fed. Reg. at 68,871.
12
See Proposal _.4(b)(2)(v).
13
A CUSIP is a 9-character alphanumeric code given to every security that trades in the U.S. market to
facilitate clearing and settlement. Each issuance of securities is given its own distinct CUSIP number. For
example, according to data provided by SIFMA, there are approximately 1.1 million separate outstanding security
issuances in the municipal market and approximately 50,000 separate security issuances in the corporate bond
market.
6

arise in high-volume equity markets, where a market making desk may purchase a
particular security being added to an index in anticipation of future customer buying
demand, but has not yet received any customer orders. In addition, as part of standing
ready to provide liquidity to customers, a market maker must be able to make a price to
purchase securities that customers want to sell. This critical function results in the
acquisition of inventory that may not readily be resold. To illustrate the disparate volume
characteristics which exist across markets, in 2010, the turnoveri.e., the volume traded in
a financial instrument as a percentage of the outstanding volume issued of that
instrumentwas approximately 80 percent in the $7.5 trillion corporate bond market and
20 percent in the $2 trillion asset-backed securities market, according to data from SIFMA.
In contrast, according to the World Federation of Exchanges, turnover in the equity market
was 260 percent.


Distinguishing Bid/Ask Spread from Price Appreciation


The Proposals requirement to capture a bid/ask spread is based on flawed
assumptions regarding the way markets operate and the nature of the bid/ask spread.
Distinguishing between price appreciation and a bid/ask spread is not an appropriate
bright-line test to separate permitted market making-related activities from proprietary
trading or an appropriate basis to transform what is fundamentally a market making
position into a proprietary trade. If the Agencies continue to insist on the use of this
bright-line test, much legitimate market making activity may be discontinued.

Because market makers hold inventory to meet expected client demand, or as a
result of purchases from clients looking to sell, a market maker is exposed to the risk of
changes in the price of those instruments. A principal traders profits or losses therefore
depend on its management of that risk, and not necessarily on capturing a bid/ask spread.
In markets without reliable public statistics on bid/ask spreads, such as many fixed income
markets, it is difficult to conceive how to distinguish the bid/ask spread from price
appreciation in, for example, a basic transaction where a market maker purchases a
corporate bond from a client for $90 and subsequently sells it for $92.

Even in more liquid and transparent equity markets, it is sometimes difficult to
differentiate between the bid/ask spread and price movement, be it appreciation or
depreciation. For example, an equity block positioner may accommodate a customer who
wants to sell a block of stock whose size is many times larger than the stocks normal daily
trading volume trading. The customer is willing to sell the block at a discount to the
current trading price to compensate the market maker for the risk attendant with selling
such a large block of stock into the market over a potentially extended period. While the
discounted purchase price is intended to compensate the market maker for the risk it
assumes, the security may incidentally rise in value
14
beyond the discount before the
market maker is able to fully liquidate its block position.


14
We note that the security may equally depreciate in value due to changes in the market, raising in
reverse the problem of separating the price depreciation and spread in the transaction.
7

In certain markets the bid/ask spread may change over a relatively short period of
time, in reaction to broad developments in the market, the particular asset class or the
issuer, in which case the change in the bid/ask spread is actually reflective of price
appreciation or depreciation, but in any event is not susceptible to being readily
determined. In the high-yield corporate bond market, for example, an individual bond may
be quoted with a bid/ask spread of 25 basis points, but in recent times, markets often have
moved 100 to 200 basis points during a single trading day.

Furthermore, in markets such as equity derivatives, acting as a market maker does
not contemplate capturing a bid/ask spread on any individual trade, but rather managing
the aggregate volatility inherent in the market makers total position through efficiently
and cost-effectively hedging that volatility. In these markets, we are uncertain how to
approach the requirement to monitor, capture and identify the bid/ask spread on a trade-by-
trade basis.

Thus, isolating the spread component attributable to the profit or loss that a market
maker may incur is extraordinarily difficult in most markets. Moreover, since market
makers have never attempted to measure the intermediation service they perform for the
markets in terms of capturing, for each trade, the bid/ask spread, they do not have the
means to do so. Complex and likely expensive new systems will need to be built to
attempt to differentiate the bid/ask spread on each trade executed by a market maker from
price appreciation or other factors that arise inherently from the role of buying and selling
positions as principal in a market intermediation role.


Swaps


The market making-related activities exception is particularly problematic as it
relates to swap intermediation. Market making for swaps, regardless of type (for example,
equity, interest rate, commodity, credit or other fixed income), involves much more than
providing two-way markets. Rather, it is a sophisticated business involving interrelated
customer transactions, inventory building, hedging, trading, positioning and portfolio
optimizationall conducted dynamically, interchangeably and holistically in support of
intermediation for customers. These functions are all allied, integral and inseparable
every instrument in a portfolio contributes to the portfolios risk profile, instruments may
be used interchangeably based on the bundle of risks that they represent and hedge
positions may be indistinguishable from non-hedge positions. The Proposal does not
adequately take this complexity into account and would impair customer liquidity by
effectively delegitimizing this proven and efficient risk-intermediation model.
15







15
For a detailed discussion of the issues raised by the Proposal with respect to market making in swap
markets, see the comment letter submitted by International Swaps and Derivatives Association.
8


Metrics


While Bank of America recognizes the need for certain quantitative metrics to
facilitate a framework for objectively distinguishing market making from proprietary
trading, the Proposals requirement that banking entities calculate seventeen metrics at
each trading unit
16
is excessive, would generate an unmanageable amount of data across
possibly hundreds of trading units globally, would yield numerous false positives and
would require the construction and programming of highly sophisticated systems to
capture metrics that are not currently employed or maintained. For example, Bank of
America acts as a market maker in forward contracts for as many as seventeen types of
crude oil products, fifteen types of fuel oil products, sixteen types of heating oil products
and dozens of different North American natural gas products. The amount of data that
would result from calculating the Proposals seventeen metrics just for the trading units
involved in this small segment of the commodities market would be substantial and
daunting. When factoring in all the other Bank of America global trading units that act as
market makers in different asset classes, the data to be produced by Bank of America
reaches astronomical proportions. On a typical day, Bank of America estimates that it
enters into approximately two million principal transactions across its global trading
businesses. Further, as described above, there is no current or reliable method to
distinguish a bid/ask spread from price appreciation in these or many other markets. When
extrapolated across the entirety of the commodities market, as well as the equities, fixed
income and derivatives markets for all covered banking entities global operations, it is
difficult to comprehend how regulators will be able to analyze the information to draw
useful conclusions.



Recommendations


To address the foregoing concerns, particularly the Proposals apparent
fundamental premise that all activity is prohibited proprietary trading and not entitled to
rely on a permitted activity exception until proven otherwise, we suggest a simplified
approach: instead of a presumption of proprietary trading that must be rebutted, there
should simply be a prohibition to which banks must adhere as in other regulatory contexts
(e.g., existing prohibitions on insider trading, excessive markups, etc). The Agencies
could then audit banking entities adherence to compliance policies and procedures
through the supervisory process, informed by reasonable metrics at a business-by-business
level, to reasonably ensure compliance with the prohibition.

Bank of America further strongly supports the suggestions of other commenters to
revise the Proposal to ensure that markets remain liquid and customers continue to have
access to market making services across financial markets. Specifically, Bank of America
recommends that the Agencies:

16
See Proposal, Appendix A.
9


presume that trading desks that are primarily providing liquidity to customers,
as demonstrated by useful metrics, and subject to appropriate compliance
procedures, are engaged in market making;
define market making-related activities with reference to a set of factors rather
than hard-coded requirements;
replace the condition that market making-related activities be designed to
generate revenues primarily from bid/ask spreads and certain other fees and
commissions, rather than price appreciation or hedging, with guidance that the
Agencies consider as an indicator of potentially prohibited proprietary trading
the design and mix of such revenues, but only in those markets for which it is
quantifiable based on publicly available data, such as segments of certain
highly liquid equity markets;
eliminate the requirement that anticipatory positions be related to clear,
demonstrable trading interests of customers;
rely on a smaller number of customer-facing trade ratios, inventory turnover
ratios, aged inventory calculations and value-at-risk measurements to identify
prohibited proprietary trading, with acknowledgement that differences between
asset classes and in market conditions may impact the applicability of certain
metrics or thresholds;
calculate quantitative metrics at the line of business level (at Bank of America,
for example, Global Credit Products or Global Equities) rather than at a trading
unit level in the organization; and
explicitly allow interdealer market making.



III. The Proposal would impede the ability of banking entities to manage
risk in a safe and sound manner through overly burdensome risk-
mitigating hedging compliance requirements


The Volcker Rule expressly permits risk-mitigating hedging activities,
17
which the
Financial Stability Oversight Council (FSOC) has recognized to be a core banking
function.
18
The Proposal, however, would impose a detailed set of conditions that the
activity must satisfy in all instances, regardless of the facts and circumstances relevant to a

17
Specifically, the statutory Volcker Rule permits risk-mitigating hedging activities in connection with
and related to individual or aggregated positions, contracts, or other holdings of a banking entity that are designed
to reduce the specific risks to the banking entity in connection with and related to such positions, contracts, or
other holdings. See Bank Holding Company Act 13(d)(1)(C).
18
See Financial Stability Oversight Council, Study & Recommendations on Prohibitions on Proprietary
Trading & Certain Relationships with Hedge Funds & Private Equity Funds 1 (2011) (FSOC Study), available
at http://www.treasury.gov/initiatives/Documents/Volcker%20sec%20%20619%20study%20final%201%
2018%2011%20rg.pdf.
10

given risk.
19
For example, the requirement that a hedging transaction be reasonably
correlated
20
to a given risk could be read to require that banking entities link hedges to
risks in a manner that is inconsistent with dynamic hedging, portfolio hedging and scenario
hedging. Because many financial products lack a specific instrument that can be used to
hedge against their risk, the difficulty of complying with these requirements could dissuade
or prevent risk managers from entering into prudent hedging transactions. In the context of
dynamic hedging, these requirements become particularly problematic because the
reasonable level of correlation between the hedge and the position moves constantly with
changes in, among other factors, prices, index levels and volatility.

Similarly, the requirement that hedges not create significant new risk to a
covered banking entity
21
ignores the fact that risk attaches to any hedge, and judgments
about the degree of such risk depend on the facts and circumstances of a transaction.
Many optimal hedges necessarily carry or introduce new risks because they cannot
perfectly correlate with the risk of the position hedged against, or because the trader must
hedge against the most likely and material risks. Accordingly, this requirement would add
another layer of difficulty to the use of the dynamic, portfolio and scenario hedging
techniques described above. We are also concerned that individual traders, when uncertain
whether a hedging transaction would be viewed as creating significant new risks, will
elect to play it safe from a regulatory perspective and either not execute the hedging
transaction, thereby actually increasing the risk to the banking entity, or not enter into the
original transaction, thereby reducing liquidity to the market. What is more, distinguishing
between permitted risk-mitigating hedging and prohibited proprietary trading based on
whether a hedge will introduce a significant risk introduces an unpredictable element
that will make it difficult for risk managers to determine, on an ex ante basis, whether a
particular transaction is permitted. This introduces yet another unnecessary obstacle to
prudent hedging and risk management and endangers the safety and soundness of U.S.
banking entities.



Recommendations


Paradoxically, as proposed, the risk-mitigating hedging exception likely will
increase, not decrease, the risks posed by and to U.S. banking entities in many
circumstances. Bank of America strongly supports the proposals of other commenters that
the Agencies revise the Proposals risk-mitigating hedging exception to:

establish a presumption of compliance for banking entities adhering to
reasonably designed policies and procedures for managing risk;

19
See Proposal _.5.
20
See id. _.5(b)(2)(ii)-(iii).
21
See id. _.5(b)(2)(iv).
11

characterize reasonable correlation between a transaction and the risk intended
to be hedged as evidence of compliance rather than as a strict requirement;
encourage, rather than discourage, scenario hedges;
eliminate as unworkable the requirement that hedges not create significant
new risks;
define risk-mitigating hedging with reference to a set of relevant descriptive
factors rather than specific prescriptive requirements; and
expand the scope of allowable anticipatory risk-mitigating hedging to include
hedges taken more than slightly before exposure to the underlying risk.

The Proposal also does not exclude from the prohibition on proprietary trading
derivatives on positions that banking entities are permitted to hold. Bank of America
strongly agrees with commenters that suggest the Agencies revise the Proposal to
encourage hedging of positions that are expressly permitted by:

excluding derivatives based on loans, foreign exchange and commodities from
the definition of covered financial position; and
including derivatives based on government securities within the scope of the
government obligations exception.



IV. The Proposals underwriting exception fails to permit many activities
that are commonly part of underwriting and, as a result, would
increase costs to issuers seeking to raise capital


Congress permitted underwriting activities under the Volcker Rule,
22
and the FSOC
has identified underwriting as a core banking function.
23
The underwriting activities of
U.S. banking entities are essential to capital formation and, therefore, economic growth
and job creation. Specifically, Bank of America believes that requiring underwriting
activities to be undertaken solely in connection with a distribution
24
could prevent U.S.
banking entities acting as underwriters from taking naked syndicate short positions in the
securities being distributed to facilitate aftermarket transactions and reduce volatility.
Furthermore, an overly narrow interpretation of the scope of activities permissibly
undertaken to meet the near term demands of clients
25
could present a number of
obstacles to ordinary underwriting-related activities, including engaging in the block
trade or bought deal form of underwriting or refinancing or replacing bridge loans (or
commitments for such bridge loans) with securities that may be sold into the market over
time.

22
See Bank Holding Company Act 13(d)(1)(B).
23
See FSOC Study, supra note 18, at 1.
24
See Proposal _.4(a)(2)(ii).
25
See Bank Holding Company Act 13(d)(1)(B); see also Proposal _.4(a)(2)(v).
12

In 2011, Bank of America underwrote in markets around the world more than 242
equity issues that raised more than $42.2 billion of equity capital for its equity issuer
clients. In the global fixed income market, Bank of America underwrote in 2011 more
than $301.7 billion of debt securities in 1,576 separate issuances for its corporate and
sovereign debt issuer clients. Capital formation activity is too important to our issuer
clients and the U.S. and global economies to inadvertently limit by attaching overly
restrictive limits, especially since it was never the intent of Congress to limit underwriting.



Recommendations


Bank of America recommends that the Agencies revise the Proposal to:

establish a strong presumption for banking entities with adequate compliance
and risk management procedures that all activities related to underwriting are
permitted activities; and
remove the word solely from the in connection with a distribution prong of
the underwriting exception.



V. By limiting the type of transactions that banking entities can enter into
with customers, the Proposal would make it harder, and in some cases
impossible, for banking entities to help end user customers hedge
against risks or finance their activities


U.S. corporations rely on U.S. banking entities to provide them with financial
instruments that help mitigate commercial risk. The Proposal recognizes the important
function that U.S. banking entities perform in helping U.S. corporations hedge their risks
by exempting spot commodity and foreign exchange positions from the definition of
covered financial position.
26
Bank of America strongly supports the position of other
commenters that the Proposal, through narrow market making, risk-mitigating hedging and
on behalf of a customer permitted activities, would limit the ability of banking entities to
provide risk mitigating hedges to customers. By reducing the risk management options
available to commercial end users, the Proposal would discourage end user investment and
threaten the fragile economic recovery.

Customers also request banking entities to enter into fully collateralized total return
swaps as one of the measures they use to finance their positions. Such fully collateralized
total return swaps perform an economic function similar to repurchase transactions, which
are expressly excluded from the scope of proprietary trading
27
because they are entered
into for the purpose of financing and, as with the transactions currently included within the

26
See Proposal _.3(b)(3)(ii).
27
See id. _.3(b)(2)(iii)(A).
13

on behalf of customers exception,
28
are not entered into principally for the purpose of
near-term resale or short-term trading profits. In connection with such transactions, a
banking entity earns the equivalent of a financing fee and is not otherwise profiting from
the change in the value of the securities subject to the total return fully collateralized
financing swap.



Recommendations


To ensure that end user customers can continue to effectively hedge their exposure
to price fluctuations, Bank of America strongly supports the recommendations of other
commenters that the Proposal be revised to:

exclude commodity futures, forwards and swaps and foreign-exchange
forwards and swaps from the definition of covered financial position;
expand the on behalf of a customer exception to include any transaction
where a banking entity provides a risk-mitigating hedge to a customer or enters
into a fully collateralized total return financing swap; and
allow banking entities to anticipatorily hedge against specific positions they
have promised for a customer once the promise is made, and not only after the
position is taken.



VI. The government obligations exception fails to exempt all municipal
securities and foreign sovereign debt


The Proposals government obligations exception related to municipal securities
covers only a fraction of the municipal securities market. We estimate that approximately
40 percent of the $3.7 trillion outstanding municipal securities would not fall within the
Proposals current exception, which is limited to the obligations of any State or any
political subdivision thereof and does not extend to transactions in the obligations of any
agency or instrumentality thereof.
29
We strongly believe that the exception for municipal
securities should extend to all securities included in the definition of municipal securities
in Section 3(a)(29) of the Securities Exchange Act of 1934, as amended (the Securities
Exchange Act). We are not aware of any defensible policy justification for treating the
debt issued by an agency or instrumentality differently from the debt issued by a State or
its political subdivision. The narrow interpretation contained in the Proposal also is
inconsistent with Section 24 of the National Bank Act, which has long expressly permitted
national banks to invest in, underwrite or deal in municipal agency securities so long as the
national bank is well-capitalized. Any further fragmentation of the municipal market

28
See id. _.6(b).
29
See id. _.6(a)(1)(iii).
14

would decrease liquidity, increase costs to tax-exempt organizations that access the capital
markets and harm investors needing secondary market liquidity. This problem is
particularly acute for retail investors, who directly, or indirectly through funds, hold
approximately two-thirds of outstanding municipal securities.

Furthermore, the Proposals government obligations exception does not extend to
trading in foreign sovereign debt. This omission ignores the fact that many U.S. banking
entities are primary dealers in foreign sovereign debt and that many countries encourage,
or even require, that a branch or a subsidiary of a U.S. banking entity hold the host
countrys sovereign securities to satisfy local liquidity or capital requirements. Moreover,
in light of the narrowness of the market making-related activities and risk-mitigating
hedging exceptions discussed above, the failure to include foreign sovereign debt within
the government obligations exception could negatively impact the market for these
securities across the globe, a concern shared by many foreign governments. A comity-
based approach that provided an exception for trading in foreign sovereign debt would help
maintain maximum liquidity in sovereign debt markets and comport with other global
precedents for the consistent treatment of U.S. debt and the debt of other highly rated
countries.
30




Recommendations


Bank of America recommends that the Agencies amend the Proposal to:

expand the exception for municipal securities to cover all securities included in
the definition of municipal securities in Section 3(a)(29) of the Securities
Exchange Act; and
allow trading in sovereign debt of any foreign jurisdiction not deemed high risk
or, at a minimum, of a country that is a member of the G-20.
31






30
For example, in its 2008 consultation paper on liquidity management, the U.K.s Financial Services
Authority proposed treating the debt of the countries of the European Economic Area, Canada, Japan, Switzerland
and the United States equivalently for purposes of a liquidity buffer that U.K. banks would be required to maintain.
See Financial Services Authority, Strengthening Liquidity Standards 52 (2008), available at
http://www.fsa.gov.uk/pubs/cp/cp08_22.pdf.
31
The G-20 is comprised of the countries of Argentina, Australia, Brazil, Canada, China, France,
Germany, India, Indonesia, Italy, Japan, Mexico, South Korea, Russia, Saudi Arabia, South Africa, Turkey, the
United Kingdom and the United States, as well as the European Union.
15


VII. The Proposal should expressly clarify the permissibility of acting as an
Authorized Participant for exchange traded funds and as a market
maker for shares of exchange traded funds


The market for exchange traded funds (ETFs), both in the United States and
abroad, is large, deep and liquid and important to retail and institutional investors alike.
According to the Investment Company Institute, as of November 30, 2011, in the United
States alone, the shares of over 1,000 ETF issuers, with aggregate assets in excess of $1
trillion, were traded. This represented approximately 25 percent of all equity trading
volume on U.S. securities exchanges.
32
In Europe there are approximately 1,185 ETFs
while ETFs are also listed on many exchanges in Asia.

The Proposals market making-related activities and underwriting exceptions,
however, can be read to prohibit a U.S. banking entity from serving as an Authorized
Participant
33
to an ETF. Authorized Participants play key roles in seeding new ETFs and
making markets in ETF shares. They also regularly engage in customer-driven create to
lend transactions, in which a market maker employs its ability as an Authorized
Participant to create new ETF shares to fulfill the needs of customers who seek to borrow
them.

In addition, many ETFs could be deemed to be hedge funds or private equity funds
within the meaning of the Volcker Rule as a result of the operation of the overbroad
designation of similar funds.
34
With respect to an ETF deemed to be a similar fund,
banking entities, including their foreign affiliates, would effectively be prohibited from
sponsoring or investing in such ETFs or otherwise holding the shares of such ETFs in
inventory as part of ordinary course market making activities. U.S. banking entities,
including their foreign affiliates, play an outsized role in the U.S. and global ETF markets.
By threatening the ability of U.S. banking entities to continue to serve as Authorized
Participants to ETFs and to make markets in ETF shares, the Proposal creates significant
uncertainty about the future functioning of the ETF market, which could have widespread
negative impacts on the financial markets more generally.



Recommendations


Bank of America joins other commenters in requesting that the Agencies amend the
Proposal to clarify both that:


32
See Exchange Traded Funds Assets: November 2011, ICI (December 29, 2011),
http://www.ici.org/etf_resources/research/etfs_11_11. The total number of ETFs in November 2011 was 1,127.
33
For an explanation of the role of an Authorized Participant, see Part II.6 of Appendix B to this letter.
34
See Bank Holding Company Act 13(h)(2); Proposal _.10(b)(1)(ii)-(iv).
16

U.S. banking entities may rely on the underwriting and/or market
making-related activities exceptions to continue to serve as Authorized
Participants to ETF issuers and as market makers for ETF shares,
including in connection with seeding ETFs and engaging in create to
lend transactions, as they currently do today; and
ETFs will not be deemed to be similar funds, including foreign ETFs
and ETFs that may fall within the definition of commodity pool.



VIII. The Proposal should be modified to fully permit loan securitizations


While the Proposal expressly provides that the ability of banking entities to sell
loans and securitize them will not be prohibited by the Volcker Rule, various requirements
arising from the Volcker Rules prohibitions on sponsoring and investing in a hedge fund
or private equity fund apply to a variety of different types of loan securitizations,
constricting the essential activity of loan creation in contravention of congressional intent
and posing risks of material interruption to credit markets. For example, loan
securitization vehicles, also known as collateralized loan obligations (CLOs), are an
integral part of the $2.5 trillion U.S. syndicated loan market. Since such loans generally
range from $20 million to $2 billion and beyond and often are too large to be held by one
single lender, they are syndicated among a lender group, which may include CLOs. In
2011, for example, CLOs purchased approximately 40 percent of the $222.6 billion of
newly originated institutional loans.
35
The participation of CLOs in the syndicated loan
market provides many businesses with access to capital that would otherwise be
unavailable. Of additional concern is the effect the Proposal would have on the supply of
two other types of securitized assets: asset-backed commercial paper and securities issued
under a municipal tender option bond program. By limiting the supply of these securities,
the Proposal could substantially diminish liquidity in the asset-backed commercial paper
and tender option bond markets, with negative implications for investors in money market
mutual funds as well as on the availability of credit funding for municipalities and
corporations that issue these securities.



Recommendations


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

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;

35
See Standard & Poors, Leveraged Commentary and Data.
17

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;
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 and investment and insurance companies); and
permits the amount of risk retention to exceed regulatory minimums of
Dodd-Frank or foreign jurisdictions.



IX. The Proposals treatment of traditional asset liability management
activities as prohibited proprietary trading undermines the Volcker
Rules goals of enhancing the safety and soundness of banking entities
and U.S. financial stability


Rather than furthering safety and soundness and, in the case of depository
institutions, protecting the federal safety net, the Proposal will decrease safety and
soundness and potentially place greater pressure on the federal safety net by prohibiting
many traditional asset liability/liquidity management activities (collectively, asset
liability management or ALM activities) as proprietary trading for which no permitted
activity exception applies. ALM activities are highly regulated by the banking Agencies
and are necessitated, in the first instance, by the risk inherent in the core consumer and
commercial banking business of making residential mortgage and other consumer and
corporate loans (a banking entitys assets) and taking deposits from customers (a banking
entitys liabilities) and by the banking entitys core funding of such activities. These assets
and liabilities make a banks balance sheet and capital requirements inherently sensitive to
various risks such as interest rate movements and the overall economic conditions that
drive them. The importance of this activity is illustrated in just two numbers: on its
balance sheet, Bank of America Corporation has more than $933 billion of loans and more
18

than $1 trillion in deposits.
36
The FSOC Study recognized that the appropriate treatment of
ALM activities is one of the more significant scope issues
37
under the Volcker Rule and
concluded, after noting that these activities serve important safety and soundness
objectives,
38
that the Volcker Rule should not prohibit ALM activities.

Nonetheless, the highly technical definition of trading account in the Proposal,
which is far broader than that mandated by the statute, will capture as prohibited
proprietary trading many ALM activities that (a) are not speculative and not undertaken for
the purpose of generating a near-term profit and (b) are undertaken to achieve the safety
and soundness goals of protecting the banking entitys balance sheet and capital and
assuring that it has sufficient liquidity, under all scenarios, to meet the needs of its
depositors and other creditors. These ALM activities fall entirely outside the statutes core
definition of proprietary trading but nonetheless are swept up by the Proposals far broader
definition of proprietary trading. Moreover, the risk-mitigating hedging exception is not
available with respect to many ALM activities that would not appear to fulfill the
numerous hard-coded conditions set forth in the Proposal with respect to that exception.
For example, ALM activities, of which stress testing against adverse scenarios is an
important component, result in risk management transactions being entered into or exited
in contemplation of future potential events and consequently fail the risk-mitigating
hedging activities exceptions severely restrictive condition on anticipatory hedging. At its
core, liquidity management is not properly characterized as hedging, and therefore would
likely never qualify under the risk-mitigating hedging exception. Further, the special
exception for bona fide liquidity management appears to be of no practical use. So far,
Bank of America has been unable to identify a single subsidiary that would qualify for the
bona fide liquidity management exception. It is too narrowly drawn, capturing only near-
term liquidity activities notwithstanding the fact that banking entities are required under
existing and proposed regulatory requirements, such as Basel III and regulations
implementing Section 165(d) of the Dodd-Frank Act, to undertake transactions for
liquidity management with a medium- and long-term (at least a year) horizon.
39






36
Unless otherwise noted, all financials are as of September 30, 2011. For Bank of America
Corporations financials, see Bank of America Corporation, Form 10-Q Quarterly Report for the Period Ended
September 30, 2011. For Bank of America, N.A.s financials, see Bank of America, N.A., Consolidated Reports of
Condition and Income for a Bank with Domestic and Foreign Offices-FFIEC 031 for the Period Ended September
30, 2011.
37
FSOC Study, supra note 18, at 47.
38
Id.
39
See Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems
(revised June 1, 2011), available at http://www.bis.org/publ/bcbs189.pdf; Basel III: International Framework for
Liquidity Risk Measurement, Standards and Monitoring, available at http://www.bis.org/publ/bcbs188.pdf;
Regulation YY: Enhanced Prudential Standards for Early Remediation Requirements for Covered Companies, 77
Fed. Reg. 594, 607-09 (proposed on Jan. 5, 2012). Of Bank of America Corporations $933 billion of loans,
approximately $754 billion are attributable to its largest commercial bank, Bank of America, N.A.
19



Recommendation


To avoid undermining the safety and soundness of U.S. banking entities and to
protect the federal safety net and financial stability, Bank of America requests that, and
believes the Agencies should, as advocated by The Clearing House and other
commenters:
40


create an ALM exception to the definition of trading account with the
appropriate conditions and safeguards identified by The Clearing House in its
comment letter.



X. The extraterritorial reach of the Volcker Rule will diminish the safety
and soundness of U.S. depository institutions and impair their
competitiveness


A very significant and, we believe, unintended consequence of the Proposals
exception for certain overseas activities
41
is to harm the overseas branches of U.S. banks
with respect to their ability to engage in transactions to continue to serve their overseas
customers who enter into various transactions with them and otherwise operate in
accordance with prudential guidelines. By defining resident of the United States
42
to
include branches of U.S.-organized banks and effectively providing that foreign
organizations will be subject to the Volcker Rule if they enter into transactions involving
the purchase or sale of covered financial instruments with a party that is a resident of the
United States, foreign financial institutions, which otherwise would not be subject to the
Volcker Rule, may be unwilling to enter into normal market transactions with Bank of
America, N.A.s overseas branches for fear of being subject to, or otherwise affected by,
the Volcker Rules prohibitions and compliance and monitoring requirements.

If foreign financial institutions will not transact with overseas branches of U.S.
banks, the number of eligible counterparties will be significantly reduced in connection
with liquidity management, risk management and certain market making activities. This
would damage the ability of banking entities to diversify and manage risk and lead to
unacceptable counterparty concentrations in contravention of banking Agency prudential
guidelines. It would also mean that foreign financial institutions likely would cease
sourcing as customers certain products or services from overseas branches of U.S. banks.




40
For a detailed explanation, see the comment letter submitted by The Clearing House.
41
See Proposal _.6(d)(3).
42
See id. _.2(t).
20


Recommendation


So that an overseas branch of U.S.-organized banks will not be considered a
resident of the United States for purposes of the Volcker Rule, in keeping with treatment
of foreign subsidiaries of U.S.-organized banks under the Volcker Rule, Bank of America
requests that the Agencies:

bring the definition of resident of the United States more in line with the
long-standing definition of U.S. Person that appears in the SECs Regulation
S.
43



XI. The Proposal does not permit banking entities to hold ownership
interests in covered funds in connection with underwriting and
engaging in market making-related activities, and the hedging
exception it provides for covered funds is overly restrictive


As interpreted by the Agencies, the Proposals underwriting exception applies only
to the general prohibition on proprietary trading, not to the general prohibition on
sponsoring or investing in covered funds.
44
Yet the plain language of the statutory
exception for underwriting and market making-related activities is applicable on its face to
both proprietary trading and covered fund activities. The Agencies fail to provide any
justification in the preamble accompanying the Proposal for choosing to ignore Congress
clear directions here. Bank of America, along with other commenters, believes that the
Agencies have misconstrued both the plain language of the statutory text and legislative
history that clearly contemplate that banking entities may underwrite and make markets in
securities and other financial instruments that are ownership interests in covered funds.
45


43
See 17 C.F.R. 230.902(k).
44
See Proposal _.4(a)-(b). The term covered fund refers to: (a) funds that rely on Section 3(c)(1) or
3(c)(7) of the Investment Company Act of 1940, as amended (Investment Company Act) as a basis for an
exemption from classification as an investment company; (b) similar funds that are foreign funds that would have
to rely on Section 3(c )(1) or 3(c)(7) if they were offered in the United States (foreign funds) (this definition
encompasses virtually every fund organized and offered outside the United States); and (c) any fund that fits within
the definition of commodity pool under the Commodity Exchange Act. Later in this letter and in Appendix B,
we discuss the extraordinary overbreadth of these definitions and their many unintended and detrimental impacts.
For the purpose of analyzing the impact of the covered funds risk-mitigating hedging exception, we have assumed
that the Agencies will address the overbreadth of the term covered fund and narrow it only to those funds
commonly understood to be hedge funds and private equity funds that Congress intended to capture within the
Volcker Rules prohibitions. To do otherwise, for example, in the case of foreign funds, would subject all foreign
funds, even if they are publicly offered, exchange-registered and closely regulated to highly restrictive limitations
on hedging, limiting the ability of banking entities to prudently hedge risks. Were the covered fund definition in
the Proposal to remain unchanged in the final rules, Bank of America would have substantial additional concerns
with the proposed hedging exception for covered funds.
45
We note, in particular, that three leading law firms have written a memorandum to Federal Reserve
staff pointing out their common view that staff has misconstrued the plain language. See Letter from Cleary
Gottlieb Steen & Hamilton LLP, Davis Polk & Wardwell LLP and Sullivan & Cromwell LLP, to Scott G. Alvarez,
General Counsel, Board of Governors of the Federal Reserve System, et al. (January 23, 2012).
21


As noted by other commenters, the Proposal also ignores the plain language of the
single statutory exception for risk-mitigating hedging activities
46
to provide for two
distinct exceptions in the proprietary trading and covered funds contexts.
47
Although the
Proposal would allow a banking entity to hold an ownership interest in a covered fund in
connection with risk-mitigating hedging, the covered fund hedging exception is
significantly and unnecessarily more restrictive than the hedging exception for other asset
classes provided in the proprietary trading context. In particular, the restrictive conditions
for the covered fund hedging exception could be read to disallow hedging of many types of
customary and widely used covered fund-linked products, thereby effectively forcing
banking entities to cease offering such products. Examples of such covered fund-linked
products include notes and over-the-counter derivatives, usually with maturities of five to
seven years, that are generally structured to provide some degree of principal protection or
optionality. These features allow for a return that is based, in part, on the profits and the
losses (or a portion thereof) tied to the performance of one or more covered funds. These
products are created to fulfill the specific investment and, in some instances, hedging
objectives of customers.

Banking entities also are concerned that if they are unable to continue to prudently
hedge their risks attributable to meeting their customers needs for covered fund-linked
products, they may fail to meet other long-established banking law requirements related to
prudent risk management and safety and soundness. If banking entities were no longer
able to properly hedge existing commitments to their customers, in order to continue to
satisfy other prudential regulatory requirements, they likely would need to consider the
possibility of invoking various contractual hedging disruption rights to terminate their
agreements with customers and liquidate their hedging positions in covered funds. In these
circumstances, customers may suffer financial losses because of the early termination of
their investments, as well as the elimination of an asset class that may be an important
component of their portfolio diversification strategy. Banking entities would have to
redeem any units of covered funds they hold as hedges to these covered fund-linked
products, which, in turn, could result in multiple covered funds simultaneously selling
some of their respective assets to effect the redemptions. Further, if a customer has
purchased a covered fund-linked product from a banking entity to hedge products that it
has sold to its own customers, a practice that asset managers and insurance companies
employ in the European market, such customers may determine it appropriate or be
compelled to terminate the covered fund-linked products they have sold to their customers,
further roiling the market.

Bank of America believes that the Proposals provision of an overly restrictive
covered fund hedging exception unnecessarily singles out covered fund-linked products,
which should be treated no differently from, and do not present any heightened risk of
evasion as compared to, products linked to the performance of other asset classes. To
preserve safety and soundness and financial stability, banking entities should be able, in

46
See Bank Holding Company Act 13(d)(1)(C).
47
See Proposal _.5, _.13(b).
22

any event, to continue to use hedging strategies involving covered funds with respect to
their portfolio of obligations related to contractual commitments to their customers entered
into prior to the effective date of the Volcker Rule, so long as those hedging activities
fulfill the requirements of the general risk-mitigating hedging exception, as finally
adopted, for all proprietary trading.



Recommendations


Bank of America recommends that the Agencies revise the Proposal to:

allow banking entities to hold ownership interests in covered funds for the
purpose of underwriting and engaging in market making-related activities;
provide in the final rules for a single hedging exception applicable to both the
proprietary trading and covered fund portions of the Volcker Rule, eliminating
the proposed additional conditions in the covered fund hedging exception.
Alternatively, the Agencies should:
clarify in the final rules that the profits and losses condition of the
covered fund hedging exception does not prohibit banking entities from
hedging exposures to covered fund-linked products designed to
facilitate customer exposure to either or both the profits (or a portion of
the profits) or the losses (or a portion of the losses) of a covered fund
reference asset;
clarify in the final rules that, notwithstanding the same amount of
ownership interest condition, dynamic delta hedging of covered fund-
linked products is permitted by the covered fund hedging exception and
that portfolio hedging of exposures to covered fund-linked products is
permitted;
clarify or eliminate the specific customer request condition in order to
ensure that banking entities can continue innovating and offering
covered fund-linked products to existing and new customers in
accordance with market practice, customer expectations and applicable
laws and regulations;
eliminate the prohibition on hedging a customer exposure where the
customer is a banking entity or, at a minimum, amend it to permit
reliance on certain customer representations; and
provide that, in the event the preceding recommendations are not adopted, at a
minimum, banking entities may continue to engage in the risk-mitigating
hedging that they have been engaged in related to the covered fund-linked
products sold to customers before the effective date of the Volcker Rule, so
long as they comply with the conditions in the risk-mitigating hedging
exception, as finally adopted, for proprietary trading.

23



XII. The definition of banking entity needs to be amended to honor
congressional intent and avoid unintended and harmful consequences


The definition of banking entity
48
is critical to the application of the Volcker
Rule, since only entities that are included within that definition are subject to the Volcker
Rules prohibitions. The current scope of the definition is overbroad and, consequently,
sweeps in a wide variety of entities, such as registered investment companies, including
those which serve as investment vehicles for retail customers, which Congress never
intended should become subject to the Volcker Rule prohibitions. The problems
engendered by the current definition of banking entity are technical and more fully
explained in Appendix B and the letters of other commenters. Failure to address this issue,
however, is likely to produce significant harm to investments and activities that fall well
outside the scope contemplated by Congress when enacting the Volcker Rule.



Recommendations


Bank of America believes that the Agencies should amend the Proposal to exclude
from the definition of banking entity:
any covered fund that a banking entity is permitted to sponsor or invest in under
a permitted activity;
any other banking entity-sponsored issuer that is exempt from the Investment
Company Act under an exemption other than 3(c)(1) or 3(c)(7) under that Act;
any company that is an SEC-registered investment company;
any portfolio company held under the merchant banking authority, other than
those determined to have been acquired for purposes of evading the Volcker
Rules restrictions on proprietary trading and covered fund relationships;
any direct or indirect subsidiary of any of the foregoing; and
solely for name sharing purposes, any affiliate that is not an insured depository
institution or the ultimate parent of such an insured depository institution.








48
See Proposal _.2(e).
24


XIII. The overbroad definitions and highly technical requirements that
characterize the covered funds portion of the Volcker Rule, which
are intended to prohibit sponsoring and investment in a hedge fund
or private equity fund and to prevent a banking entity from
extending credit to a related hedge fund or private equity fund (so-
called Super 23A) result in a host of unexpected consequences that are
contrary to congressional intent, likely to harm customers, markets,
banking entities and U.S. financial stability and weaken safety and
soundness


A brief summary of a handful of actions that Bank of America would be required to
comply with under the Proposals covered funds requirements illustrates our concerns
and the many unintended results arising from the over broad definition of covered fund.

As a result of the designation of any commodity pool as a similar fund,
Bank of America Corporation would have to restructure all of its bank
depository institutions, including Bank of America, N.A., and many other Bank
of America subsidiaries.
Further, as a consequence of this designation, Bank of America Corporation
could no longer serve as a source of strength to its subsidiary banks, as to do so
would violate Super 23A. With respect to more than a thousand of its nonbank
subsidiaries, Super 23A would prohibit ordinary course internal financing,
liquidity and risk management transactions, a result which clearly will make
banking entities less safe and sound and the U.S. banking sector weaker.
Bank of America would have to undertake a massive restructuring involving all
wholly owned subsidiaries that have traditionally relied on the same exceptions
from registration under the Investment Company Act used by many hedge
funds and private equity funds, even though such Bank of America subsidiaries
are themselves subject to the Volcker Rules restrictions on engaging in
proprietary trading and covered fund activities and are otherwise engaged in
normal-course banking activities.
Mutual funds and other funds registered under the Investment Company Act, if
they have even a single swap or futures contract, would fall within the
definition of a commodity pool and therefore would automatically be
designated as similar funds. The same would be true of many U.S. ETFs
(which are often registered under the Investment Company Act) if they have a
single swap or futures contract. Many ETFs outside the United States also
would fall within the designation of virtually any foreign fund as a similar
fund, even though, like ETFs in the United States, foreign ETFs are generally
publicly offered, exchange listed and regulated in their home jurisdictions.
Moreover, while we recommend above that the Proposal be modified to
comport with the statute, the standard market making and risk-mitigating
hedging exceptions available for proprietary trading activities are currently
unavailable to covered funds. Therefore, Bank of America could no longer
25

have an ownership interest in such funds even when acting as a market maker
or using the funds as a hedge to customer transactions.
Many foreign funds that are the equivalent of U.S. mutual funds or other types
of funds registered under the Investment Company Act could also be designated
as similar funds.

The obviously unintended consequences arising from these Volcker Rule
provisions will be borne directly by Bank of Americas retail and institutional banking and
asset management customers as well as indirectly through the burden on safety and
soundness and financial stability. Massive restructuring will have to be undertaken to
remove from the Volcker Rules expansive reach those activities having nothing at all to
do with the traditional hedge fund or private equity fund activities that the Volcker Rule
was intended to proscribe. We suspect that many of these absurd results are unintended
consequences caused by the complexity of drafting and the attempt to meet the statutory
deadlines.
49
They are prime examples, however, of why careful reassessments of the
Proposals requirements are vital to avoid undue harm.


Bank Subsidiaries


More concretely, the failure to narrow the overbroad definition of hedge fund and
private equity fund
50
in the statutory text of the Volcker Rule sweeps countless entities,
including the vast majority of subsidiaries of banking entities engaged in normal course
banking businesses, within the reach of the Volcker Rule. This prohibits a banking entity
from maintaining an ownership interest in such entities or extending credit to them.
51

Unless the Agencies exercise their authority to narrow these definitions, the end result will
be a wholesale and costly restructuring of the banking business to move activities into
subsidiaries that can be restructured to rely on an exemption under the Investment
Company Act other than 3(c)(1) or 3(c)(7), or exit from businesses and dissolve
offending subsidiaries. We estimate that approximately 1,400 Bank of America
subsidiaries have relied on 3(c)(1) and 3(c)(7) and would be part of this restructuring. This
cannot be intendedparticularly as each of these subsidiaries is subject to the restrictions
of the Volcker Rule with respect to its own activities.

We realize that the statutory definition of hedge fund and private equity fund,
which is identical for both types of funds and turns on but-for reliance on Sections 3(c)(1)
and 3(c)(7) of the Investment Company Act, presents the Agencies with a challenge,
particularly because these two sections generally have been relied upon by banking entities
as the basis for determining that all wholly owned subsidiaries (except for subsidiary banks
and parent bank holding companies) are exempt from registration under the Investment

49
As discussed in Appendix B and in the letters of other commenters, particularly the SIFMA letter on
covered funds, it is a basic canon of statutory construction that regulators have the authority to create implementing
regulations that would avoid what would otherwise be absurd results.
50
See Proposal _.10(b)(1) (defining covered fund).
51
See id. _.10(a); _.16(a).
26

Company Act. Many securitization vehicles also have relied on these exemptions, as have
a host of other types of companies. We believe, however, for the reasons articulated by
many commenters, that the Agencies have the authority under the statute to narrow the
scope of these overbroad definitions, and that a failure to exercise this authority will lead to
the absurd results listed above, make banking institutions less safe and sound and create
instability in the U.S. financial system.


Similar Funds


In the case of similar funds, where the Agencies have discretion to designate any
fund as similar to a hedge fund or private equity fund,
52
the Agencies exercised their
discretion in the Proposal to designate any entity that falls within the definition of a
commodity pool as defined by the Commodity Exchange Act as a similar fund.
53

Consequently, a banking entity could not sponsor or maintain an ownership interest in such
a commodity pool except in accordance with a permitted activity.
54



Commodity Pools


Unfortunately, the term commodity pool is hopelessly broad and sweeps up any
entity that may have only a single interest rate swap or U.S. Treasury futures contract. One
obviously unintended result of designating all commodity pools as similar funds is that,
since all depository institutions enter into some type of interest rate swap or U.S. Treasury
futures contract in connection with their required ALM activities, all depository
institutions could fall within the definition of a commodity pool. Since parent bank
holding companies enter into interest rate swaps to hedge their long-term debt, as well as
foreign-currency swaps if the debt is denominated in a currency other than U.S. dollars, all
bank holding companies could be deemed to be commodity pools. (Bank of America
Corporation has $400 billion in long-term debt, of which $130 billion is denominated in
foreign currency). This leads to the truly strange, and undoubtedly unintended, result that
Bank of America Corporation could no longer own its principal bank subsidiary, Bank of
America, N.A., any of its other subsidiary banks or many of its nonbank subsidiaries,
because they have been deemed by the Agencies under the Volcker Rule to be hedge funds
or private equity funds. We are confident the Agencies will not allow this result under the
final rule.

The problem, however, does not end with Bank of Americas subsidiaries. Any
mutual fund that has a single swap or purchases a futures contract could also fall within the
definition of a commodity pool, as could any U.S. and foreign ETF having a swap or
futures contract. It is simply inconceivable that Congress intended the Volcker Rule to
force banking entities to stop providing clients with traditional banking products and

52
Bank Holding Company Act 13(h)(2).
53
Proposal _.10(b)(1)(ii).
54
See id. _.11.
27

services, including traditional bank loans, deposit products and mutual funds, none of
which bear any resemblance to a traditional hedge fund or private equity fund.


Foreign Funds


A similar problem arises with the Agencies evident determination that any foreign
fund that would have to rely on 3(c)(1) or 3(c)(7) if it were organized and offered in the
United States is a similar fund.
55
Since virtually all funds organized outside the United
States, even if they are publicly offered or exchange-listed in their home-country
jurisdiction, would have to rely on 3(c)(1) or 3(c)(7) if organized and offered in the United
States, Bank of America would be forced to stop making a market, underwriting and
hedging to the extent such activities involved acquiring an ownership interest in virtually
any foreign fund. In many instances, Bank of America also would be unable to offer its
asset management customers access to such foreign funds as a consequence of limitations
arising from the technical drafting of various provisions of the Proposal and their
interaction with each other, as more fully described in Appendix B.


Super 23A and the Definition of Covered Fund


Super 23A, as explained in more detail below, prohibits a banking entity from
entering into a covered transaction (generally any extension of credit or purchase of
assets, regardless of form) with a related covered fund,
56
e.g., any related entity
organized under 3(c)(1) or 3(c)(7) of the Investment Company Act or designated as a
similar fund by the Agencies, which, as explained above, includes all commodity pools
and virtually any fund organized outside the United States. Super 23A therefore prohibits
ordinary course internal financing, liquidity and risk management transactions between any
Bank of America entity and many subsidiaries and other affiliates that currently fall within
the overly broad definition of covered fund. In light of this extraordinarily expansive
definition of covered fund, Bank of America Corporation could no longer continue to
serve, as required by other banking law requirements, as a source of strength to its
subsidiary banks, including Bank of America, N.A. For example, Bank of America
Corporations public disclosure related to certain aspects of its ALM liquidity management
states that it has excess liquidity in the amount of $217 billion available to Bank of
America, N.A. and other bank subsidiariessomething that Super 23A would not permit
had it been in effect when transactions providing this liquidity were originally executed.

Incredibly, the Volcker Rule, conceived as a means to preserve and protect
traditional commercial banking activities and the federal safety net, would deprive Bank of

55
See id. _.10(b)(1)(iii).
56
See id. _.16(a). By related covered fund, we mean any covered fund with which a banking entity
has a relationship that triggers the application of Super 23A to transactions between the covered fund and the
banking entity, including its affiliates. These relationships include serving, directly or indirectly, as investment
manager, investment advisor, commodity trading advisor or sponsor to a covered fund, or organizing and offering
a covered fund pursuant to the asset management exception.
28

America, N.A. of any future potential credit extension by a Bank of America affiliate and
effectively lock in, for all time and in the form existing today, the $217 billion currently
available to Bank of America, N.A. from its parent bank holding company for liquidity
managementagain, a clearly unintended result. To appreciate the extent of this irony, it
is important to remember that the Government Accountability Office, in its
congressionally mandated study of proprietary trading, found that aggregate combined
proprietary trading losses of the six largest banking institutions over a period of four and a
half years, from June 2006 through December 2010, was $221 million, and if the results of
one of the six institutions were removed from this calculation, the other five institutions
would not have incurred a net loss on their proprietary trading during this period.
57




Recommendations


Bank of America joins a chorus of other commenters and recommends that the
Agencies:

expressly clarify that wholly owned subsidiaries, even if they rely on the
exemptions under Section 3(c)(1) or 3(c)(7) of the Investment Company Act
from registration under that Act, be excluded from the Proposals definition of
covered fund, will not be deemed to be similar fundseither in the form of
commodity pools or foreign fundsand will be expressly defined as an
excluded entity in the Proposal in the manner recommended by SIFMA in its
comment letter related to covered funds, to avoid, among other consequences,
dismantling the long-standing source of strength doctrine and threatening the
federal safety net;
clarify that ETFs will not be deemed to be similar fundseither in the form
of commodity pools or foreign funds; and
revise the Proposal to designate as similar funds only those commodity pools
and foreign funds that share the characteristics of what are commonly
understood to be hedge funds and private equity funds and otherwise satisfy the
conditions recommended by SIFMA in its comment letter related to covered
funds.



57
See Government Accountability Office, Proprietary Trading: Regulators Will Need More
Comprehensive Information to Fully Monitor Compliance with New Restrictions When Implemented 14 (2011),
available at http://www.gao.gov/new.items/d11529.pdf.
29


XIV. The Attribution Rules require clarification to avoid prohibiting
sponsored funds of funds and master-feeder structures, thereby
undermining congressional intent and the Agencies position reflected
elsewhere in the Proposal to permit banking entities to continue to
fulfill the investment needs of their asset management customers


In many instances, what the Proposal appears to permit in one section, it seems to
effectively prohibit through the operation of a conflicting requirement in another section.
For example, we believe that the Agencies sought to honor congressional intent to permit
banking entities to continue to provide eligible customers with investment products that
include traditional hedge funds and private equity funds, subject to the limitations of the
asset management exception. Because these asset management investment products are
delivered through bank-sponsored structures such as funds of funds or master-feeder funds,
which may invest in one or more underlying funds sponsored by an unaffiliated third party
(Third Party Funds) or by an affiliate of the banking entity, both Congress and the
Agencies recognized that if the Volcker Rule prevented the use of such structures, it would
effectively foreclose this business for banking entities. This recognition included
appreciation of the negative consequences for customers, including eligible qualifying
individuals and institutional investors, that would result. Consequently, in the Proposal,
the Agencies defined the term banking entity to exclude any funds qualifying for the
asset management exception or funds in which a fund qualifying under the asset
management exception makes a controlling investment.
58


In order to qualify for the asset management exception, Bank of Americas
investment in a sponsored fund must be de minimis: its own investment in the fund cannot
exceed 3 percent of the fund and, in the aggregate, its investments in all sponsored funds
cannot exceed 3 percent of Bank of America Corporations Tier 1 capital (collectively, the
De Minimis Ownership Caps).
59
A catch-22, however, seems to arise through the
operation of the Proposals attribution rules, which establish rules for determining
compliance with the De Minimis Ownership Caps in the context of funds of funds and
master feeder structures where the underlying funds are either Third Party Funds or
affiliated underlying funds. The attribution rules are far from clear and are subject to
multiple possible interpretations, some of which have the effect of treating Bank of
America customers investments in a sponsored fund as if made directly by Bank of
America from its own assets. For example, under one possible reading of the attribution
rules, where Bank of America invested $1 into a sponsored fund and its customers invested
$99, the customers $99 investment could be attributed to Bank of America for the
purposes of calculating whether Bank of Americas proprietary investment in the fund
exceeded 3 percent of total ownership interests. In addition, under circumstances where a
Bank of America-sponsored feeder fund invested its assets in a Third Party Fund, the
attribution rules could attribute to Bank of America the equivalent of the feeder funds pro
rata share of the Third Party Fund, with the end result that Bank of America would be

58
Proposal _.2(e).
59
See id. _.12(a)(2).
30

charged twice in respect of the same investment for the purpose of calculating
compliance with the De Minimis Ownership Caps.

It seems axiomatic that the attribution rules should not attribute customers
investments to a banking entity as if they were a banking entitys own investment, or
double count the same investment when assessing a banking entitys compliance with the
De Minimis Ownership Caps. The magnitude of this potential problem, and the possible
harm to our customers, should not be underestimated. Bank of Americas total seed capital
and proprietary investments in its sponsored funds that would fall within the scope of what
are commonly understood to be true hedge funds or private equity funds is significantly
less than 1 percent of its Tier 1 Capital. However, if Bank of Americas customers
aggregate investment of over $10 billion in our sponsored funds (equivalent to
approximately 6 percent of Bank of America Corporations Tier 1 capital) were attributed
to it, Bank of America would significantly exceed the 3 percent of Tier 1 capital ownership
limit, and in many cases would exceed the per fund limitation. As a result, Bank of
Americas ability to sponsor hedge funds or private equity funds using the traditional asset
management fund of funds or master-feeder structures would be sharply curtailed.
Moreover, Bank of America would have to restructure existing sponsored funds to
eliminate Bank of Americas sponsorship or dissolve them.

We do not believe that the Agencies intended these results, but we are highly
concerned that the attribution rules are susceptible to multiple interpretations, some of
which lead to the conclusion that Bank of America would fail to satisfy the De Minimis
Ownership Caps and consequently could no longer offer its eligible customers sponsored
hedge funds and private equity funds under the asset management exception.



Recommendation


To reflect congressional intent and what the Agencies were trying to achieve with
the attribution rules, we request that the Agencies:

adopt the clarifications to the Proposal for calculating the De Minimis
Ownerships Caps identified in Appendix B.





31


XV. Super 23A: Its application should be limited to what are commonly
understood to be true hedge funds and private equity funds to avoid
nullifying the source of strength doctrine and threatening the federal
safety net, and the standard exceptions available under 23A can and
should be added to Super 23A


Super 23A should apply only to those funds commonly understood to be hedge
funds and private equity funds that Congress sought to capture within the Volcker Rule in
order to prevent, among other things, the evisceration of the long-standing bank regulatory
requirement that a bank holding company act as a source of strength for its subsidiary
banks. As explained above, the Proposal includes a very broad and highly problematic
definition of covered fund. This problem is compounded by the drafting of Super 23A,
which applies its prohibitions to any related covered fund, even if the Agencies provide a
permitted activity exception to allow banking entities to sponsor and invest in a particular
type of covered fund, such as certain securitization vehicles.
60
For example, if the
Agencies dealt with the problem of deeming wholly owned subsidiaries to be covered
funds merely by including a permitted activity exception for sponsorship or ownership of
wholly owned subsidiaries, the Super 23A restrictions would still exist. Super 23A
prohibits the extension of credit by a banking entity to any related covered fund, even
one permissibly held. Without relief, Super 23A would therefore continue to prohibit
ordinary course internal financing, liquidity and risk management transactions between any
Bank of America entity and any wholly owned subsidiary, and Bank of America
Corporation could not serve as a source of strength to its subsidiary banks.

Further, Super 23A should be amended (and we agree with other commenters that
the Agencies have the authority to do so) to include certain exceptions from the reach of
Section 23A of the Federal Reserve Act
61
that were not incorporated into Super 23A.
Incorporating the statutory exception in Section 23A that permits intraday extensions of
credit in connection with clearing is critical to allow a banking entity to provide custody or
other payment processing services to its affiliated funds. This exception should be
expressly incorporated into Super 23A. Further, as provided in Section 23A, if an
extension of credit is fully collateralized by cash or certain U.S. government securities, it
should not be regarded as an impermissible covered transaction for purposes of Super 23A.
Without these clarifications, a banking entity would be unable to provide custodial services
or payment clearing to affiliated covered funds or execute a derivative with an affiliated
covered fund, even if the credit exposure under the derivative were fully collateralized by
cash. Finally, in order to provide consistency with the Proposals treatment of covered
funds under long-standing banking Agency rules with respect to debtor-in-possession
property, Super 23A should be clarified to provide that it is permissible for a banking
entity to accept the shares of a sponsored covered fund as collateral for a loan to any
person or entity. However, if the Agencies were not to accept this recommendation, at a
minimum, we request that Super 23A be clarified so as to permit a banking entity to accept

60
See id. _.16(a).
61
See 12 U.S.C. 371c(d).
32

affiliated covered fund securities as collateral, so long as it did not extend any credit based
on such collateral.



Recommendations


We request that the Agencies:

apply Super 23A only to those funds commonly understood to be hedge funds
and private equity funds;
incorporate the statutory exemptions in Section 23A of the Federal Reserve Act
into the definition of covered transaction under Super 23A; and
clarify that a banking entity may accept securities issued by a related covered
fund as collateral security for a loan or extension of credit to any person or
entity in order to be consistent with the treatment of debtor-in-possession
property adopted by the Agencies under the Proposal or, at a minimum, clarify
that it will not be a violation of Super 23A for a banking entity to accept a
related covered fund as collateral so long as the banking entity does not, in fact,
extend credit on the basis of such collateral.



XVI. The criteria for eligibility for the extension for investments in illiquid
funds are overly restrictive


Bank of America agrees with other commenters that the Federal Reserves
conformance rules limit the availability of the extension of the conformance period for
investments in illiquid funds in a manner that Congress neither required nor intended.
62

Bank of America estimates that not one of our genuinely illiquid funds will satisfy the
conditions for the extended conformance period for illiquid funds unless the conformance
rules are amended. Based on the proposed rules, we would anticipate these investments at
the end of the general conformance period, when hundreds of other banking entities will be
forced to seek buyers for their own illiquid fund investments.

Unless amended, the conformance rules would have the effect of forcing banking
entities to unwind most of their investments in illiquid funds at depressed or even fire sale
prices, damaging the capital and earnings of banking entities and posing a threat to safety
and soundness.



62
See Conformance Period for Entitles Engaged In Prohibited Proprietary Trading or Private Equity Fund
or Hedge Fund Activities, 76 Fed . Reg. 8265 (February 14, 2011). The Proposal includes a request for comment
on whether any portion of the conformance rules should be revised in light of the other elements of the Proposal.
See 76 Fed . Reg. at 68,923.
33



Recommendation


We therefore join other commenters, particularly SIFMA, in urging the Federal
Reserve to:

amend the conformance rules to ensure that the extension for investments in
illiquid funds is available for genuinely illiquid investments in covered funds,
consistent with congressional intent.



XVII. Banks should be afforded a reasonable period of at least one year after
adoption of final rules to fulfill the Proposals basic compliance
program requirements, and a full two years with respect to quantitative
metrics, consistent with congressional intent to provide banking
entities with a reasonable conformance period with respect to the
Volcker Rule requirements


There are critical problems associated with the Proposals compliance program
requirements, not the least of which are (a) the fact that it seems to ignore the statutes
provision establishing a full two-year compliance period, subject to extensions under
certain circumstances, for banking entities to come into compliance with the Volcker
Rules requirements; and (b) the impossibility of working to create meaningful compliance
measures until final regulations are issued.

In the best case scenario, the Agencies will reissue final regulations shortly before
July 21, 2012almost nine months after the date on which the statutory language of the
Volcker Rule required the Agencies to adopt final implementing regulations. This will
leave Bank of America and other banking entities with virtually no time to create and
implement the required, complex compliance program, of which a centerpiece must be a
policy adopted, and regularly reviewed, by Bank of America Corporations Board of
Directors. Moreover, under the basic compliance program requirements, Bank of America
must, among other things:

create an enterprise-wide policy, which can be done only when final rules are
adopted, that is acceptable to Bank of America Corporations Board of
Directors, which must adopt it;
map all its trading units (e.g., any desk that purchases and sells instruments
subject to the Volcker Rule) and asset management units (e.g., any unit that
sponsors or maintains an ownership interest in a covered fund);
establish the permissible strategies and instruments for each trading unit;
identify the personnel authorized to engage in the activities for each trading or
asset management unit;
34

draw clear, documented Volcker supervisory management lines;
create the systems and processes, including through substantial technology
development, to capture certain quantitative metrics for all activities conducted
pursuant to the underwriting and risk-mitigating hedging permitted activities
exceptions and seventeen quantitative metrics for all market making-related
permitted activities;
create an enterprise-wide system to capture every covered fund operating
under the asset management exception and conduct the calculations to monitor
compliance to assure that individually each fund meets the 3 percent fund de
minimis requirement and that all such funds, in the aggregate, do not exceed 3
percent of Bank of Americas Tier 1 capital;
create, document and implement the written plan required in connection with
reliance on the asset management exception;
review its compensation policies enterprise-wide to make sure that such
policies fulfill the requirements of the Volcker Rule;
establish a compliance program to monitor the policies and procedures once
adopted; and
create relevant audit programs to test the sufficiency of policies and procedures
against the requirements of the final rules.

Of critical importance to the financial markets and the individual and institutional
customers which they serve is the definition of and timing for the implementation of any
metrics. Above all, any approach in which (a) institutions are required to develop new
systems or substantially adapt existing systems to capture quantitative metrics that have
never before been used in the context of market making, underwriting or hedging to
distinguish prohibited proprietary trading from permitted activities but (b) where the use of
certain of these metrics subsequently may be abandoned or alteredeither because they
are found to be unnecessary or because the Agencies determine they harm liquidity,
investors and financial markets generally or require significant revisionswould be
unduly burdensome. Instead, any metrics adopted to monitor compliance should be
sufficiently defined or the product of an agreed-to process for determining those metrics
during the conformance period, so that a banking entitys expenditures of time and money
on systems for metric compliance is not wasted because the metrics are subsequently
abandoned or altered.



Recommendations


Bank of America recommends that the Agencies:

expressly provide in the final rules that all banking entities will have one year
from the issuance of the final rules to establish the core compliance program
required by the Proposal and a second year for testing of the program;
35

provide for a one-year period during which the Agencies will determine with
banking entities which metrics will be employed for different asset classes with
relation to the relevant factors under each exception and an additional twelve-
month period during which such metrics could be reviewedso that these
metrics would be required as a component of a banking entitys compliance
program no sooner than two years after the issuance of the final rules; and
given the complexity of these requirements, consider providing extensions of
these periods under specified circumstances, consistent with congressional
intent.



XVIII. The Agencies should clarify which Agency or Agencies will be
responsible for interpretation, supervision and examination and
enforcement of the Volcker Ruleat a minimum, the Federal Reserve
should be appointed as the single Agency charged with providing all
interpretations under the Volcker Rule


The Volcker Rule instructs the Agencies to work together to ensure that their
respective rules are comparable and provide for consistent application and
implementation . . . to avoid providing advantages or imposing disadvantages on the
banking entities subject to the Volcker Rule.
63
Though its anti-evasion provisions provide
that any of the Agencies may identify an activity that violates the Volcker Rule and, after
due notice and opportunity for hearing, order a banking entity to terminate the offending
activity,
64
otherwise the Volcker Rule is silent with respect to which Agency has
interpretative, supervisory or general enforcement authority even though the Volcker Rule
is an amendment to the Bank Holding Company Act, a statute administered by the Federal
Reserve.

We are concerned that the Agencies may interpret the Proposal so as to result in
multiple Agencies exercising interpretive, supervisory and enforcement authority over a
given banking entity. This would create substantial uncertainty, potentially conflicting
guidance and an undue and unnecessarily costly regulatory burden. There are multiple
examples, and we have provided a few of them in Appendix B, where all five Agencies
could be examining the same activity involving the same legal entity at different times.
We are concerned that each of the five Agencies will, at different times and in the course
of different examinations, not only review and assess the core, single, enterprise-wide
Volcker Rule compliance policy, which the Proposal requires Bank of America
Corporations Board of Directors to adopt, but also may suggest changes or additions to it
in an uncoordinated and potentially conflicting manner.



63
See Bank Holding Company Act 13(b)(2)(B)(ii).
64
See id. 13(e)(2).
36



Recommendations


We recommend that:

a single Agency be appointed to provide interpretations, supervision and
enforcement of the Volcker Rule, subject to its anti-evasion requirements.

If this is not deemed possible, we recommend, at a minimum, that:

a single Agency, the Federal Reserve, which is responsible for administering
the statute of which the Volcker Rule is a part, should be charged with
responsibility for providing all interpretations under the Volcker Rule and
resolving potentially conflicting supervisory recommendations or matters
requiring attention arising from the examination process; and
examination for compliance with Volcker Rule requirements should be done by
the Agencies jointly where they have overlapping jurisdiction, modeling
themselves on the joint examinations frequently conducted by the OCC and the
Federal Reserve, where the Agencies jointly conduct a single exam and issue a
single set of findings.
Summary of Recommendations
For of all the reasons discussed in this letter, Bank of America recommends that the
Agencies fundamentally reconsider how they implement the Voleker Rule. For your
convenience, we have summarized our recommendations in Appendix A. In Appendix B,
we provide more details on the issues discussed in this letter and additional facts and
examples from Bank of America's businesses that we hope will be helpful to the Agencies.
******
Bank of America appreciates the opportunity to comment on the Agencies' proposed
regulations, and we thank you for your consideration of our comments.
Sinc rely,
General Counsel
Addressees:

Secretary
Board of Governors of the
Federal Reserve System
20th Street and Constitution
AvenueNW
Washington. DC 20551
Office of the Comptroller of
the Currency
250 E Street SW
Mail Stop 2-3
Washington, DC 20219
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance
Corporation
550 17th Street NW
Washington, DC 20429
Ms. Elizabeth M. Murphy
Secretary
Securities and Exchange
Commission
100 F Street NE
Washington, DC 20549
Mr. David A. Stawick
Secretary of the
Commission
Commodity Futures Trading
Commission
1155 21st Street NW
Washington, DC 20551

APPENDIX A

BANK OF AMERICA
VOLCKER RULE IMPLEMENTATION RECOMMENDATIONS
PROBLEM RECOMMENDATIONS
COMMENT
LETTER &
APPENDIX B
PAGE NO. AND
HYPERLINK
Presume that trading desks that are primarily providing
liquidity to customers, as demonstrated by useful
metrics, and subject to appropriate compliance
procedures, are engaged in market making.
Define market making-related activities with reference
to a set of factors rather than hard-coded requirements.
Replace the condition that market making-related
activities be designed to generate revenues primarily
from bid/ask spreads and certain other fees and
commissions, rather than price appreciation or hedging,
with guidance that the Agencies consider as an
indicator of potentially prohibited proprietary trading
the design and mix of such revenues, but only in those
markets for which it is quantifiable based on publicly
available data, such as segments of certain highly liquid
equity markets.
Eliminate the requirement that anticipatory positions be
related to clear, demonstrable trading interests of
customers.
Rely on a smaller number of customer-facing trade
ratios, inventory turnover ratios, aged inventory
calculations and value-at-risk measurements to identify
prohibited proprietary trading, with acknowledgement
that differences between asset classes and in market
conditions may impact the applicability of certain
metrics or thresholds.
Calculate quantitative metrics at the line of business
level (at Bank of America, for example, Global Credit
Products or Global Equities) rather than at a trading
unit level in the organization.
The Proposals market
making-related activities
exception is too restrictive,
based on inaccurate
assumptions regarding how
banking entities engage in
market making, and would
diminish market liquidity.
Explicitly allow interdealer market making.

CL: 4

App. B: 5


2
PROBLEM RECOMMENDATIONS
COMMENT
LETTER &
APPENDIX B
PAGE NO. AND
HYPERLINK
Establish a presumption of compliance for banking
entities adhering to reasonably designed policies and
procedures for managing risk.
Characterize reasonable correlation between a
transaction and the risk intended to be hedged as
evidence of compliance rather than as a strict
requirement.
Encourage, rather than discourage, scenario hedges.
Eliminate as unworkable the requirement that hedges
not create significant new risks.
Define risk-mitigating hedging with reference to a set
of relevant descriptive factors rather than specific
prescriptive requirements.
Expand the scope of allowable anticipatory risk-
mitigating hedging to include hedges taken more than
slightly before exposure to the underlying risk.
Exclude derivatives based on loans, foreign exchange
and commodities from the definition of covered
financial position.
The Proposal would impede
the ability of banking entities
to manage risk in a safe and
sound manner through overly
burdensome risk-mitigating
hedging compliance
requirements.
Include derivatives based on government securities
within the scope of the government obligations
exception.

CL: 9

App. B: 10

Establish a strong presumption for banking entities
with adequate compliance and risk management
procedures that all activities related to underwriting are
permitted activities.
The Proposals
underwriting exception fails
to permit many activities that
are commonly part of
underwriting and, as a result,
would increase costs to
issuers seeking to raise
capital.
Remove the word solely from the in connection
with a distribution prong of the underwriting
exception.

CL: 11

App. B: 14
Exclude commodity futures, forwards and swaps and
foreign exchange forwards and swaps from the
definition of covered financial position.
By limiting the type of
transactions that banking
entities can enter into with
customers, the Proposal
would make it harder, and in
some cases impossible, for
banking entities to help end
Expand the on behalf of a customer exception to
include any transaction where a banking entity provides
a risk-mitigating hedge to a customer or enters into a
fully collateralized total return financing swap.

CL: 12

App. B: 15

3
PROBLEM RECOMMENDATIONS
COMMENT
LETTER &
APPENDIX B
PAGE NO. AND
HYPERLINK
user customers hedge against
risks or finance their
activities.
Allow banking entities to anticipatorily hedge against
specific positions they have promised for a customer
once the promise is made and not only after the
position is taken.
Expand the exception for municipal securities to cover
all securities included in the definition of municipal
securities in Section 3(a)(29) of the Securities
Exchange Act.
The government obligations
exception fails to exempt all
municipal securities and
foreign sovereign debt.
Allow trading in sovereign debt of any foreign
jurisdiction not deemed high risk or, at a minimum, a
country that is a member of the G-20.

CL: 13

App. B: 17
Clarify that U.S. banking entities may rely on the
underwriting and/or market making-related activities
exceptions to continue to serve as Authorized
Participants to ETF issuers and as market makers for
ETF shares, including in connection with seeding ETFs
and engaging in create to lend transactions, as they
currently do today.
The Proposal should
expressly clarify the
permissibility of acting as an
Authorized Participant for
exchange traded funds and
as a market maker for shares
of exchange traded funds.
ETFs will not be deemed to be similar funds,
including foreign ETFs and ETFs that may fall within
the definition of commodity pool.

CL: 15

App. B: 19
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.
The Proposal should be
modified to fully permit loan
securitizations.
Clarify that the definition of ownership interest does
not include debt asset-backed securities.

CL: 16

App. B: 24, 26

4
PROBLEM RECOMMENDATIONS
COMMENT
LETTER &
APPENDIX B
PAGE NO. AND
HYPERLINK
Provide exceptions for asset-backed commercial paper
and municipal tender option bond programs.
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.
The Proposals treatment of
traditional asset liability
management activities as
prohibited proprietary
trading undermines the
Volcker Rules goals of
enhancing safety and
soundness of banking entities
and U.S. financial stability.
Create an ALM exception to the definition of trading
account with the appropriate conditions and
safeguards identified by The Clearing House in its
comment letter.

CL: 17

App. B: 27
The extraterritorial reach
of the Volcker Rule will
diminish safety and
soundness of U.S. depository
institutions and impair their
competitiveness.
Bring the definition of resident of the United States
more in line with the long-standing definition of U.S.
Person that appears in the SECs Regulation S.

CL: 19

App. B: 37
Allow banking entities to hold ownership interests in
covered funds for the purpose of underwriting and
engaging in market making-related activities.
The Proposal does not permit
banking entities to hold
ownership interests in
covered funds in connection
with underwriting and
engaging in market
making-related activities
and the hedging exception it
Provide in the final rules for a single hedging exception
applicable to both the proprietary trading and covered
fund portions of the Volcker Rule, eliminating the
proposed additional conditions in the covered fund
hedging exception. Alternatively, the Agencies should:

CL: 20

App. B: 38

5
PROBLEM RECOMMENDATIONS
COMMENT
LETTER &
APPENDIX B
PAGE NO. AND
HYPERLINK
clarify in the final rules that the profits and
losses condition of the covered fund hedging
exception does not prohibit banking entities from
hedging exposures to covered fund-linked products
designed to facilitate customer exposure to either
or both the profits (or a portion of the profits) or
the losses (or a portion of the losses) of a covered
fund reference asset;
clarify in the final rules that, notwithstanding the
same amount of ownership interest condition,
dynamic delta hedging of covered fund-linked
products is permitted by the covered fund hedging
exception and that portfolio hedging of
exposures to covered fund-linked products is
permitted;
clarify or eliminate the specific customer request
condition in order to ensure that banking entities
can continue innovating and offering covered fund-
linked products to existing and new customers in
accordance with market practice, customer
expectations and applicable laws and regulations;
and
eliminate the prohibition on hedging a customer
exposure where the customer is a banking entity or,
at a minimum, amend it to permit reliance on
certain customer representations.
provides for covered funds is
overly restrictive.
Provide that, in the event the preceding
recommendations are not adopted, at a minimum,
banking entities may continue to engage in the risk-
mitigating hedging that they have been engaged in
related to the covered fund-linked products sold to
customers before the effective date of the Volcker
Rule, so long as they comply with the conditions in the
risk-mitigating hedging exception, as finally adopted,
for proprietary trading.
Exclude from the definition of banking entity:
The definition of banking
entity needs to be amended
to honor congressional intent
any covered fund that a banking entity is permitted
to sponsor or invest in under a permitted activity;




6
PROBLEM RECOMMENDATIONS
COMMENT
LETTER &
APPENDIX B
PAGE NO. AND
HYPERLINK
any other banking entity-sponsored issuer that is
exempt from the Investment Company Act under
an exemption other than 3(c)(1) or 3(c)(7) under
that Act;
any company that is an SEC-registered investment
company;
any portfolio company held under the merchant
banking authority, other than those determined to
have been acquired for purposes of evading the
Volcker Rules restrictions on proprietary trading
and covered fund relationships;
any direct or indirect subsidiary of any of the
foregoing; and
and avoid unintended and
harmful consequences.
solely for name sharing purposes, any affiliate that
is not an insured depository institution or the
ultimate parent of such an insured depository
institution.

CL: 23

App. B: 41
Expressly clarify that wholly owned subsidiaries, even
if they rely on the exemptions under Section 3(c)(1) or
3(c)(7) of the Investment Company Act from
registration under that Act, be excluded from the
Proposals definition of covered fund, will not be
deemed to be similar fundseither in the form of
commodity pools or foreign fundsand will be
expressly defined as an excluded entity in the
Proposal in the manner recommended by SIFMA in its
comment letter related to covered funds, to avoid,
among other consequences, dismantling the long-
standing source of strength doctrine and threatening the
federal safety net.
Clarify that ETFs will not be seemed to be similar
fundseither in the form of commodity pools or
foreign funds
The overbroad definitions
and highly technical
requirements that
characterize the covered
funds portion of the
Volcker Rule, which are
intended to prohibit
sponsoring and investment in
a hedge fund or private
equity fund and to prevent a
banking entity from
extending credit to a related
hedge fund or private equity
fund (so-called Super 23A)
result in a host of unexpected
consequences that are
contrary to congressional
intent, likely to harm
customers, markets, banking
entities and U.S. financial
stability and weaken safety
and soundness.
Revise the Proposal to designate as similar funds
only those commodity pools and foreign funds that
share the characteristics of what are commonly
understood to be hedge funds and private equity funds
and otherwise satisfy the conditions recommended by
SIFMA in its comment letter related to covered funds.

CL: 24

App. B: 42, 48

7
PROBLEM RECOMMENDATIONS
COMMENT
LETTER &
APPENDIX B
PAGE NO. AND
HYPERLINK
Adopt the clarifications to the Proposal for calculating
the De Minimis Ownership Caps identified in Appendix
B.
Provide that in a parallel fund structure a banking
entitys permissible per fund de minimis co-investment
will be calculated by reference to the aggregate fund
structure rather than any individual entity.
The Attribution Rules
require clarification to avoid
prohibiting sponsored funds
of funds and master-feeder
structures, thereby
undermining congressional
intent and the Agencies
position reflected elsewhere
in the Proposal to permit
banking entities to continue
to fulfill the investment
needs of their asset
management customers.
Provide that a parallel co-investment alongside a
sponsored covered fund will not attribute to a banking
entity except where the banking entity is determined
after prior notice and hearing to have engaged in a
pattern of multiple co-investments alongside such
sponsored covered fund for the purpose of evading the
requirements of the Volcker Rule.

CL: 29

App. B: 52
Apply Super 23A only to those funds commonly
understood to be hedge funds and private equity funds.
Incorporate the statutory exemptions in Section 23A of
the Federal Reserve Act into the definition of covered
transaction under Super 23A.
Super 23A: Its application
should be limited to what are
commonly understood to be
true hedge funds and private
equity funds to avoid
nullifying the source of
strength doctrine and
threatening the federal safety
net, and the standard
exceptions available under
23A can and should be added
to Super 23A.
Clarify that a banking entity may accept securities
issued by a related covered fund as collateral security
for a loan or extension of credit to any person or entity
in order to be consistent with the treatment of debtor-
in-possession property adopted by the Agencies under
the Proposal or, at a minimum, clarify that it will not be
a violation of Super 23A for a banking entity to accept
a related covered fund as collateral so long as the
banking entity does not, in fact, extend credit on the
basis of such collateral.

CL: 31

App. B: 58
The criteria for eligibility for
the extension for
investments in illiquid
funds are overly restrictive.
Amend the conformance rules to ensure that the
extension for investments in illiquid funds is available
for genuinely illiquid investments in covered funds,
consistent with congressional intent.
CL: 32

App. B: 63

8

PROBLEM RECOMMENDATIONS
COMMENT
LETTER &
APPENDIX B
PAGE NO.
Expressly provide in the final rules that all banking
entities will have one year from the issuance of the
final rules to establish the core compliance program
required by the Proposal and a second year for testing
of the program.
Provide for a one-year period during which the
Agencies will determine with banking entities which
metrics will be employed for different asset classes
with relation to the relevant factors under each
exception and an additional twelve-month period
during which such metrics could be reviewedso that
these metrics would be required as a component of a
banking entitys compliance program no sooner than
two years after the issuance of the final rules.
Banks should be afforded a
reasonable period of at least
one year after adoption of
final rules to fulfill the
Proposals basic compliance
program requirements, and
a full two years with respect
to quantitative metrics,
consistent with congressional
intent to provide banking
entities with a reasonable
conformance period with
respect to the Volcker Rule
requirements.
Given the complexity of these requirements, consider
providing extensions to these periods under specified
circumstances, consistent with congressional intent.

CL: 33

App. B: 64
Appoint a single Agency to provide interpretations,
supervision and enforcement of the Volcker Rule,
subject to its anti-evasion requirements.
If this is not deemed possible, at a minimum:
a single Agency, the Federal Reserve, which is
responsible for administering the statute of which
the Volcker Rule is a part, should be charged with
responsibility for providing all interpretations
under the Volcker Rule and resolving potentially
conflicting supervisory recommendations or
matters requiring attention arising from the
examination process; and
The Agencies should clarify
which Agency or Agencies
will be responsible for
interpretation, supervision
and examination and
enforcement of the Volcker
Ruleat a minimum, the
Federal Reserve should be
appointed as the single
Agency charged with
providing all interpretations
under the Volcker Rule.
examination for compliance with Volcker Rule
requirements should be done by the Agencies
jointly where they have overlapping jurisdiction,
modeling themselves on the joint examinations
frequently conducted by the OCC and the Federal
Reserve, where the Agencies jointly conduct a
single exam and issue a single set of findings.

CL: 35

App. B: 66



APPENDIX B
LEGAL ARGUMENTS AND ADDITIONAL FACTS
TABLE OF CONTENTS
PAGE
I. Introduction and Bank of Americas Role in the Market .........................................4
II. The Proposal would impair financial stability, make U.S. banking entities
less safe and sound, diminish market liquidity, increase the cost of capital
formation and reduce the scope of financial products available to
customers .......................................................................................................................5
1. The Proposals market making-related activities exception is too
restrictive, is based on inaccurate assumptions regarding how banking
entities engage in market making and would diminish market liquidity................5
2. The Proposal would impede the ability of banking entities to manage risk
in a safe and sound manner through overly burdensome risk-mitigating
hedging compliance requirements ........................................................................10
3. The Proposals underwriting exception fails to permit many activities that
are commonly part of underwriting and, as a result, would increase costs
to issuers seeking to raise capital ..........................................................................14
4. By limiting the type of transactions banking entities can enter into with
customers, the Proposal would make it harder, and in some cases
impossible, for banking entities to help end user customers hedge against
risks or finance their activities ..............................................................................15
5. The government obligations exception fails to exempt all municipal
securities and foreign sovereign debt....................................................................17
6. The market making-related activities and underwriting exceptions fail to
account for the unique structure of the exchange traded funds market; as
such, the Proposal may prevent U.S. banking entities from serving as
Authorized Participants and market makers for exchange traded funds,
potentially crippling liquidity in this significant market sector. Many
exchange traded funds may inappropriately be designated as similar
funds, prohibiting banking entities from sponsoring or acquiring
ownership interests in such exchange traded funds ..............................................19
7. The Proposals failure to appropriately accommodate securitizations
threatens to constrict the economically essential activity of loan creation

2
in contravention of congressional intent, posing risks of material
interruption of credit markets................................................................................24
8. As an advisor and sponsor to money market funds subject to Rule 2a-7 of
the Investment Company Act that may purchase asset-backed commercial
paper or tender option bonds, Bank of America supports the Investment
Company Institutes view that the Agencies should provide greater clarity
that asset-backed commercial paper and tender option bonds would be
covered by an appropriate exception ....................................................................26
9. In order to implement the finding of the Financial Stability Oversight
Council that asset-liability management activities must not be prohibited
by the Volcker Rule, and to further the Volcker Rules goal of enhancing
the safety and soundness of banking entities and U.S. financial stability,
the Proposal must be revised to provide a clear exception for traditional
asset-liability management activities ....................................................................27
10. By defining resident of the United States to include branches of U.S.
incorporated banks, the Proposal would exclude such branches from
transacting with foreign banking entities wishing to rely on the overseas
activity exception and thereby would create undesirable counterparty
concentration by significantly limiting available trading counterparties,
diminish the safety and soundness of U.S. banking entities and impair the
competitiveness of U.S. banking entities..............................................................37
11. The Proposal does not permit banking entities to hold ownership interests
in covered funds in connection with underwriting and engaging in market
making-related activities, while the hedging exception it provides for
covered funds is overly restrictive, thereby reducing liquidity, impairing
capital formation, hindering risk management and decreasing investment
options for customers............................................................................................38
12. By failing to exclude from the definition of banking entityand
therefore the prohibitions of the Volcker Rulecovered funds that a
banking entity may permissibly control and other affiliated funds that are
not covered funds, the Proposal prohibits many funds from engaging in
their businesses in the ordinary course .................................................................41
13. Defining covered fund to include wholly owned subsidiaries is contrary
to congressional intent and would harm safety and soundness and U.S.
financial stability by prohibiting ordinary course internal financing,
liquidity and risk management transactions with thousands of wholly
owned subsidiaries ................................................................................................42
14. The Proposals designation of all commodity pools and virtually all
foreign funds as similar funds is not statutorily required, contravenes
congressional intent and would harm customers, diminish market liquidity
and threaten the competiveness of U.S. banking entities......................................48

3
15. The Proposals attribution provisions could prohibit many funds of funds
and master-feeder fund structures in contravention of congressional intent
and the Agencies position reflected elsewhere in the Proposal, and to the
detriment of Bank of Americas customers who regard them as an
important portfolio diversification tool.................................................................52
16. The Agencies should exercise their discretion to apply Super 23A only to
transactions between a banking entity and a covered fund that is, in fact, a
traditional hedge fund or private equity fund. In addition, the Agencies
should incorporate the exemptions in Section 23A of the Federal Reserve
Act and clarify that a banking entity may accept securities issued by a
related covered fund as collateral security for a loan or extension of credit
to any person or entity...........................................................................................58
III. The Agencies must carefully weigh the costs and benefits of the Proposal
and alternatives in terms of their effects on capital formation, market
liquidity, customers and end users, the safety and soundness of banking
entities, financial stability and economic growth.....................................................61
IV. Failure to provide banking entities with a sufficient implementation
period and clarity in regulatory oversight will result in unnecessary
market disruptions and uncertainty..........................................................................62
1. The criteria for eligibility for the extension for investments in illiquid
funds are overly restrictive....................................................................................63
2. Requiring banking entities to implement required compliance programs
by the effective date is unreasonable ....................................................................64
3. A single Agency should exercise interpretive authority and all supervisory
examinations should be conducted jointly............................................................66


4
I. Introduction and Bank of Americas Role in the Market
This Appendix B is intended to provide a more detailed discussion of the topics
addressed in Bank of Americas comment letter, to which it is attached. It also provides legal
support, as appropriate, for Bank of Americas recommendations to the Agencies to modify
the Proposal.
1
For convenience, these recommendations are collected in Appendix A. This
Appendix B includes additional facts and examples, drawn from Bank of Americas
operations, that we hope will be helpful to the Agencies
2
as they reconsider the Proposal.
Just as the comment letter headings have embedded links to the relevant discussion in this
Appendix B, headings and some subheadings in this Appendix B link to the relevant
discussion in the comment letter. Appendix A includes links to the relevant discussions in
the comment letter and in this Appendix B.

In addition to the major points we highlight in this Appendix B, Bank of America also
supports the comments and, generally, the recommendations submitted by the Securities
Industry and Financial Markets Association (SIFMA), The Clearing House (TCH), The
Financial Services Roundtable, the American Bankers Association, the American Bankers
Association Securities Association, the International Swaps and Derivatives Association, the
U.S. Chamber of Commerce, the Investment Company Institute (ICI), the Loan
Syndication and Trading Association, the American Securitization Forum and the letter
submitted by Cleary, Gottlieb, Steen & Hamilton LLP on behalf of a group of dealers, asset
managers, pension funds, hedge funds and other clients and customers of dealers.

We believe that Bank of Americas position as a market leader across U.S. and global
financial markets makes it well-situated to analyze the various potential effects of the
Proposal. Bank of America has more than $2.2 trillion in assets, more than $1 trillion in
deposits and $933 billion in loans. It is a leading retail bank, a major wealth management
firm and a premier investment bank. Bank of Americas subsidiary banks operate over 5,900
branch locations and over 18,000 ATMs. Clients have entrusted Bank of Americas wealth
management business and its more than 16,700 financial advisors with nearly $2.1 trillion in
assets. Bank of Americas alternative investment asset management business sponsors over
150 funds, representing over $10 billion in customer investment. Bank of Americas
proprietary cash asset management division sponsors eleven money market funds with net
assets of approximately $46.3 billion. Through its global sales and trading platform, Bank of
America serves over 12,000 institutional clients, many of whom serve as advisors and
managers for other retail and institutional customers. Bank of America also has membership
in or access to 106 global equity exchanges and trades the stocks of approximately 63,000
companies and more than 150 currencies. Bank of Americas research analysts cover

1
Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With,
Hedge Funds and Private Equity Funds, 76 Fed. Reg. 68,846 (Nov. 7, 2011) (the Proposal for the proposed rule text
and the Preamble for the Agencies discussion).
2
The Agencies refers to the Board of Governors of the Federal Reserve System (the Federal Reserve), the
Commodity Futures Trading Commission (the CFTC), Federal Deposit Insurance Corporation (FDIC), Office of
the Comptroller of the Currency (OCC) and Securities and Exchange Commission (SEC).

5
approximately 3,300 companies in nearly 60 countries. Its global corporate and investment
banking business serves clients in more than 100 countries and, during the third quarter of
2011, extended approximately $141 billion in new and renewed credit to customers and
clients. Bank of America is also a major provider of credit to individual consumers, small and
middle market businesses, and corporations. Since acting as the issuer of the first publicly
registered offering of non-agency residential mortgage pass-through certificates in 1977, Bank
of America has continued to act as a leader in the securitization market as an issuer itself and
by providing underwriting, distribution and advisory capabilities to clients.
3


II. The Proposal would impair financial stability, make U.S. banking entities less
safe and sound, diminish market liquidity, increase the cost of capital formation
and reduce the scope of financial products available to customers
There are multiple provisions in the Proposal that would needlessly impose substantial
costs on customers and end users, banking entities, markets and the U.S. economy more
generally. In some cases, these provisions would impairnot enhancefinancial stability,
contrary to congressional intent.
1. The Proposals market making-related activities exception is too
restrictive, is based on inaccurate assumptions regarding how banking
entities engage in market making and would diminish market liquidity
The Proposal would implement the market making-related activities exception by
establishing both an onerous set of specific requirements that market making must satisfy to
qualify as permitted market making
4
and a set of descriptive factors that would be used to
distinguish market making from proprietary trading.
5
Bank of America believes this approach
is unnecessarily narrow, overly prescriptive and endorses an agency-based model of market
making that does not exist in most markets. As a result, the exception does not permit
activities that are common to and necessary for market making in a number of vitally
important markets.
Principal Trading
When Bank of America acts as a market maker, it engages in principal trading.
Principal trading is at the core of market making and involves price making and the provision
of liquidity to customers. The Proposal treats all principal trading as though it were

3
Unless otherwise noted, all statements regarding Bank of America Corporations financial condition are as
of September 30, 2011, the date of its last Form 10-Q Quarterly Report. For Bank of America Corporations financials,
see Bank of America Corporation, Form 10-Q Quarterly Report for the Period Ended September 30, 2011. For Bank
of America, N.A.s financials, see Bank of America, N.A., Consolidated Reports of Condition and Income for a Bank
with Domestic and Foreign Offices-FFIEC 031 for the Period Ended September 30, 2011.
4
See Proposal _.4(b)(2).
5
See id., Appendix B.

6
proprietary trading and restricts how a market maker earns revenues from principal trading on
behalf of customers in ways that will diminish the ability of U.S. banking entities to provide
this critical customer service. A principal trader buys or sells securities and other financial
instruments both at the specific request of a customer and in expectation of future customer
demand.
It is a fundamental premise of the market making business that the market maker be
able to meet customer demands whenever and wherever they arise. As such, a market maker
must maintain an inventory of securities and other financial instruments that it anticipates
customers will want to purchase. These transactions are clearly customer-driven. However,
since a market maker must acquire this inventory in advance of express customer demand, it
is not clear that such transactions would comply with the clear, demonstrable trading
interests of clients condition.
6

Moreover, since market makers hold this inventory to meet expected customer
demand, or as a result of purchases from clients looking to sell, a market maker is exposed to
the risk of changes in the price of those instruments. A principal traders profits or losses
therefore depend on its management of that risk, and not necessarily on capturing a bid/ask
spread, which is, at best, an unpredictable part of the revenue received from market making.
As a result, an attempt to distinguish revenues earned from capturing a spread versus price
appreciation is impractical in most markets.
Unlike proprietary traders, principal traders must provide liquidity to their clients,
even in distressed markets. If covered banking entities can no longer offer market making
services because such services are deemed to be prohibited proprietary trading, it is unlikely
that hedge funds or other entities not subject to the Volcker Rules prohibitions would quickly,
if ever, begin to offer the services previously provided by covered banking entities. Such
entities are simply not in the business of providing liquidity to customers.
Low-Volume Markets
In many of the markets in which Bank of America acts as a market maker, such as the
corporate debt market, trading volume is typically lower than in certain highly liquid equity
markets. The market making-related activities exception as drafted does not adequately
address market making in these low-volume markets. Indeed, the disconnect between the
reality of market making in low-volume markets and the strict requirements of the market
making-related activities exception is deeply problematic. For example, the need to hold
inventory to meet future customer demand is incongruent with the Proposals requirement that
market making activity serve the clear, demonstrable trading interests of customers.
Customer expectations require that these inventories include not only those financial
instruments in which customers have previously traded but also instruments that Bank of
America believes they may want to trade. For example, the municipal securities market alone
has more than 1 million individual outstanding bonds, and Bank of America itself has nearly

6
See Preamble, 76 Fed. Reg. 68,871.

7
7,000 individual bonds with different coupons and maturities. Under the Proposal, however,
Bank of America would face significant risks in accumulating the inventory required to act as
a market maker in low-volume trading markets because the Agencies could later determine
that it is deriving revenues from changes in the market value of the positions or risks held in
inventory.
7

The reality of market making in low-volume markets is also not reflected in the
condition that market making revenues be generated primarily from bid/ask spreads and not
from price appreciation. As noted in our comment letter, turnover varies significantly across
markets and can be very low depending on the instrument in question. In the credit default
swap market, for example, the Depository Trust and Clearing Corporation calculated that in
the third quarter of 2010, there were five or fewer daily trades in credit default swaps for more
than two-thirds of issuers. Credit default swaps on more than 90 percent of issuers were
traded 10 or fewer times per day. In the equity options market, Bank of America estimates
that, on average, it bought or sold in a market making capacity equity options on each of the
50 largest issuers by market capitalization of the S&P 500 index on only two of the 21 trading
days in November 2011.
When trading occurs as infrequently as it does in certain markets, it is not possible to
tell when a market maker has captured a spread and when its revenues derive from changes in
prices. In markets where no spread is published, such as fixed income markets, it is difficult
if not impossible to distinguish the bid/ask spread from price movements. Regardless of
whether one considers the market makers revenues to be attributable to capturing a spread or
price appreciation, factors such as price movements in markets generally and the lack of
liquidity in the bond market itself should not result in treating an essentially market making
position as a proprietary trade under the Volcker Rule.
Market Making for Equity and Physical Commodity Derivatives
In certain markets, like equity derivatives, the distinction between capturing a spread
and price appreciation is fundamentally flawed because the market does not trade based on
movements of a particular security or underlying instrument. When Bank of America acts as
a market maker for equity derivativesincluding convertible securities as well as listed and
over-the-counter derivativesBank of America often does so not in anticipation of later
selling or purchasing that specific security at a profit, looked at in isolation from the related
hedge, but rather in expectation of returns on a portfolio basis based on (a) the bid/ask spread
that Bank of America charges for implied volatility as reflected in option premiums and (b)
hedging of the position, which, on a portfolio basis, serves to effectively lock in the volatility
spread that is reflected in option premiums.
Generally, illiquid options and convertible issues do not trade frequently enough to
generate reliable spreads because of the time between trades and intervening market
fluctuations that impact premiums. Thus, differences in implied volatility (as reflected in

7
See id. at 68,871.

8
option premiums) across securities, rather than bid/ask spreads in a security, are the relevant
measures to which market makers look.
To illustrate, the market maker might purchase options on the stock of one issuer and
sell options on the stock of another issuer. The market maker will not enter these transactions
with a view to profiting by later selling the options on the securities of the first issuer at a
higher price or buying back the options on the securities of the second issuer at a lower price.
Instead, the market maker will charge a bid/ask spread on the implied volatility, paying
lower bid-side implied volatility for the options on the securities of the first issuer and higher
ask-side implied volatility for the options on the securities of the second issuer. The market
maker effectively locks in the volatility spread embedded in option premiums on a portfolio
basis by hedging each position at the time of entering into the trade and dynamically on an
ongoing basis. This serves to insulate positions from fluctuations in the price and volatility of
the underlying securities, and the market maker is effectively indifferent to the price at which
it exits the position or whether it earns a spread on a position-by-position or unhedged basis.
The Proposals requirement that market making revenue not be generated from price
movements or hedging also is inconsistent with market making in physical commodity
derivatives markets. In these markets, the price objectives of initial sellers of underlying
commodities (i.e., producers) diverge from those of ultimate buyers (i.e., end users). In these
markets, the bespoke nature of customer risks requires the market maker to take on bundled
risk that must be unbundled to create a portfolio of hedges. But due to the illiquid nature of
these markets, a highly correlated hedge may not be available.
For example, an independent electricity producer is exposed to the risk of variation in
the difference between the prices of the electric power it sells and, for example, the natural
gas that it buys. This variation directly affects the power producers gross margin (i.e., the
difference between its revenues and costs). A market maker can provide a custom hedge to
the power producer that guarantees the power producer a constant revenue stream that can be
budgeted and borrowed against. The market maker does so by purchasing an option from the
power producer to purchase financially settled electricity for a given period. The market
maker will then make monthly payments of a fixed amount to the power producer for the
given period. Because there is not a deep, standardized option market available in most
power markets, the market maker will itself hedge the risks it takes on in this example by
entering into various swaps in natural gas, natural gas basis risk (i.e., the embedded price
difference between a specific location and the central liquid trading point) and electricity.
Because of market volatility and the custom nature of the bundle of hedges, the market maker
necessarily maintains some degree of risk, which may result in the market maker recognizing
revenues prohibited by the Proposal.
The Scope of the Proposals Impact
Accordingly, the requirement that revenues primarily be generated from capturing a
traditional bid/ask spread and the potential inventory limits discussed above could force Bank
of America either to cease offering market making services in a number of low-trading

9
volume markets or to charge customers more. The result would be less liquidity and higher
costs to customers and businesses seeking to raise funds in capital markets.
The fact that trading volume in a specific market is low does not necessarily mean that
a market is small. For example, at the end of 2010, the size of the corporate bond market was
$7.5 trillion, the size of the municipal securities market was $2.9 trillion and the size of the
asset-backed securities market was $2 trillion, according to data from SIFMA. As noted in
our comment letter, however, trading turnover in all of these markets is significantly lower
than in the equity market, raising concerns that Bank of America may not be deemed a market
maker under the terms of the Proposals market making-related activities exception. In the
corporate credit market alone, Bank of America traders distribute to our customers indicative
prices at which Bank of America would purchase or sell more than $50 billion of outstanding
corporate credit obligations at the opening of each trading day. Assuming Bank of America
refreshes these indicative market prices four times per day for 200 trading days per year, this
equates to acting as a market maker in respect of $40 trillion worth of corporate credit
obligations, which is just one segment of the markets for covered instruments. If these
activities are interrupted, the magnitude of the negative impact on the financial system and the
broader economy could be devastating.
Untenable Compliance Metrics
In addition to the fact that the Proposal would likely impede Bank of America in
offering market making-related services in many low-volume trading markets, the Proposals
mechanism for monitoring compliance with the terms of the exception would impose
substantial burdens and therefore raise market making costs even in those markets where it is
clear Bank of America can provide market making services. Bank of America understands
that some quantitative metrics are necessary to differentiate market making from proprietary
trading. However, in forcing banking entities to calculate seventeen metrics at each trading
unit,
8
the Proposals approach would generate an unmanageable amount of data across
potentially hundreds of trading units globally and would yield numerous false positives. It is
hard to overstate the difficulty involved in calculating such metrics for all of the markets in
which Bank of America serves as market maker, including the commodities, equities, fixed
income securities and derivatives markets. Certain of the metrics, such as Spread Profit and
Loss, are virtually impossible to calculate objectively for all but the most high-volume asset
classes. The use of metrics which are not based on directly observable or publicly available
data sources will make it very difficult for regulators to create appropriate benchmarks to
compare the performance of different institutions.
Recommendations
Bank of America strongly supports the suggestions of other commenters to revise the
Proposal to ensure that markets remain liquid and customers continue to have access to

8
See Proposal, Appendix A.

10
market making services across financial markets. Specifically, Bank of America urges the
Agencies to:
presume that trading desks that are primarily providing liquidity to customers, as
demonstrated by useful metrics, and subject to appropriate compliance procedures,
are engaged in market making;
define market making-related activities with reference to a set of factors rather
than hard-coded requirements;
replace the condition that market making-related activities be designed to generate
revenues primarily from bid/ask spreads and certain other fees and commissions,
rather than price appreciation or hedging, with guidance that the Agencies consider
as an indicator of potentially prohibited proprietary trading the design and mix of
such revenues, but only in those markets for which it is quantifiable based on
publicly available data, such as segments of certain highly liquid equity markets;
eliminate the requirement that anticipatory positions be related to clear,
demonstrable trading interests of customers;
rely on a smaller number of customer-facing trade ratios, inventory turnover ratios,
aged inventory calculations and value-at-risk (VaR) measurements to identify
prohibited proprietary trading, with acknowledgement that differences between
asset classes and in market conditions may impact the applicability of certain
metrics or thresholds;
calculate quantitative metrics at the line of business level (at Bank of America, for
example, Global Credit Products or Global Equities) rather than at a trading unit
level in the organization; and
explicitly allow interdealer market making.


2. The Proposal would impede the ability of banking entities to manage risk
in a safe and sound manner through overly burdensome risk-mitigating
hedging compliance requirements
The statutory text of the Volcker Rule expressly permits risk-mitigating hedging.
9

Hedging is essential to the safety and soundness of U.S. banking entities and, therefore, to
U.S. financial stability. Accordingly, implementing the Volcker Rule in a way that would
impede the ability of banking entities to manage risk would impairnot enhanceU.S.

9
Specifically, the statutory Volcker Rule permits: risk-mitigating hedging activities in connection with and
related to individual or aggregated positions, contracts, or other holdings of a banking entity that are designed to
reduce the specific risks to the banking entity in connection with and related to such positions, contracts, or other
holdings. See Bank Holding Company Act 13(d)(1)(C). The Financial Stability Oversight Council recognized risk-
mitigating hedging to be a core banking function. See Financial Stability Oversight Council, Study &
Recommendations on Prohibitions on Proprietary Trading & Certain Relationships with Hedge Funds & Private
Equity Funds 1 (2011) (FSOC Study), available at
http://www.treasury.gov/initiatives/Documents/Volcker%20sec%20%20619%20study%20final%201%2018%2011%2
0rg.pdf.

11
financial stability, contrary to congressional intent. Bank of America believes that the risk-
mitigating hedging exception as drafted is too narrow and would unnecessarily constrain the
way in which banking entities can hedge risks.
In implementing the risk-mitigating hedging exception, the Proposal would require
that hedging activities conform in every hedging transaction, regardless of asset class or a
particular markets structure, to a detailed set of conditions.
10
Because the Proposal fails to
allow for considerations based on the unique facts and circumstances giving rise to a specific
risk, it is at odds with the reality that hedging in many markets is necessarily a dynamic
activity that takes many forms and involves subjective judgment. Bank of America believes
many of the Proposals requirements could be viewed as inconsistent with the type of
dynamic hedging that effective risk management requires.
Reasonably Correlated Condition
To qualify for the Proposals risk-mitigating hedging exception, a hedge must be
reasonably correlated
11
to a specific risk. This could be interpreted to force banking
entities to connect hedges to risks in a manner that is not compatible with dynamic hedging,
portfolio hedging and scenario hedging. This would materially impede effective risk
management. Similarly, the requirement that hedges not create significant new risk to a
covered banking entity
12
does not accommodate the reality that every hedge comes with
certain associated risks, and that risk managers must consider the nature and extent of those
risks based on the specific context of a given transaction when putting on a hedge. This
condition introduces considerable ex ante uncertainty into risk management decisions and
could therefore dissuade risk managers from entering into otherwise permitted, and
appropriate, hedging transactions.
In addition, the Proposal would appear to require banking entities to link specific
hedges to specific positions
13
to ensure the correlation between the hedge and position is
reasonable.
14
For many financial products, there is no one single instrument that a banking
entity can employ to hedge against the risk incurred in connection with such products.
Accordingly, risk managers will find it extremely challenging to adhere to the requirements of
the risk-mitigating hedging exception. These challenges might discourage market makers
from entering into customer transactions that do not have a direct hedge, and already illiquid
markets clearly would become even more illiquid. The challenges are particularly acute with
dynamic hedging, where a risk manager would have to constantly reevaluate what level of

10
See Proposal _.5.
11
See id. _.5(b)(2)(ii)-(iii).
12
See id. _.5(b)(2)(iv).
13
See id. _.5(b)(2)(ii).
14
See id. _.5(b)(2)(iii).

12
correlation between a hedge and a position is reasonable based on constant fluctuations in
prices, index levels, volatility and other factors.
The concept of linking specific hedges to specific positions is also inconsistent with
portfolio hedging. For example, because the markets for many individual equity derivative
securities are so illiquid, market makers hedge the related delta volatility exposure on a
portfolio basis. Specifically, a market maker will offset delta volatility exposure it takes on
with respect to an equity derivative in one security by taking on the delta and volatility of a
different security that is in the opposite direction to the original exposure. Taking advantage
of such existing offsetting delta and volatility positions allows market makers to hedge more
efficiently, but it necessarily involves a subjective determination of the specific delta or
volatility hedge for any single equity derivative position examined in isolation. In addition,
this requirement would discourage scenario hedging, which attempts to hedge positions
against the effects of specific possible future events, because determining the direct and
indirect effects of particular events, and the complex chain through which those events might
impact specific positions, necessarily requires a degree of subjective judgment.
The difficulty of reasonably correlating a hedge to a risk also arises in the
commodities markets where Bank of America must often take on highly idiosyncratic risks in
order to provide bespoke hedges to customers. For example, an independent oil refiner may
approach Bank of America to hedge the difference between the price of the refiners output
such as gasoline, diesel, fuel oil and other refined productsand the cost of its inputs, such as
various grades of crude oil.
15
The refiner must hedge the spread between the prices of such
inputs and outputs, which are based on different factors and not necessarily correlated. In
order to offer such bespoke hedges, Bank of America must manage the risk it takes on.
Hedges that most closely correlate with the risk that Bank of America takes on would mirror
the components of the refiners exposure to prices in crude oil and refined products. Markets
for these refined products, however, frequently become highly illiquid. Accordingly, entering
into a reasonably correlated hedge would expose Bank of America to a new set of risks
related to holding illiquid assets. The most prudent risk management action, therefore, could
be to enter into a less correlated hedge.
Delta Neutral Hedging
The delta neutral hedging that Bank of America engages in with respect to its equity
derivatives positions is illustrative of the type of dynamic hedging that is typical across
financial markets. The delta of an equity derivative position is the rate of change of the
value of the derivative relative to changes in the value of the underlying equity security or
index. The initial delta of an equity derivative position is the percentage of the notional
number of shares or index units that should be purchased or sold in order to achieve a delta

15
A refiner must enter into a hedging transaction because the factors that move these prices are different and
not necessarily correlated. Furthermore, refiners often do not have the flexibility to suspend or resume operations on
short notice, and therefore they can be exposed to long periods of unfavorable price differentials between refined
products and crude oil.

13
neutral position, which is when the value of the derivative and hedge are equal and offsetting.
Equity swaps are referred to as delta one derivatives because the value of the swap changes
on a one-for-one basis with changes in value of the underlying security or index. The hedge
for the equity component of an equity swap is static.
For example, to hedge the equity component of swap that is long the shares of a given
issuer, market makers will purchase and hold an equivalent number of shares of that issuer.
In contrast, the hedge for an equity option changes with the delta for the option, which varies
over time as a function of, among other variables, changes in the price of the underlying
equity security or index, volatility and the amount of time remaining to exercise the option.
Equity derivative market makers manage the risk of changes in the delta by dynamically
hedging their position. They do so by buying, selling and shorting according to changes in
the underlying stock price or index level and other variables that affect the delta of the
position. This type of dynamic hedging mitigates the effect on the value of the position
caused by changes in the price of the underlying stock, index level, volatility and other
variables.
Of the factors that risk managers must analyze, volatility is the most critical, because
determining volatility involves an important subjective element. While there are various
objective bases that can be used to measure the volatility of a stock or index, including
historical volatility for various time periods and implied volatilities based on a comparison of
the price levels of listed derivatives with the same underlying stock, these do not always
appropriately reflect current conditions. Accordingly, estimating volatility necessarily
involves subjective analysis.
Significant New Risks Condition
The Proposal also would require banking entities not to take on significant new risks
in the course of hedging.
16
This requirement would introduce further challenges to the use of
dynamic, portfolio and scenario hedging. Many hedges cannot perfectly correlate with the
risk of the position hedged against. Furthermore, a risk manager will often structure a
hedging transaction to protect the banking entity from those risks with the greatest likelihood
of materializing and for which the magnitude of negative impact would be largest, but such
transactions could expose the banking entity to some significant new risks judged by the
risk manager to be less problematic than the hedged risks. Accordingly, even many optimal
hedges may bring about significant new risks. Moreover, determining whether a
transaction is permitted risk-mitigating hedging or prohibited proprietary trading based on
whether the transaction exposes the banking entity to significant risk would make it difficult
for risk managers to assess ex ante with certainty the status of a hedging transaction under the
Volcker Rule.


16
See Proposal _.5(b)(2)(iv).

14
Recommendations
As such, the Proposal would paradoxically increase, not decrease, the risks posed by
and to U.S. banking entities. Bank of America therefore strongly supports the proposals of
other commenters that the Agencies revise the Proposals risk-mitigating hedging exception to:
establish a presumption of compliance for banking entities adhering to reasonably
designed policies and procedures for managing risk;
characterize reasonable correlation between a transaction and the risk intended to
be hedged as evidence of compliance rather than as a strict requirement;
encourage, rather than discourage, scenario hedges;
eliminate as unworkable the requirement that hedges not create significant new
risks;
define risk-mitigating hedging with reference to a set of relevant descriptive
factors rather than specific prescriptive requirements; and
expand the scope of allowable anticipatory risk-mitigating hedging to include
hedges taken more than slightly before exposure to the underlying risk.
Furthermore, the Proposal does not exclude from the prohibition on proprietary
trading derivatives on positions that are expressly permitted. Bank of America strongly
agrees with commenters that have urged the Agencies to revise the Proposal to encourage
hedging of expressly permitted positions by:
excluding derivatives based on loans, foreign exchange and commodities from the
definition of covered financial position; and
including derivatives based on government securities within the scope of the
government obligations exception.
3. The Proposals underwriting exception fails to permit many activities that
are commonly part of underwriting and, as a result, would increase costs
to issuers seeking to raise capital
The statutory text of the Volcker Rule includes an exception for underwriting
activities.
17
Efficient capital formation depends on the underwriting activities of U.S. banking
entities, which help fuel economic growth and job creation. As noted in our comment letter,
last year, Bank of America underwrote more than 242 global equity issues that raised more
than $42.2 billion of equity capital, resulting in a global market share of 6.7 percent. In the
global fixed income market, Bank of America underwrote more than $301.7 billion of debt
securities in 1,576 separate issuances, resulting in a global market share of 5.2 percent. As

17
Bank Holding Company Act 13(d)(1)(B). The FSOC has identified underwriting as a core banking
function. See FSOC Study, supra note 9, at 1.

15
such, implementing the Volcker Rule in a way that impedes underwriting would hinder the
ability of U.S. businesses to raise capital and make investments and, therefore, would threaten
the tenuous economic recovery. Bank of America agrees with other commenters who have
noted that the Proposal would do just that.
Underwriting and Proprietary Trading
Bank of America believes the Proposals requirement that underwriting activities be
made solely in connection with a distribution
18
could prevent U.S. banking entities acting as
underwriters from taking naked syndicate short positions in the securities being distributed to
facilitate aftermarket transactions and reduce volatility. Furthermore, an overly narrow
interpretation of what activities are for the near term demands of clients
19
could stop U.S.
banking entities from engaging in block trade or bought deal forms of underwriting,
where the underwriter acts as a principal without marketing the distribution in advance, or
from acting as Authorized Participants for exchange traded funds (as discussed in Part II.6 of
this Appendix B). Similarly, narrowly interpreting the near term demands of clients could
prevent U.S. banking entities from refinancing or replacing bridge loans (or commitments for
such bridge loans) with securities that may be sold into the market over time. It was never the
intention of Congress to limit traditional underwriting activities. The Proposals overly
prescriptive implementation of the underwriting exception would make it more costly and
more difficult for U.S. and foreign companies to access U.S. and foreign capital markets,
hindering U.S. economic growth.
Recommendations
Bank of America therefore urges the Agencies to revise the Proposal to:
establish a strong presumption for banking entities with adequate compliance and
risk-management procedures that all activities related to underwriting are
permitted activities; and
remove the word solely from the in connection with a distribution prong of the
underwriting exception.
4. By limiting the type of transactions banking entities can enter into with
customers, the Proposal would make it harder, and in some cases
impossible, for banking entities to help end user customers hedge against
risks or finance their activities
U.S. banking entities help U.S. corporations manage the risks they face in connection
with their everyday businesses by making available a range of risk-mitigating hedging
financial products. The Proposal notes the essential role of U.S. banking entities in providing

18
See Proposal _.4(a)(2)(ii).
19
See Bank Holding Company Act 13(d)(1)(B); see also Proposal _.4(a)(2)(v).

16
these services to U.S. corporations by exempting spot commodity and foreign exchange
positions from the definition of covered financial position.
20
Bank of America strongly
supports the position of other commenters that the Proposals restrictive market making, risk-
mitigating hedging and on behalf of a customer exceptions would in many instances make it
difficult for banking entities to provide customers with risk-mitigating hedges. In limiting the
tools that commercial end users can choose from to manage their risks, the Proposal would
increase costs to end user investment and hinder economic recovery.
In addition, to finance customer positions, banking entities enter into fully
collateralized total return swaps with customers. The economic purpose of these swaps is
similar to repurchase transactions, which the Proposal expressly excludes from the scope of
proprietary trading.
21
Like repurchase transactions, customers enter into fully collateralized
total return swaps with banking entities for financing purposes. As with the types of activities
the Proposal as drafted includes within the on behalf of customers exception,
22
these swaps
are not entered into principally for the purpose of near-term resale or short-term trading
profits. A banking entity earns the equivalent of a financing fee and is not otherwise profiting
from price movements in the securities subject to the total return fully collateralized financing
swap.
Recommendations
To ensure that end user customers can continue to effectively hedge their exposure to
price fluctuations, Bank of America strongly supports the recommendations of other
commenters that the Proposal be revised to:
exclude commodity futures, forwards and swaps and foreign-exchange forwards
and swaps from the definition of covered financial position;
expand the on behalf of a customer exception to include any transaction where a
banking entity provides a risk-mitigating hedge to a customer or enters into a fully
collateralized total return financing swap; and
allow banking entities to anticipatorily hedge against specific positions they have
promised for a customer once the promise is made and not only after the position
is taken.



20
See Proposal _.3(b)(3)(ii).
21
See id. _.3(b)(2)(iii)(A).
22
See id. _.6(b).

17
5. The government obligations exception fails to exempt all municipal
securities and foreign sovereign debt
Municipal Securities
The Proposals government obligations exception is currently limited to the
obligations of any State or any political subdivision thereof and does not extend to
transactions in the obligations of any agency or instrumentality thereof.
23
Making a
distinction between securities issued by a State or political subdivision, on the one hand, and
an agency or instrumentality of a State or political subdivision, on the other hand, does not
appear to be based upon a difference in such securities underlying credit. A water and sewer
project for a city, for example, could be funded by debt issued by a State, its political
subdivision or an agency of the political subdivision that has been set up by a political
subdivision to issue the debt. In all of these cases, the revenue from the project could support
the debt issued. It would make no sense to distinguish between the debt issued by the agency
and the debt issued by the State or the political subdivision. Accordingly, Bank of America
strongly believes that the government obligations exception should be expanded with respect
to municipal securities to match the scope of the definition of municipal securities in
Section 3(a)(29) of the Securities Exchange Act of 1934, as amended (the Securities
Exchange Act).
There does not appear to be any express congressional intent or other rationale for
distinguishing among an agency or instrumentality, State or its political subdivision. In
addition, the narrow scope of the Proposals government obligations exception with respect to
municipal securities is not congruent with Section 24 of the National Bank Act, which
expressly permits national banks to invest in, underwrite, or deal in municipal agency
securities so long as the national bank is well-capitalized. The Proposals narrow exception
for municipal securities would effectively repeal the authority of a well-capitalized bank
under the National Bank Act to freely deal in all municipal agency securities.
The municipal market is already fragmented when compared to the corporate bond
market in terms of the number of issuers and outstanding individual security issuances, each
of which will have its own CUSIP.
24
There are approximately 1.1 million separate CUSIPs
for the municipal market.
25
A narrow exception for municipal securities that effectively
creates two different classes of municipal securities would significantly reduce liquidity in the
municipal market. As noted in our comment letter, Bank of America estimates that the
Proposal would exclude approximately 40 percent of the $3.7 trillion outstanding municipal
securities from the government obligations exception. This would increase the fragmentation
of the municipal market and thereby reduce liquidity, raise costs to tax-exempt organizations

23
See id. _.6(a)(1)(iii).
24
A CUSIP is a 9-character alphanumeric code given to every security that trades in the U.S. market to
facilitate clearing and settlement. Each distinct issuance of securities is assigned its own CUSIP number.
25
Data provided by SIFMA.

18
that access the capital markets and burden investors seeking liquidity in secondary markets.
Retail investors, who hold approximately 50 percent of outstanding municipal securities,
either directly or through funds, would be particularly affected by the narrowness of the
government obligations exception.
Foreign Sovereign Debt
The Proposals government obligations exception also does not include the sovereign
debt of countries other than the United States. Many U.S. banking entities, however, are
primary dealers in the sovereign debt of other countries. Furthermore, some jurisdictions
encourage or require a U.S. banking entitys branches or subsidiaries to hold the jurisdictions
sovereign debt to comply with liquidity or capital requirements.
Bank of America is a primary dealer in many foreign jurisdictions appointed by
sovereign issuers to buy, promote and distribute sovereign bonds. As in the case of the U.S.
government issuing U.S. Treasury securities, foreign sovereign issuers rely on their primary
dealers (e.g., market makers) to support liquidity in their markets. To facilitate these
activities, dealers are required to position themselves in a principal capacity in the sovereign
debt. When coupled with the limitations of the market making-related activities and risk-
mitigating hedging exceptions discussed above, omitting foreign sovereign debt from the
government obligations exception could reduce market liquidity for the sovereign debt of a
large number of countries. Currently, for example, U.S. banking entities make up between 25
and 35 percent of the membership of the European Primary Dealers Association.
26
Similarly,
in Asia (e.g., Japan, Singapore and India) such percentages range between 15 and 25 percent
of primary dealer memberships. As a result, absent a change to the Proposal, the impact to
liquidity in international markets would be significant, as many foreign governments have
noted. A cooperative approach that allowed trading in foreign sovereign debt would help
ensure maximum liquidity in sovereign debt markets and comport with other global
precedents for the consistent treatment of U.S. debt and the debt of other highly rated
countries.
27
Bank of America is concerned that failure to adopt a cooperative approach that
allows trading in foreign sovereign debt could result in foreign governments adopting a
similar approach towards U.S. Treasury and government agency debt, limiting the ability of
market makers under their respective jurisdictions from transacting in these securities. This
response, in turn, could negatively impact liquidity in this very important market.


26
The EPDA, the leading European trade group for primary dealers, is a subgroup of the Association for
Financial Markets in Europe.
27
For example, in its 2008 consultation paper on liquidity management, the U.K.s Financial Services
Authority proposed treating the debt of the countries of the European Economic Area, Canada, Japan, Switzerland and
the United States equivalently for purposes of a liquidity buffer that U.K. banks would be required to maintain. See
Financial Services Authority, Strengthening Liquidity Standards 52 (2008), available at
http://www.fsa.gov.uk/pubs/cp/cp08_22.pdf.

19
Recommendations
Bank of America believes that the Agencies should:
expand the exception for municipal securities to cover all securities included in the
definition of municipal securities in Section 3(a)(29) of the Securities Exchange
Act; and
allow trading in sovereign debt of any foreign jurisdiction not deemed high risk or,
at a minimum, of a country that is a member of the G-20.
28

6. The market making-related activities and underwriting exceptions fail to
account for the unique structure of the exchange traded funds market; as
such, the Proposal may prevent U.S. banking entities from serving as
Authorized Participants and market makers for exchange traded funds,
potentially crippling liquidity in this significant market sector. Many
exchange traded funds may inappropriately be designated as similar
funds, prohibiting banking entities from sponsoring or acquiring
ownership interests in such exchange traded funds
As currently drafted, certain of the Proposals provisions have the potential to
significantly impede the functioning of the exchange traded fund (ETF) market both in the
United States and globally, to the detriment of the retail and institutional investors who favor
these funds. Specifically, the scope of the Proposals market making-related activities and
underwriting exceptions can be read to prohibit a U.S. banking entity from serving as an
Authorized Participant (AP) to an ETF issuer. In addition, the Proposals overbroad
designation of ETFs as similar funds subject to the Volcker Rule would effectively prevent
U.S. banking entities from sponsoring ETFs, investing in ETFs or holding ETF shares in
inventory as part of their normal, ordinary course, market making activities. Given the
substantial contribution of U.S. banking entities to the U.S. and global ETF markets, the
Proposal creates significant uncertainty about the future functioning of the ETF market,
raising concerns about the accompanying impact on retail and institutional investors and
financial markets more broadly.
Background on ETFs
ETFs combine features of mutual funds and exchange traded securities of corporate
issuers. Like the securities of corporate issuers, ETF shares are traded in secondary market
transactions and listed on exchanges, allowing retail and institutional investors to buy and sell
shares throughout the trading day at prices determined in the open market. But, like mutual
funds, U.S. ETFs generally are registered under the Investment Company Act of 1940, as
amended (Investment Company Act), and are subject to many of the same regulatory

28
The G-20 is comprised of the countries of Argentina, Australia, Brazil, Canada, China, France, Germany,
India, Indonesia, Italy, Japan, Mexico, South Korea, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom
and the United States, as well as the European Union.

20
requirements as mutual funds.
29
According to the ICI, as of November 30, 2011, in the
United States alone, the shares of over 1,000 ETF issuers, with aggregate assets in excess of
$1 trillion, were traded, representing approximately 25 percent of all equity trading volume on
U.S. securities exchanges.
30
The vast majority of the leading APs in the U.S. ETF market are
U.S. banking entities. In the United States, Bank of America acts as an AP for approximately
800 ETFsin excess of 70 percent of the 1,127 U.S. ETFs in existence at November 30,
2011and acts as a market maker for the majority of the ETFs for which it serves as an AP.
The number of U.S. ETFs for which Bank of America and other banking entities act as an AP
and market maker is continually growing as ETF sponsors introduce new ETFs to meet
market demand.
Outside the United States, ETFs are also regarded as an important portfolio investment
asset for both retail and institutional investors. In Europe, there are approximately 1,185
ETFs. Bank of America acts as an AP to approximately 676 European ETFsjust over 50
percent of the European-listed ETFs. In Asia, Bank of America and its affiliates act as an AP
for approximately 12 ETFs listed on the Hong Kong Stock Exchangejust over 15 percent of
the 79 ETFs that are listed in Hong Kong. As is the case with U.S. ETFs, foreign ETFs are
transparent and generally are highly liquid. They are subject to regulation in their local
jurisdiction and operate under requirements comparable to those under the Investment
Company Act, as well as being exchange traded and offered to retail, as well as institutional,
investors.
The Role of APs in ETF Operations
Unlike mutual funds, ETF issuers do not sell shares directly to, or redeem shares from,
individual investors. Rather, the creation and redemption of ETF shares requires the
intermediation of an AP. As demand increases for an ETFs shares, an AP will assemble and
tender to the custodian bank securities underlying the ETF in specified wholesale volumes
known as creation units.
31
In exchange, the AP receives individual ETF shares in large,
predetermined blocks. The AP then sells the ETF shares to retail and other investors. The AP
also may perform this function in reverse: purchasing ETF shares from customers, redeeming
creation units, and receiving the underlying assets in return. In this manner, the AP facilitates
continuous issuance and redemption of ETF shares and, thus, liquidity in the ETFs shares.
This intermediation by APs also is designed to shield ETF investors from large and prolonged

29
Each ETF issuer is required to register under the Securities Act of 1933, as amended (the Securities Act),
the Securities Exchange Act, and, in most cases, the Investment Company Act. As a result, ETFs are required to
comply with substantial disclosure, operational and compliance requirements. A typical ETF issuer seeks an SEC
order that provides relief from some requirements of the Investment Company Act and the Securities Exchange Act,
generally relating to the creation and redemption process and exchange trading of their shares. Further, because the
creation of shares of an ETF is ongoing, the ETF is deemed to be in a continuous distribution under the Securities Act.
30
See Exchange Traded Funds Assets: November 2011, ICI (December 29, 2011),
http://www.ici.org/etf_resources/research/etfs_11_11. The total number of ETFs in November 2011 was 1,127.
31
In the case of synthetic ETFs, however, an AP would not receive actual ownership of ETF shares but
derivative exposure to the performance of the ETF.

21
differences between the price of an ETFs shares and the value of its underlying assets. This
is one of the key features that make ETFs attractive to investors.
32

In addition, APs trade in ETF shares in the secondary market as traditional market
makers, on behalf of their own clients, or for their own accounts. APs also may enter into
agreements with exchanges that list ETF shares to act as a market maker to provide liquidity
for those shares.
APs also may play a role in the initial launch of an ETF and facilitating liquidity for it
by seeding the ETF for a short time. An AP does so by entering into several initial creation
transactions with the ETF issuer and refraining from selling those shares to investors or
redeeming them for a period of time to facilitate the ETF achieving its liquidity launch goals.
ETFs further provide investors with a cost-effective way to hedge their exposure to
movements in asset prices and indices through create to lend transactions, in effect making
a market in ETF shares for investors seeking to hedge risks. These transactions generally
involve an AP entering into a creation transaction with an ETF issuer (as described above)
and lending the ETF shares it receives from the ETF issuer to an investor. This provides the
investor with a more efficient way to hedge its exposure to assets correlated with those
underlying the ETF.
ETF Market Making-Related Activities and Underwriting
The activity of ETF creation and redemption by a banking entity as well as acting as a
market maker in buying and selling ETF shares would appear to fall within the Proposals
definition of prohibited proprietary trading, unless an exception applies. The exceptions that
come closest to providing for these activities are the underwriting and market making-related
activities exceptions, but in neither case do they appear to accommodate the activities
performed by APs and ETF market makers, which are critical to the functioning of the ETF
market. Both the underwriting and market making-related activities requires that a banking
entitys activities be designed not to exceed the reasonably expected near term demands of
clients.
33
As we note elsewhere in Bank of Americas comment letter and this Appendix B,
near term demand should be interpreted to reflect the activities in which market makers
engage based on the characteristics of the relevant market. In this case, if this criterion is
interpreted too narrowly without taking into consideration the types of transactions in which
APs must engage to facilitate the operations of ETFssuch as building inventory used to
assemble creation units in anticipation of customer demandbanking entities would be
precluded from acting as APs.

32
See Frequently Asked Questions About ETF Basics and Structure, ICI (January 2012),
http://www.ici.org/etf_resources/background/faqs_etfs_basics.
33
See Proposal _.4(a)(2)(v), (b)(2)(iii).

22
In addition, as described above, liquidity and efficient pricing of ETFs depends on
APs engaging in creation and redemption transactions. This activity is designed to benefit
ETF investors and should be viewed as a permitted market making-related activity. The
Agencies recognized in the preamble that a permitted market making-related activity is one
that provide[s] intermediation and liquidity services for customers and that the amount of
principal risk that must be assumed by a market maker varies considerably by asset class and
differing market conditions.
34
The Agencies also specifically request comment on whether
trading activities engaged in by a market maker that promotes liquidity and price discovery
should be within the scope of market making activity. In the unique case of ETFs, in which
the liquidity and market pricing of ETF shares depend on creation and redemptions by APs,
we believe that the liquidity, price discovery and intermediation rationales expressed by the
Agencies are clearly met. We believe that reading the near term demands of customers
condition to foreclose these activities by banking entities would be inconsistent with the
purposes of the Volcker Rule.
Both the underwriting and market making-related activities exceptions also require
that a banking entitys activities be designed to generate revenues primarily from fees [and]
commissions and not be attributable to appreciation in value of a covered financial
position.
35
Each of the types of transactions described abovecreation/redemption, seeding,
create to lend, and secondary market makingrequires an AP to build an inventory in the
assets underlying an ETF or in the ETFs shares. These positions often result in revenues to
an AP attributable to price movements in those assets. We believe that these transactions are
not of the sort that Congress meant to prohibit banking entities from engaging and that the
Agencies should clarify that U.S. acting as APs for ETFs is permitted market making-related
or underwriting activity.
ETFs and the Scope of Similar Fund
In addition to the foregoing concerns that acting as an AP or market maker for an ETF
will be deemed to be prohibited proprietary trading for which no exception applies, the very
same activity appears to be prohibited because the ownership of an ETF as principal in
connection with market making or creating and redeeming units will be deemed to be
acquiring or maintaining an ownership interest in a fund that the Agencies have designated as
similar to a hedge fund or a private equity fund.
36
Under the Volcker Rule, U.S. banking
entities are generally prohibited from sponsoring, investing in or entering into other specified
transactions with hedge funds or private equity funds, including any similar fund that the
Agencies designate, subject to specific exceptions. These funds, and other funds covered by
this general prohibition, are termed covered funds by the Proposal. We believe that the

34
See Preamble, 76 Fed. Reg. 68,869.
35
See Proposal _.4(a)(2)(vi), (b)(2)(v).
36
See id. _.10(a) (prohibiting ownership interests in covered funds).

23
scope of the types of vehicles designated as covered funds in the Proposal is unnecessarily
broad and would inappropriately capture many U.S. and foreign ETFs.
The Proposals designation of any commodity pool as a covered fund would result
in any ETFU.S. or foreignbeing subject to the Volcker Rule, if it held even a de minimis
number of commodity interests, which may be as little as a single futures contract or a single
swap. As discussed in Part II.14 of this Appendix B in connection with other types of funds,
this would be the case even for an ETF that is registered under the Investment Company
Act.
37

The Proposal also designates as a covered fund any foreign fund that would be an
investment company under the Investment Company Act but for Section 3(c)(1) or 3(c)(7)
of that Act, if it were organized or offered under U.S. law. Accordingly, as is also the case for
other foreign funds discussed in Part II.14 below, any foreign ETF that is not registered under
the Investment Company Act or, if it were organized in the United States, would rely on
Section 3(c)(1) or 3(c)(7) will be a covered fund. Although many foreign ETFs are organized
and operated in a manner comparable to a registered investment company, few, if any, are
registered under that Act. It is unlikely that many foreign ETFs could qualify for an
exemption other than those under Section 3(c)(1) or 3(c)(7) and therefore would be treated
equivalently to hedge funds and private equity funds under the Proposal.
By designating these ETFs as covered funds, the Proposal would prohibit U.S.
banking entities from acting as APs or market makers for foreign ETFs and those U.S. ETFs
captured by the overly broad definition of commodity pool.
38
The exit of U.S. banking
entities from U.S. and foreign ETF markets would cause severe disruptions to those markets,
to the detriment of the retail and institutional investor in them, as well as, in the case of
foreign ETFs, needlessly ceding a substantial portion of world financial markets to foreign
competitors.
We believe that it would be inappropriate to designate ETFs as similar funds given
that they are by definition exchange traded, offered to retail investors, subject to regulation of
their investments and activities in their home jurisdiction, and do not otherwise have the
characteristics of a hedge fund or private equity fund as commonly understood.

37
While many ETFs are comprised solely of securities, many also hold swaps, futures or other commodity
interests or create the equivalent of such ownership synthetically by means of a swap. These include ETFs that invest
primarily in futures or swaps, whose sponsors are regulated as commodity pool operators under the Commodity
Exchange Act by the CFTC and are not registered under the Investment Company Act. However, ETFs that are
registered under the Investment Company Act also may invest in futures or swaps. For example, some ETFs use
futures and swaps to offer leveraged or inverse exposure to the performance of a securities index. Others ETFs use
such instruments in order to hedge currency exposure.
38
The Proposals exception for certain fund activities and investments outside of the United States is
inapplicable, because it does not apply to the overseas activities of U.S. banking entities, including their foreign
affiliates. See Proposal _.13(c).

24
Recommendations
Bank of America joins other commenters in requesting that the Agencies amend the
Proposal to clarify both that:
U.S. banking entities may rely on the underwriting and/or market making-related
activities exceptions to continue to serve as APs to ETF issuers and as market
makers for ETF shares, including in connection with seeding ETFs and engaging
in create to lend transactions, as they currently do today; and
ETFs will not be deemed to be similar funds, including foreign ETFs and ETFs
that may fall within the definition of commodity pool.
39

7. The Proposals failure to appropriately accommodate securitizations
threatens to constrict the economically essential activity of loan creation in
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.

25
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
Proposals 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.

26
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
the Investment Company Act that may purchase asset-backed commercial
paper or tender option bonds, Bank of America supports the Investment
Company Institutes view that the Agencies should provide greater clarity
that asset-backed commercial paper and tender option bonds would be
covered by an appropriate exception
Bank of America Global Capital Management, the proprietary cash asset management
division of Bank of America, sponsors eleven money market funds that are registered under
the Investment Company Act and subject to the strict liquidity, credit quality, maturity and
issuer diversification requirements of Rule 2a-7. Shares of these funds are registered for
public sale under the Securities Act and are offered to both institutional and retail clients. As
of December 31, 2011, these funds held net assets of approximately $46.3 billion. Certain of
Bank of Americas money market funds purchase asset-backed commercial paper and
securities issued under a municipal tender option bond program. Bank of America believes
the Proposal does not provide sufficient exceptions for asset-backed commercial paper and
tender option bonds and that those markets could be adversely affected by the Proposals
prohibitions. Bank of America supports the ICIs view that the Agencies should provide
greater clarity that asset-backed commercial paper and tender option bonds would be covered
by an appropriate exception.
Recommendation
As a sponsor and advisor to money market mutual funds, Bank of America supports
the recommendation set forth in Part II.7 above in the context of securitizations that the
Agencies revise the proposal to:

27
provide exceptions for asset-backed commercial paper and municipal tender option
bond programs.
9. In order to implement the finding of the Financial Stability Oversight
Council that asset-liability management activities must not be prohibited
by the Volcker Rule, and to further the Volcker Rules goal of enhancing
the safety and soundness of banking entities and U.S. financial stability,
the Proposal must be revised to provide a clear exception for traditional
asset-liability management activities
One of the most significant unintended consequences of the Proposal is the manner in
which it would constrain traditional non-speculative asset-liability and liquidity management
activities (collectively referred to as ALM) that are at the core of the safe and sound
operation of commercial and consumer banking, and quite distinct from the statutory Volcker
Rules prohibition on acquiring positions principally for the purpose of selling in the near
term (or otherwise with the intent to resell in order to profit from short-term price
movements).
43
The FSOC Study recognized that the appropriate treatment of ALM
activities is one of the more significant scope issues under the Volcker Rule and concluded
that the Volcker Rule should not prohibit ALM activities.
44
Specifically, the FSOC noted:
All commercial banks, regardless of size, conduct [ALM] that help[s] the
institution manage to a desired interest rate risk and liquidity risk profile. This
study recognized that ALM activities are clearly intended to be permitted
activities, and are an important risk mitigation tool. In particular, banks use their
investment portfolios as liquidity buffers. A finding that these are impermissible
under the Volcker Rule would adversely impact liquidity and interest rate risk
management capabilities as well as exacerbating excess liquidity conditions.
These activities serve important safety and soundness objectives.
45

Instead of protecting the federal safety net, preserving safety and soundness and
strengthening financial stability, the Proposal would have the opposite and, Bank of America
believes, unintended effect. Under the Proposal, banking entities would be severely
constrained in their ability to execute traditional ALM activities required by the banking
Agencies for the safe and sound management of the inherent risks that arise from the core
commercial banking business of serving consumer and corporate customers by making loans
and taking deposits. Such ALM activities must be undertaken to, among things:
manage interest rate risk
46
related to core loan assets and deposit liabilities;
47


43
See Bank Holding Company Act 13(h)(6).
44
See FSOC Study, supra note 9, at 47.
45
See id.
46
Interest rate risk is defined by the OCC as the risk to earnings or capital arising from movement of
interest rates. OCC, 1997/98 Comptrollers Handbook for Interest Rate Risk 1 (Interest Rate Risk Handbook),
(continued)

28
manage the significant risks associated with mortgage servicing rights, an asset
that arises from marking and servicing residential mortgage loans;
hedge foreign exchange and interest risk arising from Bank of America
Corporations issuance of debt and investment in overseas subsidiaries;
respond to changing regulatory requirements, such as the requirement under Basel
III to hold capital against changes in accumulated other comprehensive income;
48

undertake prudent liquidity management focused, as required by the banking
Agencies and Basel III, on near-, medium- and long-term liquidity requirements;
49

and
manage the potential impact of changing interest rates on income and capital
requirements.
Bank of Americas ALM Activities
A snapshot of Bank of Americas principal assets and liabilities underscores the
importance of the FSOCs conclusion that ALM activities serve important safety and
soundness objectives and that the Volcker Rule was not intended to, and should not be
implemented in a way that would, impede ALM.
Bank of America Corporations consolidated balance sheet reflects total assets and
liabilities of approximately $2.2 trillion and $2.0 trillion, respectively, which arise as a result

(continued)
available at http://www.occ.treas.gov/publications/publications-by-type/comptrollers-handbook/irr.pdf. The OCC
notes that the economic perspective of interest rate risk focuses on the underlying value of the banks current position
and seeks to evaluate the sensitivity of that value to changes in interest rates. Id. at 5. Interest rate risk arises from
differences between the timing of rate changes and the timing of cash flows (repricing risk); from changing rate
relationships among yield curves that affect bank activities (basis risk); from changing rate relationships across the
spectrum of maturities (yield curve risk); and from interest-rate-related options embedded in bank products (option
risk). Id. at 1. See also OCC, 1996/98 Comptrollers Handbook for Mortgage Banking 3, (Mortgage Handbook),
available at http://www.occ.treas.gov/publications/publications-by-type/comptrollers-handbook/mortgage.pdf.
47
To provide a very simple example of an ALM transaction: if Bank of America has more loans and other
assets that accrue interest based on the federal funds rate than liabilities (such as deposits) that pay interest based on
the federal funds rate, entering into an interest rate basis swap where Bank of America makes payments based on the
one-month federal funds rate against receipts based on the one-month LIBOR may be a prudent ALM transaction.
(Under Generally Accepted Accounting Principles (GAAP), all derivatives will be marked to market, but changes in
the value of swaps of the nature described above will be reflected in earnings.)
48
As used in this Appendix B, Basel III refers to the international risk-based capital framework set forth in
two documents initially published by the Basel Committee on Banking Supervision on December 16, 2010. See Basel
III: A Global Regulatory Framework for More Resilient Banks and Banking Systems (revised June 1, 2011), available
at http://www.bis.org/publ/bcbs189.pdf; Basel III: International Framework for Liquidity Risk Measurement,
Standards and Monitoring (Basel III: Liquidity Risk), available at http://www.bis.org/publ/bcbs188.pdf.
49
See Regulation YY: Enhanced Prudential Standards for Early Remediation Requirements for Covered
Companies, 77 Fed. Reg. 594, 607-09 (proposed on Jan. 5, 2012) (Regulation YY); Basel III: Liquidity Risk, supra
note 48, at 25.

29
of fulfilling its role as financial intermediary in transactions serving its global customers.
50
A
substantial portion of these assets and liabilities reside in its national bank subsidiary, Bank of
America, N.A. Bank of America, N.A.s total assets and liabilities, many of which naturally
change in value as a result of movements in interest rates, currencies and other variables, are
approximately $1.5 trillion and $1.3 trillion, respectively. Its assets include approximately
$754 billion of loans and leases, of which Bank of America estimates approximately 30
percent are residential mortgage loans.
51
Bank of America, N.A.s liabilities include
approximately $1 trillion in deposits. Bank of America, N.A. is also a major servicer of
mortgage loans, resulting in its holding approximately $8.2 billion of mortgage servicing
rights (referred to as MSRs, mortgage servicing assets or MSAs), a highly interest
rate sensitive asset.
Bank of America Corporations consolidated balance sheet also reflects approximately
$400 billion of outstanding long-term debt representing almost 7,000 separate issuances, of
which approximately $130 billion is denominated in foreign currency. In addition to this
foreign-denominated long-term debt, Bank of America Corporation invests in overseas
subsidiaries, including branches of Bank of America, N.A. The resulting foreign currency
exposure, along with interest rate risk, must be hedged to protect asset value and capital.
Bank of America maintains excess liquidity available to the parent company and
selected subsidiaries in the form of cash and high-quality, unencumbered securities in the
amount of $363 billion as of September 30, 2011, of which $119 billion is available to the
holding company Bank of America Corporation, $217 billion available to Bank of America,
N.A. and other bank subsidiaries and $27 billion available to broker-dealer subsidiaries. Bank
of America uses a variety of metrics, over a range of time periods, both near- and long-term,
to determine appropriate amounts of excess liquidity. One metric used to evaluate the
appropriate level of excess liquidity at the parent company is Time to Required Funding.
This debt coverage measure indicates the number of months that the parent company can
continue to meet its unsecured contractual obligations as they come due using only its global
excess liquidity sources and without issuing any new debt or accessing additional liquidity
sources. Time to Required Funding as of September 30, 2011 was 27 monthsexceeding the
target of 21 months.
Within Bank of America, the Chief Financial Officer oversees the ALM function,
including liquidity management. Corporate Treasury, headed by Bank of Americas
Treasurer, and the Corporate Investment Group, headed by Bank of Americas Chief

50
Unless otherwise noted, all financials are as of September 30, 2011. For Bank of America Corporations
financials, see Bank of America Corporation, Form 10-Q Quarterly Report for the Period Ended September 30, 2011.
For Bank of America, N.A.s financials, see Bank of America, N.A., Consolidated Reports of Condition and Income
for a Bank with Domestic and Foreign Offices-FFIEC 031 for the Period Ended September 30, 2011.
51
Bank of America Corporations public financials show aggregate consolidated loans and leases of $933
billion and aggregate residential mortgage loans on a consolidated basis in excess of $250 billion. Of these, a
substantial portion are made by Bank of America, N.A., Bank of America Corporations principal residential mortgage
lender.

30
Investment Officer, work closely together to conduct Bank of Americas ALM activities.
These groups are entirely separated from Bank of Americas customer-facing Global Markets
business, which engages in securities and derivatives intermediation for customers, including
underwriting, market making and agency brokering. Bank of Americas Board of Directors
and senior management directly oversee ALM activities by approving policies for ALM and
liquidity management that establish limits and set monitoring, reporting, risk management,
compliance and audit requirements.
Existing Regulatory Guidance on ALM
Given their critical importance for safety and soundness, it is not surprising that ALM
activities, including liquidity management, are subject to close regulatory scrutiny. For
example, in their 2010 Interagency Advisory on Interest Rate Risk (IRR) Management, the
federal banking agencies note that the adequacy and effectiveness of an institutions IRR
management process and the level of its IRR exposure are critical factors in the regulators
evaluation of an institutions sensitivity to changes in interest rates and capital adequacy.
52

Similarly, although the Interagency Advisory on Mortgage Banking highlights concerns and
provides guidance on mortgage banking generally, it is primarily focused on the management
of risks associated with valuation and hedging of MSAs.
53
MSAs are created when
originators of mortgages sell the mortgages but retain the servicing rights. Proper risk
management of these assets is essential to safety and soundness. Among other things, the
federal banking agencies note:
MSAs possess interest rate-related option characteristics that may weaken an
institution's earnings and capital strength when interest rates change. Accordingly,
institutions engaged in mortgage-banking activities should fully comply with all
aspects of their primary federal regulators policy on interest rate risk. In addition,
institutions with significant mortgage-banking operations or mortgage-servicing
assets should incorporate these activities into their critical planning processes and
risk management oversight. The planning process should include careful
consideration of how the mortgage-banking activities affect the institutions
overall strategic, business, and asset/liability plans. Risk management
considerations include the potential exposure of both earnings and capital to

52
See FDIC, Federal Reserve, National Credit Union Administration, OCC, Office of Thrift Supervision,
Federal Financial Institutions Examination Council, Interagency Advisory on Interest Rate Risk Management 9 (Jan. 6,
2010), available at http://www.occ.treas.gov/news-issuances/bulletins/2010/bulletin-2010-1a.pdf; see also Interest
Rate Risk Handbook, supra note 46, at 4; OCC, 1997/98 Comptrollers Handbook for Risk Management of Financial
Derivatives 28, 35, available at http://www.occ.treas.gov/publications/publications-by-type/comptrollers-
handbook/deriv.pdf; Mortgage Handbook, supra note 46, at 3; OCC, OCC Bulletin No. 2004-29, Embedded Options
and Long-Term Interest Rate Risk: Interest Rate Risk (July 1, 2004), available at http://www.occ.gov/news-
issuances/bulletins/2004/bulletin-2004-29.html; OCC, OCC Bulletin No. 2000-16, Risk Modeling: Model Valuation
(May 30, 2000), available at http://www.occ.gov/news-issuances/bulletins/2000/bulletin-2000-16.html; Supervisory
Policy Statement on Investment Securities and End-User Derivatives Activities, 63 Fed. Reg. 20,191 (April 23, 1998).
53
See FDIC, Federal Reserve, OCC, Office of Thrift Supervision, Interagency Advisory on Mortgage
Banking (Feb. 25, 2003), available at http://www.occ.treas.gov/news-issuances/bulletins/2003/bulletin-2003-9a.pdf.

31
changes in the value and performance of mortgage-banking assets under expected
and stressed market conditions. Furthermore, an institutions board of directors
should establish limits on investments in mortgage-banking assets and evaluate
and monitor such investment concentrations (on the basis of both asset and capital
levels) on a regular basis.
54

Existing regulatory guidance also recognizes the importance of liquidity management.
For example, the FDIC notes that [l]iquidity is essential in all banks to compensate for
expected and unexpected balance sheet fluctuations and provide funds for growth and that
[b]ecause liquidity is critical to the ongoing viability of any bank, liquidity management is
among the most important activities that a bank conducts.
55
In addition, the OCCs guidance
notes that, because of market changes, liquidity risk is a greater concern and management
challenge for banks today than in the past.
56
Basel III and the banking Agencies recently
released Proposed Regulation YY,
57
which codifies existing supervisory liquidity guidance
and establishes additional requirements, are further indication of the importance of liquidity
management to safety and soundness and U.S. and global financial stability.
ALM and the Definition of Trading Account
Because ALM activities are not speculative and not undertaken for the purpose of
generating near-term profit, they clearly fall outside the core statutory definition of a Volcker
Rule trading account and, therefore, outside the statutory Volcker Rules baseline
prohibition on proprietary trading.
58
The Proposal, however, would expand the definition of
Volcker Rule trading account by reference to three separate tests:
a purpose test, which generally tracks the statute (the Purpose Test);
59

a market risk capital test (the Market Risk Capital Test),
60
which generally
captures accounts used to take covered financial positions
61
that are covered

54
Id. at 5.
55
See FDIC, Risk Management Manual of Examination Policies 6.1, available at
http://www.fdic.gov/regulations/safety/manual/manual_examinations_full.pdf.
56
See OCC, 2001 Comptrollers Handbook for Liquidity 1, available at
http://www.occ.treas.gov/publications/publications-by-type/comptrollers-handbook/_pdf/liquidity.pdf.
57
See Regulation YY, supra note 49.
58
See Bank Holding Company Act 13(h)(3), (5).
59
See Proposal _.3(b)(2)(i)(A).
60
See id. _.3(b)(2)(i)(B).
61
Covered financial position as used in this Appendix B has the meaning ascribed to that term in
_.3(b)(3) of the Proposal.

32
positions under the market risk capital (MRC)
62
rules and as incorporated into
the Proposal also includes a purpose test; and
a status test, which generally applies to accounts used to take covered financial
positions in connection with activities that require registration as a dealer (the
Status Test).
63

The Proposal would also establish a rebuttable presumption that an account will be presumed
to be a Volcker Rule trading account if it is used to take covered financial positions (other
than market risk capital positions or dealing positions) that the banking entity holds for less
than sixty days (the 60-Day Rebuttable Presumption).
64
If any one of the tests is satisfied,
the particular account would be a Volcker Rule trading account unless an express permitted
activity applies.
The Proposals definition of trading account establishes, among other exclusions,
65

a carve out for accounts used for bona fide liquidity management, a term defined as activities
undertaken pursuant to a documented liquidity management plan. The Proposal would
subject liquidity management accounts to several constraints, including limits on the size of
any liquidity position to one that is consistent with the banking organizations near term

62
In January 2011, the Federal Reserve, the FDIC and the OCC proposed substantial amendments to their
respective market risk capital rules that would largely implement Basel II.5 in the United States. See Federal
Reserve, FDIC and OCC, Risk-Based Capital Guidelines: Market Risk, 76 Fed. Reg. 1890 (Jan. 11, 2011). Except
where otherwise indicated, each reference in this Appendix B to the MRC Rules means those Agencies market risk
capital rules as proposed to be revised. The Agencies indicated, in the Proposal, that the prong of the trading account
definition relying on the MRC Rules is premised on the MRC Rules as proposed to be revised and that, if those
revisions are not adopted, the Agencies would expect to take that into account in determining whether or how to
include the proposed second prong of the trading account definition . . . . Preamble, 76 Fed. Reg. 68,846, 68,859.
Bank of America recognizes that the purpose test embedded in the MRC rules definition of trading account is
virtually identical to the purpose test in the Volcker Rules definition of trading account. However, a trading
account under the MRC Rules, which implement the definition of trading book in the Basel II market risk
framework, is quite different from a Volcker Rule trading account. See infra note 68. Bank of America is
concerned that, notwithstanding the similarity of the purpose tests in each definition, given the rigid nature of Basel
classifications, i.e., a position is deemed to be either in the banking book or in the trading book, in situations where an
activity presents some ambiguity it may be classified for Basel purposes as in the trading book even though it may not
fulfill the Volcker Rule trading account purpose test. Outside of ALM activities, Bank of America believes that the
Market Risk Capital Test should be viewed as a useful potential indicator of proprietary trading but should not itself be
determinative of Volcker Rule trading account status. Bank of America also does not believe that it is appropriate to
condition the application of a regulation on another regulation that has not been adopted.
63
See Proposal _.3(b)(2)(i)(C).
64
See id. _.3(b)(2)(ii). To overcome this presumption, the banking organization must demonstrate, based
on all the facts and circumstances, that the covered financial position, either individually or as a category, was not
acquired or taken principally for any of the purposes described in [the Purpose Test]. Id.
65
Other exclusions include those for accounts that arise under a repurchase or reverse repurchase agreement
pursuant to which the covered banking entity has simultaneously agreed, in writing, to both purchase and sell a stated
asset, at stated prices, and on stated dates or on demand with the same counterparty and a transaction in which the
covered banking entity lends or borrows a security temporarily to or from another party pursuant to a written securities
lending agreement under which the lender retains the economic interests of an owner of such security, and has the right
to terminate the transaction and to recall the loaned security on terms agreed by the parties. Id. _.3(b)(2)(iii)(A)-(B).

33
funding needs, which must be estimated and documented under the plan, and a requirement
that any position taken be highly liquid and not give rise to appreciable profits.
66
In
addition, the liquidity management plan must specifically authorize the circumstances in
which the particular instrument may or must be used.
67

While many ALM activities would fall outside the Proposals definition of a Volcker
Rule trading account, others would not. Some ALM activities would fall within the
Volcker Rule trading account because the particular account would be considered a trading
book under the Market Risk Capital Test
68
and hence captured as a covered financial
position (for example, most positions taken in connection with liquidity management are
currently in the trading book under the Market Risk Capital Test
69
). Other ALM activities
would fall within the Volcker Rule trading account because they are entered into and exited
within 60 days in order to effectively respond to market developments and manage the
relevant risk and therefore would fail the 60-Day Rebuttable Presumption. For example, as a
result of President Obamas announcement of a new financing program during the State of the
Union speech on the evening of January 23, 2012, followed the next morning by the Federal
Reserves announcement of its intention to keep interest rates at their historically low levels
for a longer period than previously announced, Bank of America adjusted certain of its ALM
positions by adding duration to its portfolio in order to protect its MSR assets. It did so by

66
See id. _.3(b)(iii)(C).
67
See id.
68
As discussed in footnote 62 supra, the banking agencies MRC Rules incorporate the definition of trading
account in the instructions to the Federal Reserves Reporting Form FR Y9C, which in turn implements the
definition of trading book in the Basel II market risk framework: Trading Account: Trading activities typically
include (a) regularly underwriting or dealing in securities; interest rate, foreign exchange rate, commodity, equity, and
credit derivative contracts; other financial instruments; and other assets for resale, (b) acquiring or taking positions in
such items principally for the purpose of selling in the near term or otherwise with the intent to resell in order to profit
from short-term price movements, and (c) acquiring or taking positions in such items as an accommodation to
customers or for other trading purposes. MRC Rules, 76 Fed. Reg. 1890, 1892 (citing the Instructions for Preparation
of Consolidated Financial Statements for Bank Holding Companies at GL-77, Reporting Form FR Y9C (Reissued
March 2007)). This definition implements the definition of trading book in the Basel II market risk framework: A
trading book consists of positions in financial instruments and commodities held either with trading intent or in order
to hedge other elements of the trading book. To be eligible for trading book capital treatment, financial instruments
must either be free of any restrictive covenants on their tradability or able to be hedged completely. In addition,
positions should be frequently and accurately valued, and the portfolio should be actively managed. The trading
intent criterion is defined in paragraph 687 of the market risk framework: Positions held with trading intent are those
held intentionally for short-term resale and/or with the intent of benefiting from actual or expected short-term price
movements or to lock in arbitrage profits, and may include for example proprietary positions, positions arising from
client servicing (e.g., matched principal broking) and market making. See Basel Committee on Banking Supervision,
International Convergence of Capital Measurement and Capital Standards: A Revised Framework (Comprehensive
Version) 685, 687 (June 2006).
69
Bank of America notes that all securities held in its investment securities portfolio that serve to manage
interest rate risk can also play a role in liquidity management. Such securities may be pledged or sold in the case of an
extreme and unanticipated liquidity stress. They are carried in the banking book, not the trading book, for purposes of
the MRC Rules. All other liquidity portfolios, however, are currently in the trading book under the existing MRC
Rules and would continue to be so classified under the proposed amendments.

34
replacing 10-year swaps with 30-year swaps, which has the effect of protecting the MSR
assets against a decline in interest rates by lowering the MSR assets sensitivity to falling rates
by approximately $2 million per basis point. While in many cases this duration adjustment
involved swap positions that had been entered into more than 60 days prior to the adjustment,
exiting any swap that had been executed within the last 60 days would fail the 60-Day
Rebuttable Position. Furthermore, some ALM activities would fall within the Volcker Rule
trading account because the liquidity activities are not near term or may involve only
liquid as opposed to highly liquid assets and the bona fide liquidity management
exception would therefore be unavailable.
Once an account is considered a Volcker Rule trading account under the Proposal,
trading activity within such an account may nonetheless be allowed if it falls within the
Proposals risk-mitigating hedging exception. The narrowly drawn risk-mitigating hedging
exception, however, is simply of no use for ALM activities, which would not appear to satisfy
the exceptions numerous requirements, leading to the result that many ALM activities would
fall within the ambit of prohibited proprietary trading under the Volcker Rule.
For example, liquidity activities would not qualify as risk-mitigating hedging because
they are not hedging activities at all. Rather, they are designed to ensure sufficient liquidity
for a banking entity to be able to meet its obligations in normal and stressed situations. This
means that all liquidity accounts, other than those focused on the near term, and which
otherwise satisfy the conditions for bona fide liquidity management as defined by the
Proposal, would be considered prohibited proprietary trading under the Proposal. The
Agencies cannot have intended this result. Bank of America is required by existing and future
regulatory requirements to undertake long-term liquidity management. Proposed Regulation
YY requires liquidity stress modeling over a range of time horizons, including overnight, 30-
day, 90-day and 1-year periods.
70
In addition, Basel IIIs liquidity requirements include a 30-
day metric, the Liquidity Coverage Ratio, and a 1-year metric, the Net Stable Funding
Ratio.
71
It appears, therefore, that the Proposal would prohibit Bank of America from
complying with existing and evolving liquidity regulatory requirements and prudent liquidity
risk management.
ALM and Risk-Mitigating Hedging Activities
The nature of the ALM function, however, makes it unlikely that it would satisfy the
requirements for the risk-mitigating hedging exception. For example, many market variables
are assessed as part of ALM activities in a rigorous process that examines the balance sheet,
the mix of assets and liabilities, economic circumstances and forecasted interest rates and
subjects them to various stress tests against adverse scenarios. To the extent that, based on
this process, the Corporate Investments Group and Corporate Treasury take action to protect

70
See Regulation YY, supra note 49, at 607-09.
71
See Basel III: Liquidity Risk, supra note 48, at 5.

35
income, as required under existing supervisory guidance,
72
the resulting position will fail to
satisfy the risk-mitigating hedging requirement that such positions be taken to mitigate risks
to which the banking entity is already exposed.
73
Anticipatory hedges are permissible only
when the hedge is established slightly before the banking organization becomes exposed to
the underlying risk.
74

Appropriate ALM activities demand the management of risks inherent in future
activities anticipated by the banking organization. Future activities include the achievement
of strategic plans and targeted balance sheet levels for key portfolios including, but not
limited to, consumer and commercial loans, deposits and the size of the corporations long-
term debt footprint. Strategic plans for key portfolios and the impact of these portfolios on
the corporations earnings, capital and liquidity extend over a horizon of years. At Bank of
America, the balance sheet, net interest income and the associated interest rate risk is
projected over two years for Enterprise Stress Testing and three years for strategic planning
purposes. Prudent ALM management requires consideration of the potential risks inherent in
the achievement of strategic plans that may not be prevalent in current market conditions but
may arise under stressed conditions. It requires the ability to take positions for the purpose of
managing and mitigating those risks utilizing instruments appropriate to achieve those
objectives. Taking proper actions to manage the risks associated with both forecasted balance
sheet changes and potential stress scenarios is required for safety and soundness of the entire
institution as well as to protect the federal safety net (in the case of depository institutions).
While ALM positions are not undertaken for speculative purposes and are intended to
manage risks inherent in the balance sheet or to meet liquidity needs, they could give rise to a
situation in which a banking entity might appear to earn appreciably more on a hedge
position than it stands to lose on the related position.
75
This may arise because of
differences in accounting treatment that creates asymmetry between the treatment of the asset
and liability risks and the ALM instruments, particularly interest rate derivatives that are
entered into to manage the inherent balance sheet risks against a backdrop of changing
economic and interest rate environments. For example, the derivatives used to protect income
that do not qualify for special hedge accounting will be marked to market through earnings,
but the assets and liabilities to which they relate (e.g., loans and securities in the investment
portfolio) will not be. The economic offset to the marked-to-market position will be reflected
differently for accounting purposes, so that an accounting gain or loss on an ALM position
may be recorded when, in fact, the true value of the position in managing risk may not be
realized until much later.

72
See, e.g., Interest Rate Risk Handbook, supra note 46, at 2.
73
See Preamble, 76 Fed. Reg. at 68,875.
74
See id.
75
Id.

36
The presumption that legitimate hedging activities always result in identical and
completely offsetting performances between a hedge and the related underlying position(s) is
flawed, particularly in the case of a complex financial balance sheet. Timing differences,
option characteristics of the positions, model parameters, unhedgeable basis risks, competing
objectives and other factors may result in a hedge changing in value by an amount more or
less than the position being hedge. Most hedging activities strive to reduce these mismatches,
but they cannot be entirely eliminated.
The risk-mitigating hedging exception also would require the calculation of various
quantitative metrics,
76
many of which utilize VaR metrics to confirm the absence of
proprietary trading. In the case of ALM activities, VaR metrics are not an appropriate
measure by which to gauge the non-speculative, risk-mitigating nature of the activities. For
prudential reasons, Bank of America establishes VaR limits for all activities that are marked
to market through earnings, including those related to ALM, in order to understand the
potential loss that could be incurred by these positions as a result of immediate changes in
market rates. In so doing, Bank of America recognizes that, in the case of ALM, the size of
the VaR or any gain or loss reflected on ALM positions that are marked to market through
earnings is not a reflection of the efficacy of the position in managing the true economic risk
of the banking entity and whether the transactions are indicative of proprietary trading.
As drafted, however, the Proposal recognizes no such distinction.
Recommendation
Bank of America strongly supports the proposal of TCH that the definition of a
Volcker Rule trading account include a broad ALM exception.
77
Bank of America
recognizes the Agencies legitimate concern that a broad ALM exception not be used
inappropriately to engage in prohibited proprietary trading. Nevertheless, Bank of America
believes the existing regulatory guidance and requirementsincluding oversight by a banking
entitys board of directors and senior management as well as limits, risk management and
compliance monitoring and independent review and assessmentfully address this concern.
However, because the existing regulatory requirements are included in a number of diverse
advisories, bulletins and guidance, Bank of America believes that TCHs proposed conditions
for an ALM exclusion from the definition of a Volcker Rule trading account should be
adopted to provide clear guidance on the criteria for permissible ALM activities falling
outside the scope of the proprietary trading prohibited under the Volcker Rule.
78
Accordingly,

76
Appendix A to the Proposal would require a banking entity to provide the following quantitative
measurements in connection with risk-mitigating hedging: VaR, stress VaR, risk factor sensitivities, risk and position
limits and comprehensive profit and loss attribution. See Proposal, Appendix A IV. In connection with risk factor
sensitivities, a calculation of the spread profit and loss is required and is defined as the difference between what the
trading unit charges buyers and sellers. Id. at IV(B)(4). ALM units, however, do not transact with buyers and
sellers, because they are not market intermediaries. Rather, they are end user customers and themselves are either a
buyer or seller depending on the transaction.
77
For a more detailed description of the form that exception should take, see the TCH comment letter.
78
Id.

37
to permit the core, critical and very traditional ALM activities, including liquidity
management, to continue in a manner that maintains and enhances safety and soundness,
protects the federal safety net and fosters U.S. financial stability, Bank of America
recommends that the Agencies:
create an ALM exception to the definition of trading account with the
appropriate conditions and safeguards identified by TCH in its comment letter.
10. By defining resident of the United States to include branches of U.S.
incorporated banks, the Proposal would exclude such branches from
transacting with foreign banking entities wishing to rely on the overseas
activity exception and thereby would create undesirable counterparty
concentration by significantly limiting available trading counterparties,
diminish the safety and soundness of U.S. banking entities and impair the
competitiveness of U.S. banking entities
Bank of America further wishes to highlight an unintended consequence of the
Proposals exception for certain overseas activities.
79
While this exception is directed to
foreign banking organizations conducting activities outside the United States (Bank of
America and all its direct and indirect subsidiaries and affiliates are fully subject to the
Volcker Rule wherever located), it will have a major impact on Bank of America, N.A.s
overseas branches, including with respect to their ability to engage in liquidity transactions
and otherwise operate in accordance with prudential guidelines.
Pursuant to the overseas activities exception, foreign organizations will be subject to
the Volcker Rule if they enter into transactions involving the purchase or sale of covered
financial instruments with a party who is a resident of the United States.
80
The term
resident of the United States is defined to include any partnership, corporation or other
business entity organized or incorporated under the laws of the United States or any State.
81

Bank of America, N.A. is a resident of the United States and, consequently, so are its foreign
branches.
82
Bank of America is concerned that foreign financial institutions, which otherwise
would not be subject to the Volcker Rule, will be unwilling to enter into normal market
transactions with Bank of America, N.A.s overseas branches for fear of becoming subject to,

79
See Proposal _.6(d)(3).
80
See id. _.6(d)(3)(ii). The permitted activity also requires that the banking entity not be organized under
U.S. law, no personnel of the foreign banking entity involved in the transaction be located in the United States and the
purchase or sale be executed wholly outside the United States. See id. _.6(d)(3).
81
See id. _.2(t)(2).
82
The Proposals definition of resident of the United States in _.2(t) adapts and expands the definition of
U.S. person in the SECs Regulation S, see 17 C.F.R. 230.902(k), in relevant part omitting Regulation Ss
exclusions for offshore branches or agencies of U.S. entities. Accordingly, a foreign branch of a U.S. bank would be
considered a resident of the United States under the Proposal.

38
or otherwise affected by, the Volcker Rules prohibitions and compliance and monitoring
requirements.
Bank of America, N.A.s overseas branches enter into transactions with foreign
counterparties for a host of reasons, including for liquidity management. If these foreign
counterparties are unwilling to transact with Bank of America, N.A. for fear of triggering
Volcker Rule prohibitions, Bank of America, N.A. may find that its counterparties will be
limited to other U.S. institutions, severely restricting its business outside the United States and
likely leading to an unacceptable concentration of counterparty risk in certain jurisdictions.
This will diminish the safety and soundness of U.S. banking entities, weaken financial
stability in the United States and internationally and make U.S. banks less competitive.
Recommendation
To clarify that an overseas branch of U.S. incorporated banks will not be considered a
resident of the United States for purposes of the Volcker Rule, which would be consistent
with treatment of foreign subsidiaries of U.S. incorporated banks, Bank of America requests
that the Agencies:
bring the definition of resident of the United States more in line with the long-
standing definition of U.S. Person that appears in the SECs Regulation S.
83

11. The Proposal does not permit banking entities to hold ownership interests
in covered funds in connection with underwriting and engaging in market
making-related activities, while the hedging exception it provides for
covered funds is overly restrictive, thereby reducing liquidity, impairing
capital formation, hindering risk management and decreasing investment
options for customers
Underwriting and Market Making
The Proposals underwriting and market making-related activities exceptions are not
applicable with respect to the general prohibition on sponsoring or investing in covered
funds.
84
As a result, although a banking entity is explicitly permitted under the statute to

83
See 17 C.F.R. 230.901-.905.
84
See Proposal _.4(a), (b). The term covered fund refers to: (a) funds that rely on Section 3(c)(1) or
3(c)(7) under the Investment Company Act as a basis for an exemption from classification as an investment company;
(b) similar funds that are foreign funds that would have to rely on such Section 3(c)(1) or 3(c)(7) if they were offered
in the U.S. (foreign funds) (this definition encompasses virtually every fund organized and offered outside the U.S.);
and (c) any fund that fits within the definition of commodity pool under the Commodity Exchange Act. Below we
discuss the extraordinary overbreadth of these definitions and their many unintended and detrimental impacts. For the
purpose of analyzing the impact of the covered funds risk-mitigating hedging exception, we have assumed that the
Agencies will address the overbreadth of the term covered fund and narrow it only to those funds commonly
understood to be hedge funds and private equity funds that Congress intended to capture within the Volcker Rules
prohibitions. To do otherwise, for example, in the case of foreign funds, would subject all foreign funds, even if they
are publicly offered, exchange-registered and closely regulated to highly restrictive limitations on hedging, limiting the
ability of banking entities to prudently hedge risks.

39
engage in the purchase, sale, acquisition, or disposition of securities and other instruments
described in subsection [13](h)(4) [of the Bank Holding Company Act] in connection with
underwriting and market making-relating activities, which would include many securities
and other instruments issued by a covered fund,
85
to the extent that such a security or other
instrument is an ownership interest in a covered fund as defined under the Proposal, the
banking entity could not acquire it except pursuant to one of the existing permitted activities
for covered fund activities, none of which is designed to facilitate underwriting or market
making. By its plain language, the statutory exception for underwriting and market making-
related activities facially applies to both proprietary trading and covered fund activities, yet
the Agencies do not provide any explanation in the preamble for electing to disregard
unambiguous congressional direction, noting only that certain exceptions provided in the
statutory text, either by plain language or by implication,
86
appear relevant only to
covered trading activities and not to covered fund activities.
87

Not only does the Agencies decision contravene the plain language of the statutory
text of the Volcker Rule, but it is also incompatible with the intent of Congress as expressed
in legislative history that clearly contemplates that banking entities may underwrite and make
markets in securities and other financial instruments that are ownership interests in covered
funds. In light of the statutes provision of a single exception for underwriting and market
making-related activities that is facially applicable both to proprietary trading and covered
fund activities, we believe that the burden is on the Agencies either to articulate the reasoning
behind its determination or to abandon what we believe to be an inappropriate distinction at
odds with real-world practices and congressional intent.
88

Risk-Mitigating Hedging
As noted by other commenters, the Proposal also ignores the plain language of the
single statutory exception for risk-mitigating hedging activities
89
to provide for two distinct
exceptions in the proprietary trading and covered funds contexts.
90
Although the Proposal
would allow a banking entity to hold an ownership interest in a covered fund in connection
with risk-mitigating hedging, the covered fund hedging exception is significantly and
unnecessarily more restrictive than the hedging exception for other asset classes provided in

85
See Preamble, 76 Fed. Reg. at 68,89798 (describing the Agencies view of the breadth of the definition of
ownership interest).
86
See id. at 68,908.
87
See id. at 68,908 n. 293.
88
We note, in particular, that three leading law firms have written a memorandum to Federal Reserve staff
pointing out their common view that staff has misconstrued the plain language. See Letter from Cleary Gottlieb Steen
& Hamilton LLP, Davis Polk & Wardwell LLP and Sullivan & Cromwell LLP to Scott G. Alvarez, General Counsel,
Board of Governors of the Federal Reserve System, et al. (January 23, 2012).
89
See Bank Holding Company Act 13(d)(1)(C).
90
See Proposal _.5, _.13(b).

40
the proprietary trading context. In particular, the restrictive conditions for the covered fund
hedging exception could be read to disallow hedging of many types of customary and widely
used covered fund-linked products, thereby effectively forcing banking entities to cease
offering such products. Examples of such covered fund-linked products include notes and
over-the-counter derivatives, usually with maturities of five to seven years, that are generally
structured to provide some degree of principal protection or optionality. These features allow
for a return that is based, in part, on the profits and the losses (or a portion thereof) tied to the
performance of one or more covered funds. These products are created to fulfill the specific
investment and, in some instances, hedging objectives of customers.

Banking entities also are concerned that if they are unable to continue to prudently
hedge their risks attributable to meeting their customers needs for covered fund-linked
products, they may fail to meet other long-established banking law requirements related to
prudent risk management and safety and soundness. If banking entities were no longer able to
properly hedge existing commitments to their customers, in order to continue to satisfy other
prudential regulatory requirements they likely would need to consider the possibility of
invoking various contractual hedging disruption rights to terminate their agreements with
customers and liquidate their hedging positions in covered funds. In these circumstances,
customers may suffer financial losses because of the early termination of their investments, as
well as the elimination of an asset class that may be an important component of their portfolio
diversification strategy. Banking entities would have to redeem any units of covered funds
they held as hedges to these covered fund-linked products, which, in turn, could result in
multiple covered funds simultaneously selling some of their respective assets to effect the
redemptions. Further, if a customer has purchased a covered fund-linked product from a
banking entity to hedge products that it has sold to its own customers, a practice that asset
managers and insurance companies employ in the European market, such customers may
determine it appropriate or be compelled to terminate the covered fund-linked products they
have sold to their customers, further roiling the market.

Bank of America believes that the Proposals provision of an overly restrictive
covered fund hedging exception unnecessarily singles out covered fund-linked products,
which should be treated no differently from, and do not present any heightened risk of evasion
as compared to, products linked to the performance of other asset classes. To preserve safety
and soundness and financial stability, banking entities should be able, in any event, to
continue to use hedging strategies involving covered funds with respect to their portfolio of
obligations related to contractual commitments to their customers entered into prior to the
effective date of the Volcker Rule, so long as those hedging activities fulfill the requirements
of the general risk-mitigating hedging exception, as finally adopted, for all proprietary trading.

Recommendations
Bank of America therefore joins other commenters in recommending that the
Agencies:
allow banking entities to hold ownership interests in covered funds for the purpose
of underwriting and engaging in market making-related activities;

41
provide in the final rules for a single hedging exception applicable to both the
proprietary trading and covered fund portions of the Volcker Rule, eliminating the
proposed additional conditions in the covered fund hedging exception.
Alternatively, the Agencies should:
clarify in the final rules that the profits and losses condition of the
covered fund hedging exception does not prohibit banking entities from
hedging exposures to covered fund-linked products designed to facilitate
customer exposure to either or both the profits (or a portion of the profits)
or the losses (or a portion of the losses) of a covered fund reference asset;
clarify in the final rules that, notwithstanding the same amount of
ownership interest condition, dynamic delta hedging of covered fund-
linked products is permitted by the covered fund hedging exception and
that portfolio hedging of exposures to covered fund-linked products is
permitted;
clarify or eliminate the specific customer request condition in order to
ensure that banking entities can continue innovating and offering covered
fund-linked products to existing and new customers in accordance with
market practice, customer expectations and applicable laws and regulations;
eliminate the prohibition on hedging a customer exposure where the
customer is a banking entity or, at a minimum, amend it to permit reliance
on certain customer representations; and
provide that, in the event the preceding recommendations are not adopted, at a
minimum, banking entities may continue to engage in the risk-mitigating hedging
that they have been engaged in related to the covered fund-linked products sold to
customers before the effective date of the Volcker Rule, so long as they comply
with the conditions in the risk-mitigating hedging exception, as finally adopted, for
proprietary trading.
12. By failing to exclude from the definition of banking entityand
therefore the prohibitions of the Volcker Rulecovered funds that a
banking entity may permissibly control and other affiliated funds that are
not covered funds, the Proposal prohibits many funds from engaging in
their businesses in the ordinary course
The Volcker Rules restrictions on proprietary trading and covered fund activities
apply to any banking entity. Because the definition of banking entity includes any
affiliate, as that term is defined in the Bank Holding Company Act, the Volcker Rules
restrictions would apply to many entities that Congress could not have intended to be subject
to such restrictions. Acknowledging this unintended consequence and certain internal
contradictions that arise under the statutory text owing to the overbreadth of the term
banking entity, the Proposal excludes from the definition of banking entity a covered

42
fund held pursuant to the asset management exception.
91
However, this exclusion addresses
only a small subset of the unintended consequences and internal contradictions that result
from the overbroad definition of banking entity.
Bank of America will be deemed to control many covered funds that it may
permissibly sponsor and invest in under other permitted activities. It will also be deemed to
control many other types of entities that are funds but not covered funds, including retail
investment vehicles that are registered investment companies.
Recommendations
Bank of America believes that the Agencies should amend the Proposal to exclude
from the definition of banking entity:
any covered fund that a banking entity is permitted to sponsor or invest in under a
permitted activity;
any other banking entity-sponsored issuer that is exempt from the Investment
Company Act under an exemption other than 3(c)(1) or 3(c)(7) under that Act;
any company that is an SEC-registered investment company;
any portfolio company held under the merchant banking authority, other than those
determined to have been acquired for purposes of evading the Volcker Rules
restrictions on proprietary trading and covered fund relationships;
any direct or indirect subsidiary of any of the foregoing; and
solely for name sharing purposes, any affiliate that is not an insured depository
institution or the ultimate parent of such an insured depository institution.
13. Defining covered fund to include wholly owned subsidiaries is contrary
to congressional intent and would harm safety and soundness and U.S.
financial stability by prohibiting ordinary course internal financing,
liquidity and risk management transactions with thousands of wholly
owned subsidiaries
The statutory text of the Volcker Rule defines the terms hedge fund and private
equity fund as (a) any issuer that would be an investment company under the Investment
Company Act but for the exemptions under Sections 3(c)(1) and 3(c)(7) of that Act or (b) any
fund the Agencies determine to be a similar fund. The Proposal, in turn, would incorporate
each of these prongs as independent bases for determining whether an entity is a covered
fund the term that the Proposal substitutes for hedge fund and private equity fund
for the purposes of the Volcker Rule.
92
As a result, the Proposal would, shockingly, sweep

91
See id. _.2(e).
92
See id. _.10(b)(1) (defining covered fund to include issuers that would be investment companies but for
Section 3(c)(1) or 3(c)(7) of the Investment Company Act and any fund the Agencies determine to be similar).

43
every wholly owned subsidiary of a banking entity into the definition of covered fund
unless such subsidiary qualified for an Investment Company Act exemption other than 3(c)(1)
or 3(c)(7).
93
Although the Proposal includes an exception for wholly owned subsidiaries that
are engaged principally in performing bona fide liquidity management activities,
94
Bank of
America has not been able to identify a single subsidiary that would qualify for this
exception.
95

Critically, even if the exception were expanded, by failing to exclude wholly owned
subsidiaries from the definition of covered fund the Proposal ensures that Super 23A would
prohibit all covered transactions between banking entities and such subsidiaries. This
would have a devastating effect on the ability of banking entities to fund, guarantee or enter
into derivatives with their wholly owned subsidiaries, thereby prohibiting ordinary course
internal financing, liquidity and risk management transactions between parent banking entities
and hundreds of nonbank subsidiaries. As discussed below, it also casts doubt on whether the
lending arms of Bank of America could continue to accept securities issued by wholly owned
subsidiaries as collateral security for a loan or other extension of credit.
Bank of America believes that Congress could not have intended this result, which
would weaken the safety and soundness of U.S. banking entities and contribute to U.S. and
global financial instability without furthering any of the policy goals underlying the Volcker
Rule. Bank of America joins with other commenters to urge the Agencies to exclude wholly
owned subsidiarieswhich, by definition, have no third-party investors and therefore are not
collective investment vehicles, a necessary characteristic of any reasonable definition of a
hedge fund or private equity fundfrom the definition of covered fund. Doing so is
necessary to avoid the harmful unintended consequences Bank of America identifies and to
honor congressional intent, as expressed in colloquies by several of the Volcker Rules
principal sponsors, to exclude corporate structures that are clearly not hedge funds or
private equity funds so as to avoid disrupt[ing] the way the firms structure their normal
investment holdings.
96
Importantly, because wholly owned subsidiaries are necessarily

93
Section 3(b)(3) of the Investment Company Act exempts certain wholly owned direct and indirect
subsidiaries of noninvestment company parent companies from the investment company definition. However, because
certain SEC interpretive guidance can be read to require that a 3(b)(3) parent be an industrial company, it is not clear
that wholly owned subsidiaries of bank holding companies are eligible for this exemption. As a result, many wholly
owned subsidiaries in bank holding company structures must rely on the exemptions under Section 3(c)(1) or 3(c)(7)
of the 1940 Act.
94
See Proposal _.14(a)(2)(iv).
95
As discussed in connection with ALM, the Proposals definition of bona fide liquidity management
allows only for near-term liquidity management, which encompasses only a fraction of the liquidity management
activities that banks are required to conduct under existing bank supervisory guidance. Consequently, the type of
liquidity management subsidiary the Proposal exempts would be inadequate for the needs of banking entities, making
the exception meaningless for any practical purpose.
96
See Colloquy Between Rep. Barney Frank (D-MA) and Rep. Jim Himes (D-CT), 156 Cong. Rec. H5266
(daily ed. June 30, 2010) and Colloquy Between Sen. Christopher Dodd (D-CT) and Sen. Barbara Boxer (D-CA), 156
Cong. Rec. S5904 (daily ed. July 15, 2010).

44
affiliates of banking entities, and therefore banking entities themselves, if excluded from
the definition of covered fund they would remain subject to the Volcker Rules prohibitions
on proprietary trading and investments in covered funds, thus eliminating any evasion
concern.
Bank of Americas Wholly Owned Subsidiaries
As of September 30, 2011, Bank of America Corporations Form FR Y-6 reflected
ownership of 1,875 wholly owned subsidiaries. Of these, Bank of America estimates that
approximately 25 percent are chartered banks or registered broker-dealers and consequently
entitled to rely on the relevant exemptions from the definition of investment company for
such entities under the Investment Company Act. The remaining 75 percent of Bank of
America Corporations wholly owned subsidiariesroughly 1,400 in alldo not fall within
these broad, status-based exemptions. Therefore, each such subsidiary would need to be
reviewed to assess whether it is an investment company, and if so, whether it is eligible for
an exemption other than 3(c)(1) or 3(c)(7). This analysis would require the participation of
internal finance, business and legal personnel as well as outside counsel with Investment
Company Act expertise. As illustrated below, in light of the complexity of the analysis
required to determine whether an entity is an investment company and the highly technical
nature of the subsequent exemption analysis, this review process would require an enormous
expenditure of resources in terms of time, money and distraction of personnel from their core
business functions.
Investment Company Act Analysis of Wholly Owned Subsidiaries
To illustrate, as the Agencies are aware, whether an entity is an investment company
under the Investment Company Act initially turns on whether the entity owns or proposes to
acquire investment securities having a value exceeding 40 [percent] of the value of such
issuers total assets on an unconsolidated basis.
97
This calculation is far from
straightforward. For the purposes of determining whether an entity is an investment
company, an investment security includes all securities other than government securities,
securities issued by an employee securities company and certain securities issued by a
majority-owned entity.
98
Accordingly, assets such as loans, certain leases and other
extensions of credit will generally count toward determining whether 40 percent of an entitys
assets are investment securities. As a result, many wholly owned subsidiaries would be
considered investment companies as a threshold matter. For example, a wholly owned
subsidiary whose sole business is to make loansbut which, for various reasons, does not
accept deposits and is not technically a bankcould be considered an investment company.
Similarly, a wholly owned subsidiary could be deemed to be an investment company
depending on whether any of its subsidiaries is itself an investment company, thereby
necessitating a corresponding review of the assets of each such subsidiary.

97
See Investment Company Act 3(a)(1)(C).
98
See id. 3(a)(2).

45
If 40 percent of a wholly owned subsidiarys assets are investment securities, and
the wholly owned subsidiary is therefore, as a threshold matter, an investment company, the
nature of the subsidiarys structure and assets would have to be carefully assessed to
determine whether one of the several exemptions from the definition of investment
company is applicable. This determination is quite complex. For example, a subsidiary that
holds leases may qualify for an Investment Company Act exemption depending on whether a
sufficient proportion of its leases are eligible assets for purposes of the relevant exemption.
99

Determining whether the subsidiarys leases are eligible requires consideration of the terms of
each lease and whether it represents the functional equivalent of [an] installment sale
contract.
100
Similarly, a wholly owned subsidiary that holds mortgage loans secured by real
estate would be able to rely on an exemption, but if it holds a portfolio of mortgage-backed
securities, then that exemption would generally not apply.
101

Importantly, this review is not a one-time exercise. Bank of America would have to
repeat the threshold test to determine whether 40 percent of a wholly owned subsidiarys
assets are investment securities on a quarterly basis to determine whether a company that
had not been an investment company has become one.
102
Bank of America also would
have to reexamine every entity that it has determined is entitled to rely on an exemption from
the definition of investment company to confirm that its structure and the scope of its
activities have not changed and that the exemption remains available.
Preliminarily, Bank of America is certain that at least several of its wholly owned
subsidiaries are investment companies and fail to qualify for any exemption under the
Investment Company Act other than 3(c)(1) or 3(c)(7). These wholly owned subsidiaries,
with no third-party investors, would therefore be considered covered funds under the
Proposal, and because no permitted activity exception would apply, Bank of America would
be prohibited from maintaining an ownership interest in them. Each of these wholly owned
subsidiaries, therefore, would have to be restructured through a merger with or asset transfer
to another wholly owned subsidiary that (a) has the authority under the Bank Holding
Company Act to hold the assets in question; and (b) after the merger or asset transfer would
continue to qualify for an exemption from the Investment Company Act other than 3(c)(1)
or (7).
The costs that Bank of America and other banking entities would incur if the Agencies
failed to exclude wholly owned subsidiaries from the definition of covered fund would be
substantial. Bank of Americas external counsel estimates that just the first sweep, high-

99
See id. 3(c)(5)(A) or (B).
100
See, e.g., Raymond James & Assoc., SEC No-Action Letter (Jul. 14, 1988).
101
See Investment Company Act 3(c)(5)(C); see also SEC, Investment Company Release No. 29778, n. 51-
52 and accompanying text (Aug. 31, 2011).
102
See Investment Company Act 2(a)(41). Note that the definition of value for purposes of investment
company testing calculations generally looks to asset values at the end of each fiscal quarter.

46
level initial review of 1,400 Bank of America subsidiaries (allowing only one hour per
subsidiary and assuming that 25 percent of the total 1,875 wholly owned subsidiaries could be
eliminated because they fall into a clear exemption, such as that for banks) would cost
between $800,000 and $1 million, and could easily exceed that range. This estimate does not
include the cost of internal support for outside counsels review or the multiple deep dives
into factual details that would be required for complicated assessments. Nor does it include
the costs that would be associated with quarterly updates or restructuring costs, both of which
are certain to be significant.
Forced Restructuring
Moreover, the effect of forced restructuring on some lines of businesses would be to
make them much more costly, and perhaps even impossible, to operate. For example, Bank of
America has approximately 50 wholly owned subsidiaries that act as depositors of assets into
securitization vehicles and are created to be bankruptcy remote. Of these depositor
subsidiaries, approximately 35 are involved in securitizing consumer assets, such as
residential real estate mortgages and credit card receivables, and as such would generally be
exempt from investment company status.
103
The other 15, however, are involved in
securitizing corporate loans and so are unlikely to be exempt except under Section 3(c)(1) or
3(c)(7) of the Investment Company Act. Any wholly owned subsidiaries that are only exempt
under 3(c)(1) or 3(c)(7) would be covered funds, and Bank of America would effectively be
prohibited from sponsoring or investing in them. This would materially disrupt, and could in
many instances make impossible, Bank of Americas ordinary course structuring of
securitizations, including securitizations of corporate loans and potentially certain consumer
assets that Congress clearly intended to insulate from any disruption pursuant to the rule of
construction in section 13(g)(2) of the Volcker Rule.
Bank of America also estimates that virtually all of its approximately 250 wholly
owned subsidiaries that hold ownership interests in the shares of other companies under
certain Bank Holding Company Act authorities, including Section 4(c)(6), which permits
investment in up to 5 percent of any class of equity by a bank holding company or its nonbank
subsidiaries,
104
the merchant banking authority,
105
certain authorities under Regulation K
106

and the authority to hold investments that are financial in nature
107
would have to be
restructured, because they would not qualify for an exemption from investment company
status other than Section 3(c)(1) or 3(c)(7). It is common for tax and other corporate

103
See Investment Company Act 3(c)(5)(C). However, the Investment Company Act analysis of consumer
asset depositor subsidiaries is not entirely clear. It is possible that Bank of America would conclude that certain of
such entities are only exempt from the Investment Company Act under 3(c)(1) or 3(c)(7).
104
See Bank Holding Company Act 4(c)(6).
105
See id. 4(k)(4)(H).
106
See 12 C.F.R. pt. 211.
107
See Bank Holding Company Act 4(k)(4).

47
structuring considerations to drive the establishment of new subsidiaries to hold interests in
portfolio companies. Under the Proposal, however, these carefully developed structures
would have to be collapsed, in clear contravention of congressional intent not to disrupt the
way firms structure their normal investment holdings.
108
The costs involved in retrieving
and reviewing the documentation for each investment, determining and satisfying any
conditions to transfer and finding other subsidiaries with the requisite authority under banking
law and the Investment Company Actall while attempting to preserve the tax and other
structuring purposes of the original arrangementwould be substantial.
Wholly Owned Subsidiaries and Super 23A
Perhaps the most harmful unintended consequence of capturing wholly owned
subsidiaries under the overly broad covered funds definition is the operation of Super 23A
to prohibit any covered transaction between such subsidiaries and parent banking entities.
Super 23A by its terms applies to any related covered fund, even where Congress provided for
an exception with respect to such a fund. Indiscriminately applying Super 23A to all related
funds would have a devastating effect on ordinary course internal financing, liquidity and risk
management transactions by prohibiting banking entities from funding, lending providing
guarantees to, or entering into derivatives with their wholly owned subsidiaries. Congress
could not have intended the disastrous effect on safety and soundness that would result from
eliminating the ability of banking entities to use their wholly owned subsidiaries that are not
insured depository institutions for internal financing purposes.
Among the types of customary transactions with wholly owned subsidiaries that
would be prohibited by Super 23A would be:
general treasury risk management hedging transactions related to investments in
overseas subsidiaries between a parent U.S. entity (whose assets are all
denominated in U.S. dollars) and its overseas subsidiaries utilizing back-to-back
swaps with affiliates followed by further risk management transactions with the
market;
intercompany funding/lending across various legal entities;
swap dealer desks entering into customer transactions and transferring risk to a
centralized dealing legal entity for various types of risk, which serves a risk
management purpose as well as assures superior pricing to customers;
hedging related to overall interest rate risk management;
various bank and parent funded subsidiary subordinated debt issuances;
simple centralizing of excess liquidity in deposit form with an insured depository
institution affiliate;

108
See Colloquy Between Rep. Barney Frank (D-MA) and Rep. Jim Himes (D-CT), 156 Cong. Rec. H5266
(daily ed. June 30, 2010).

48
centralization of expense management; and
providing guarantees of the obligations of a subsidiary to an exchange or for the
purposes of SEC or CFTC net capital rules.
Recommendation
In light of the impact on safety and soundness and U.S. financial stability that
prohibiting such transactions would generate, and the fact that as banking entities wholly
owned subsidiaries could not engage in the types of activities intended to be regulated by the
Proposal, Bank of America joins other commenters, particularly SIFMA, and requests that the
Agencies:
expressly clarify that wholly owned subsidiaries, even if they rely on the
exemptions under Section 3(c)(1) or 3(c)(7) of the Investment Company Act from
registration under that Act, be excluded from the Proposals definition of covered
fund, will not be deemed to be similar fundseither in the form of commodity
pools or foreign fundsand will be expressly defined as an excluded entity in
the Proposal in the manner recommended by SIFMA in its comment letter related
to covered funds, to avoid, among other consequences, dismantling the long-
standing source of strength doctrine and threatening the federal safety net.
14. The Proposals designation of all commodity pools and virtually all
foreign funds as similar funds is not statutorily required, contravenes
congressional intent and would harm customers, diminish market
liquidity and threaten the competiveness of U.S. banking entities
As noted above, the statutory text of the Volcker Rule defines the terms hedge fund
and private equity fund as (a) an issuer that would be an investment company under the
Investment Company Act but for the exemptions of Section 3(c)(1) or 3(c)(7) of that Act; or
(b) any similar funds as determined by the Agencies.
109
The FSOC recommended that the
Agencies only designate an issuer as a similar fund to the extent that it engage[s] in the
activities or [has] the characteristics of a traditional private equity fund or hedge fund.
110
In
designating similar funds, however, the Proposal would include not only those entities
recommended by the FSOC, but also all commodity pools, as defined in Section 1a(10) of
the Commodity Exchange Act, and virtually any foreign fund that would be an investment
company were it organized under U.S. law.
111


109
See Bank Holding Company Act 13(h)(2).
110
See FSOC Study, supra note 9, at 62.
111
See Proposal _.10(b)(1).

49
Commodity Pools
By designating any commodity pool as a similar fund, the Proposal greatly
expands the scope of the Volcker Rule by capturing as a covered fund any entity that holds
just a single commodity interest, such as a single interest rate swap, even if the entity does not
have the characteristics of a hedge fund or private equity fund as commonly understood,
112
is
already subject to comprehensive regulation or is not principally engaged in trading
commodity interests. Failure of the Agencies to appropriately narrow the overbroad
commodity pool definition would lead to the obviously unintended result that Bank of
America Corporation, a bank holding company with more than $2.2 trillion in assets and a
global banking business, could be deemed to be a commodity pool, as would its principal
banking subsidiary, Bank of America, N.A., which holds more than $1.5 trillion in assets and
$1.3 trillion of liabilities, including $1 trillion in deposits, and countless other Bank of
America subsidiaries. Under the Proposal, Bank of America Corporation would be forced to
restructure its ownership interest in Bank of America, N.A. (and any other subsidiary bank,
each of which utilizes interest rate swaps in ALM activities to meet safety and soundness
requirements) and would be unable, as required under long-standing banking law principles,
to serve as a source of strength to Bank of America, N.A. and its subsidiary banks.
The overly broad definition of commodity pool also would sweep up even those
funds, like common and collective trust funds maintained by banking entities, that can rely on
exemptions under the Investment Company Act other than 3(c)(1) or 3(c)(7) and, but for the
commodity pool definition, would not be covered funds under the Volcker Rule. Bank of
America would be forced to identify a permitted activity exception in order to sponsor or
invest in virtually any fund that has entered into even a single interest rate swap. The
permitted activity exceptions, however, are not crafted in contemplation of common and
collective trust funds maintained by banking entities and other funds that do not rely on the
exemptions of Section 3(c)(1) or 3(c)(7) of the Investment Company Act and are unlikely to
provide a basis for sponsoring or investing in funds that would be considered commodity
pools.
In addressing this issue, it is, as in the case of wholly owned subsidiaries, vitally
important that the Agencies ensure that these Bank of America depository institutions and
other subsidiaries, none of which could be considered a hedge fund or private equity fund but
nonetheless fall within the definition of commodity pool, are carved out of the definition of
covered funds. Failing to do so would cause Super 23A to prohibit all covered transactions
with such entities, preventing Bank of America from entering into normal course transactions
to fund, provide liquidity and hedge its exposure with bank and nonbank subsidiaries as
described above in the discussion of wholly owned subsidiaries and Super 23A. Since all
commercial banking subsidiaries engage in some form of ALM activity to prudentially
manage their inherent balance sheet risks in a safe and sound manner and, consequently, fall
within the Proposals definition of commodity pool, Super 23A will prohibit Bank of

112
For a definition of hedge fund and private equity fund as those terms are commonly understood, see
the SIFMA comment letter on covered funds.

50
America from extending credit in any form whatsoever to its subsidiary banks. The
combination of the overbreadth of the definition of commodity pool and the application of
Super 23A to all covered funds (whether permitted or not) stretches, rather than protects, the
federal safety net by eviscerating the long-standing principle that the parent holding company
is to be a source of strength to its subsidiary banks.
Foreign Funds
By designating any foreign fund that would be an investment company were it
organized under U.S. law as a similar fund, the Agencies also could capture within the
definition of covered fund virtually any foreign fund, regardless of whether it is comparable
to an SEC-registered mutual fund, eligible to be offered to the public and subject to regulation
of its investments and activities in its home jurisdiction, and even though it does not have the
characteristics of a traditional hedge fund or private equity fund.
The similar funds designation as drafted harms customers, who would see the range of
products and services that Bank of America and other U.S. banking entities are permitted to
offer dramatically diminished. Customers have made investment decisions based on their
expectations regarding the availability of such products and services. Furthermore, because
of the overly restrictive conditions on the market making-related activities exception
discussed above, market liquidity would suffer as Bank of America and other U.S. banking
entities would have to withdraw from market making activities with respect to foreign funds.
For example, in Europe, ETFs are generally organized as Undertakings for Collective
Investment in Transferable Securities (UCITS) funds, and consequently these ETFs would
appear to be classified as covered funds under the Proposal. Bank of America acts as an AP
to approximately 676 European ETFs. Bank of America Global Capital Management
sponsors UCITS funds that are sponsored by the Irish Financial Regulatory Authority and are
designated as short-term money market funds in accordance with the requirements of the
Central Bank of Ireland and the guidelines of European Securities Markets Authority on a
common definition of European money market funds. These funds seek to maintain a stable
net asset value and are eligible to be publicly offered. Accordingly, these funds are
functionally equivalent to U.S. money market funds registered under the Investment Company
Act. As a consequence of the overly broad definition of foreign funds, Bank of America
estimates that it will have to withdraw from market making with respect to these exchange-
traded and publicly offered funds. Since foreign competitors of U.S. banking entities will not
be similarly constrained by the Volcker Rule and would, in some areas, be able to step into
the markets U.S. banking entities will be forced to exit, designating all commodity pools and
virtually all foreign funds as similar funds would reduce the competitiveness of U.S.
banking entities.
Bank of America agrees with other commenters that have argued that the Agencies
inclusion of all commodity pools and virtually all foreign funds within the definition of
covered fund would constitute an expansion of the scope of the Volcker Rule far beyond
that envisioned by Congress. We also agree that the statutory text of the Volcker Rule gives
the Agencies broad discretion to determine which funds are similar funds. Accordingly,
Bank of America urges the Agencies to carefully consider the costs to customers, markets and

51
banking entities associated with defining all commodity pools and virtually all foreign funds
as covered funds and whether those costs are justified by any discernible benefit to U.S.
financial stability and the safety and soundness of U.S. banking institutions.
Furthermore, even though the Volcker Rule does not constrain Bank of America in
sponsoring, advising or investing in U.S. mutual funds, under the Proposal, the Volcker Rule
would constrain Bank of America, and all other covered banking entities, from undertaking
such activities with respect to funds organized in a foreign jurisdiction that are the legal and
economic equivalent of U.S. mutual funds. Despite the fact that UCITS funds, including
Bank of America Global Capital Managements money market funds, are eligible to be
publicly offered, are regulated with respect to their investments and other activities, and do
not share the characteristics of traditional hedge funds or private equity funds, the Proposal
would materially interfere with Bank of Americas ability to facilitate our clients wealth
management and investment strategies by sponsoring such funds.
Bank of America acknowledges that the Proposal would permit a banking entity to
continue to sponsor and invest in a covered fund so long as it satisfies the requirement of the
asset management exception (including observing the per fund and aggregate limits on the
amount that may be invested in a covered fund),
113
but contradictory local law requirements
would make it impossible for Bank of America to rely on the asset management exception
with respect to many foreign funds. Unable to rely on any of the permitted activities to
organize and invest in these overseas funds, Bank of America could no longer meet customer
demand and would need to radically restructure its existing investments in and relationships
with funds.
114

Recommendations
Bank of America agrees with other commenters that have recommended that the
Agencies:
clarify that ETFs will not be deemed to be similar fundseither in the form of
commodity pools or foreign funds; and
revise the Proposal to designate as similar funds only those commodity pools
and foreign funds that share the characteristics of what are commonly understood
to be hedge funds and private equity funds and otherwise satisfy the conditions
recommended by SIFMA in its comment letter related to covered funds.



113
See Proposal _.11.
114
See id. _.10(a).

52
15. The Proposals attribution provisions could prohibit many funds of funds
and master-feeder fund structures in contravention of congressional intent
and the Agencies position reflected elsewhere in the Proposal, and to the
detriment of Bank of Americas customers who regard them as an
important portfolio diversification tool
Bank of Americas Alternative Investment Business
Bank of Americas alternative investments group offers eligible customers access to a
range of alternative investment opportunities, including hedge funds and private equity funds,
real-asset funds and managed-futures funds. Bank of America generally makes alternative
investments available by sponsoring and establishing feeder funds, master funds and funds of
funds that invest in underlying alternative investment funds sponsored and advised by an
unaffiliated third party manager (a Third Party Fund). These structures permit customers
to benefit from upfront and ongoing due diligence by Bank of America of Third Party Fund
managers; gain exposure to Third Party Funds at investment minimums that generally are
lower than the minimum investment required for investing directly in Third Party Funds; and
achieve an efficient means of tailoring a portfolio of diverse alternative investments.
115

Currently, Bank of Americas alternative investment asset management business
sponsors over 150 funds, with customer investment in these funds in excess of $10 billion as
of December 31, 2011. Bank of Americas proprietary investment in these funds, however,
which typically takes the form of seed or organizational capital or other minimal amounts to
satisfy relevant tax requirements in connection with the establishment of a fund, is only a
fraction of total customer investment. As of December 31, 2011, Bank of Americas
proprietary investment in these funds was significantly less than 1 percent of Bank of
America Corporations Tier 1 capital.
Bank of America generally makes alternative investment opportunities available to
customers through three structures: (a) a feeder fund sponsored by a Bank of America affiliate,
which invests in a single Third Party Fund; (b) a fund of funds sponsored by a Bank of
America affiliate, which invests in more than one Third Party Fund; and (c) a master-feeder
structure, in which one or more feeder funds sponsored by a Bank of America affiliate invests
in a master fund sponsored by a Bank of America affiliate, which in turn invests in underlying
Third Party Funds. The three diagrams on pages 56 and 57 illustrate these structures.
Congress and the Agencies understood that the Volcker Rule was not intended to,
and should not, undermine the ability of a banking entity to use traditional asset
management fund of funds and master-feeder structures
Congress recognized the importance of allowing a banking entity to continue to offer
these traditional asset management products and services to its customers. Indeed, in

115
In the case of master-feeder structures, for example, Bank of America sponsors feeder funds that address
the particular tax considerations of particular categories of investors (e.g., U.S. tax-exempt investors).

53
adopting the Volcker Rule, Congress explicitly provided for what is often referred to as the
asset management exception
116
to permit the continued sponsorship of traditional asset
management structures that allow the delivery of traditional hedge fund and private equity
investment opportunities to customers. Under the requirements of the asset management
exception, a banking entity is permitted to invest only a de minimis amount as seed or
organization capital in an individual sponsored fund (no more than 3 percent per fund after an
initial seeding period of 12 months, plus possible extensions) and no more than 3 percent of
its Tier 1 capital in all covered funds held under the asset management exception at any time.
These two percentage limits on the amount of its own funds that a banking entity can
contribute to such sponsored funds are often referred to as the De Minimis Ownership
Caps.
In adopting the Proposal, the Agencies also clearly attempted to implement the asset
management exception so as not to undermine congressional intent. For example, as
discussed in the preamble, the Agencies explicitly excluded from the term banking entity
covered funds sponsored under the asset management exception and their direct and indirect
subsidiaries in order to (a) avoid an internal contradiction that would otherwise have arisen
with Super 23A, which clearly contemplates that a permitted fund is permitted to make
controlling investments in other funds, including through funds of funds and master-feeder
fund structures, without complying with the conditions of the asset management exception; (b)
implement congressional intent to allow banking entities to continue to offer traditional asset
management products and services to eligible customers subject to the requirements of the
asset management exception;
117
and (c) avoid unnecessary disruption, costs and harm to
customers who have invested in existing covered funds sponsored by banking entities such as
Bank of America.
118
However, as discussed below, certain elements of the Proposal could be

116
See Bank Holding Company Act 13(d)(1)(G); see also Proposal _.11.
117
See Preamble, 76 Fed. Reg. at 68,85556. (This clarification is proposed because the definition of
affiliate and subsidiary under the [Bank Holding Company] Act is broad, and could include a covered fund that a
banking entity has permissibly sponsored or made an investment in because, for example, the banking entity acts as
general partner or managing member of the covered fund as part of its permitted activities. If such a covered fund
were considered a banking entity for purposes of the proposed rule, the fund itself would become subject to all of the
restrictions and limitations of section 13 of the [Bank Holding Company] Act and the proposed rule, which would be
inconsistent with the purpose and intent of the statute.).
118
The Agencies excluded from the definition of banking entity any covered fund sponsored by a banking
entity under the asset management exception (and any of its subsidiary covered funds) in order to preserve fund of
funds and master-feeder structures. Without this exclusion, for example, a Bank of America sponsored feeder fund or
fund of funds could not invest in a Third Party Fund, since as a banking entity it would be prohibited from
sponsoring or investing in another covered fund except in reliance on the asset management exception, which, by its
terms, is available only where Bank of America organizes and offers or sponsors such other covered fund. The
exclusion is also necessary to solve the problems that arise where an underlying fund in a fund of funds structure, or
both the master and feeder funds in a master-feeder structure, is sponsored by Bank of America. To accomplish this,
the Agencies provided for an exclusion from the definition of banking entity for covered funds sponsored under the
asset management exception. This was necessary because the typical relationships with a covered fund that constitute
sponsoring, such as acting as general partner to the fund, also constitute control under the Bank Holding Company
Act and its implementing regulations, causing any sponsored covered fund to be a banking entity and therefore itself
subject to the Volcker Rules prohibition on investing in covered funds.

54
read to be inconsistent with this exclusion, inadvertently undermining congressional intent
and the Agencies effort to implement it.
The attribution rules as drafted could be interpreted to undercut the Agencies own
proposed exclusion from the definition of banking entity and consequently
prohibit or sharply curtail the ability of banking entities to sponsor funds of funds
and master-feeder funds for customers under the asset management exception
Section _.12 of the Proposal includes three attribution rules
119
that govern whether a
banking entity that organizes and offers or sponsors a covered fund under the asset
management exception in Section _.11 is in compliance with the De Minimis Ownership Caps.
As currently drafted, the attribution rules could be read to effectively eviscerate the asset
management exception by inappropriately attributing customer funds to a banking entity for
purposes of determining the banking entitys compliance with the De Minimis Ownership
Caps, which are intended to measure proprietary investments. If the attribution rules were
interpreted as such, Bank of Americas ability to sponsor funds of funds and master-feeder
structures would be effectively prohibited, or at a minimum sharply curtailed.
For example, under one reading of the attribution rules, where Bank of America
invested $1 into a sponsored fund and its customers invested $99, the customers $99
investment could be attributed to Bank of America for the purposes of calculating whether
Bank of Americas proprietary investment in the fund exceeded 3 percent of total ownership
interests. In addition, under circumstances where a Bank of America-sponsored feeder fund
invested its assets in a Third Party Fund, the attribution rules could attribute to Bank of
America the equivalent of the feeder funds pro rata share of the Third Party Fund, with the
end result that Bank of America would be charged twice in respect of the same investment
for the purpose of calculating compliance with the De Minimis Ownership Caps. It seems
axiomatic that the attribution rules should not (a) attribute customers investments to a
banking entity as if they were a banking entitys own investment or (b) double count the same
investment when assessing a banking entitys compliance with the De Minimis Ownership
Caps. The magnitude of this potential problem, and possible harm to our customers, cannot
be underestimated. If Bank of Americas customers investment of $10 billion in our
sponsored funds (equivalent to approximately 6 percent of Bank of America Corporations
Tier 1 capital) were attributed to Bank of America, Bank of America would significantly
exceed the 3 percent of Tier 1 capital ownership limit, and in many cases would exceed the
per fund limitation. As a result, Bank of America could not sponsor any further funds and
would have to dissolve or restructure existing sponsored funds to eliminate Bank of
Americas sponsorship.

119
The attribution rules address investments in covered funds held by any entity controlled by a banking
entity; investments in covered funds held by any covered fund that the banking entity does not control, but in which
it holds more than 5 percent of the voting shares; and certain investments by a banking entity in the same assets in
which a covered fund sponsored by the banking entity under the asset management exception has invested. See
Proposal _.12(b)(1)(A), (b)(1)(B) and (b)(2)(B).

55
We do not believe that it was the Agencies intent
120
for the attribution rules to have
the effect described above, particularly in light of the Agencies effort to address the conflict
that arose between the requirements of Super 23A and the definition of banking entity.
Without excluding sponsored covered funds from that definition, this conflict would have
effectively nullified the availability of the asset management exception just as the attribution
rules threaten to do. This would cause needless harm to existing investors, who invested on
the assumption that Bank of America would continue to serve the fund in the role disclosed in
the initial offering documents, as well as existing and future investors to whom Bank of
America will no longer be able to offer many traditional asset management products and
services.
In order to clarify the ambiguity in the attribution rules, we ask that the Agencies
amend the wording of the attribution provision in the final rules, consistent with the exclusion
from the definition of banking entity discussed above, to provide that only investments in a
covered fund made by an affiliate that has not been excluded from the definition of banking
entity will be attributable to the banking entity.
121

This would confirm the reading of the attribution rules depicted in the following
diagram,
122
which represents a prototypical investment by a Bank of America affiliate-
sponsored feeder fund established to provide customers with access to Third Party Funds. In
this structure, a Bank of America affiliate sponsors a feeder fund that invests substantially all
its assets (usually less a small percentage in cash to pay ongoing and organizational expenses)
into an underlying Third Party Fund. Bank of Americas own seeding investment (if any) in
the sponsored fund would be under the 3 percent per fund limitation within the required 12
month period.

120
Indeed, to believe otherwise would mean that the Agencies deliberately rendered meaningless the very
exclusion from the definition of banking entity they provided.
121
The simplest method of implementing this recommendation would be to insert the word banking before
entity in the attribution rule that appears in the Proposal, striking the redundant language that remains: Any
ownership interest held under _.12 by any [adding: banking] entity [and deleting: that is controlled, directly or
indirectly, by the covered banking entity for purposes of this part].
122
Bank of America has made the following three diagrams available to SIFMA to facilitate its analysis of
the attribution rules and has permitted SIFMA to use them in its comment letter. SIFMA slightly modified the first
diagram, does not use the second diagram and incorporates the third diagram as it appears here.

56

The clarification of the attribution rule we recommend would also confirm the reading
depicted in the following diagram, which represents another typical structure in our
alternative investment business, in which a Bank of America affiliate sponsors a fund of funds
that invests in several Third Party Funds:


Finally, the clarification Bank of America recommends would also confirm the
reading of the attribution rules depicted in the following diagram, representing an investment
by a Bank of America affiliate-sponsored feeder fund in a Bank of America affiliate-
sponsored master fund that invests in Third Party Funds:


57

Clarification of attribution rules are required to remove uncertainty and avoid
materially disrupting asset management activities in contravention of congressional
intent and harming asset management customers
Unless the attribution rules are clarified, they risk effectively forcing Bank of America
to cease acting as a sponsor for more than 150 existing funds and to discontinue sponsoring
new funds in the future. Clarification of the attribution rules is therefore necessary to avoid
materially disrupting banking entities asset management activities in contravention of
congressional intent and causing needless harm to asset management customers.
Bank of America therefore agrees with other commenters that the Agencies should
amend the attribution provisions to clarify that the attribution rules for controlled investments
are limited to investments in covered funds held by subsidiaries or affiliates that are included
within the term banking entity, and thus do not apply to such investments held by covered
funds organized and offered or sponsored under the asset management exception or other
affiliates excluded from the definition of banking entity, effectively adopting the approach
reflected in the diagrams above.
To give full effect to the requested clarification and to avoid further ambiguity, we
further agree with comments that the Agencies should amend the attribution provisions to also
eliminate the pro rata attribution rule for investments in covered funds held by covered funds
in which a banking entity holds a noncontrolling interest in more than 5 percent of voting
shares.

58
Recommendations
Bank of America requests that the Agencies:
adopt the clarifications to the Proposal for calculating the De Minimis Ownership
Caps identified here.
Furthermore, to give full effect to congressional intent and prevent unintended
consequences and limitations, and while not separately discussed in our comment letter or this
Appendix B, Bank of America joins other commenters in requesting that the Agencies amend
the attribution provisions to provide that in a parallel fund structure:
a banking entitys permissible per fund de minimis co-investment will be
calculated by reference to the aggregate fund structure rather than any individual
entity; and
a parallel co-investment alongside a sponsored covered fund will not attribute to a
banking entity except where the banking entity is determined after prior notice and
hearing to have engaged in a pattern of multiple co-investments alongside such
sponsored covered fund for the purpose of evading the requirements of the
Volcker Rule.
16. The Agencies should exercise their discretion to apply Super 23A only to
transactions between a banking entity and a covered fund that is, in fact, a
traditional hedge fund or private equity fund. In addition, the Agencies
should incorporate the exemptions in Section 23A of the Federal Reserve
Act and clarify that a banking entity may accept securities issued by a
related covered fund as collateral security for a loan or extension of credit
to any person or entity
As noted above, the Super 23A provisions of the statutory text of the Volcker Rule
prohibit covered transactions between a parent banking entity and a related hedge fund or
private equity fund.
123
The Proposal, however, would prohibit covered transactions
between a banking entity and any covered fund that a banking entity may permissibly
sponsorregardless of whether the covered fund is what is commonly understood to be a true
hedge fund or a private equity fund.
124
As noted above, the consequences of the overbroad
application of Super 23A in the Proposal would be dire, particularly in the case of wholly
owned subsidiaries.

123
See Bank Holding Company Act 13(f).
124
See Proposal _.16(a) (prohibiting covered transactions between a banking entity and any covered fund a
banking entity sponsors, among other relationships).

59
Super 23A and Appropriate Exemptions
Bank of America agrees with other commenters that Congress included Super 23A in
the Volcker Rule in order to prevent bailouts of investors in hedge funds and private equity
funds. In light of this purpose, and the unintended harm that will occur if Super 23A is
applied indiscriminately to all related covered funds, we join other commenters in asking that
the Agencies exercise their discretion to, preferably, define covered fund to exclude wholly
owned subsidiaries and other issuers that are not traditional hedge funds or private equity
funds, or, in the alternative, to exercise their exemptive authority under subsection (d)(1)(J)
to exempt wholly owned subsidiaries and other such issuers from Super 23A.
Bank of America also strongly agrees with other commenters that the Agencies have
defined covered transaction unnecessarily broadly by reference only to the list of
transactions in subsection (b)(7) of Section 23A,
125
without incorporating the explicit
exemptions from Section 23As restrictions in subsection (d) of that statute,
126
including
extensions of credit fully secured by U.S. government or agency securities.
127
This has the
effect, among others, of prohibiting the ordinary course extension of credit to related funds for
clearing purposes. We believe that Congress could not have intended to define such
transactions as covered transactions for purposes of Super 23A, even though they would not
constitute covered transactions under Section 23A itself. There is no evidence in the statute
or legislative history that Congress intended to effectively expand the definition of covered
transaction in this manner for purposes of the Volcker Rule, nor is this reading of the
statutory text required. We request that the Agencies incorporate the statutory exemptions
into the definition of covered transaction for purposes of the Volcker Rule just as such
exemptions are incorporated under Section 23A of the Federal Reserve Act.
Super 23A and Debtor-in-Possession Property
Bank of America joins other commenters in recommending that the Agencies clarify
that a banking entity may accept securities issued by a related covered fund as collateral
security for a loan or extension of credit to any person or entity. Failure to do so would create
a conflict with the Proposals treatment of debtor-in-possession property (DPC Property)
consisting of an ownership interest in a covered fund acquired as a consequence of a banking
entitys enforcement of its rights to seize and dispose of collateral pledged as security for an
extension of credit on which the borrower has defaulted. The Agencies recognized that
traditional lending activities would be disrupted if a banking entity could not foreclose on
collateral in the form of securities of a covered fund, and expressly permitted banking entities,
so long as they observe the long-standing banking Agency rules with respect to DPC Property,
to foreclose on pledged collateral consisting of an ownership interest in a covered fund, and

125
See 12 U.S.C. 371c(b)(7).
126
See id. 371c(d).
127
See id. 371c(d)(4).

60
dispose of it.
128
However, this exception conflicts with the definition of covered transaction
in Section 23A of the Federal Reserve Act, which is defined, in relevant part, as the
acceptance of securities or other debt obligations issued by [an] affiliate as collateral security
for a loan or extension of credit to any person or company.
129
This conflict means that a
banking entity can foreclose on securities of a covered fund but may not accept such securities
as collateral in the first place. We believe that it was not the Agencies intent to render the
DPC Property exception illusory. In addition, given that the overbroad definition of covered
fund appears to prohibit covered transactions with wholly owned subsidiaries and other
issuers that are not traditional hedge funds or private equity funds, in the absence of the
requested clarification, a banking entity would not be able to engage in the type of ordinary
course lending transactions with affiliates that are critical to safety and soundness.
Acceptance of related covered funds as collateral should be permitted by Super 23A,
so long as there is no related extension of credit
Further, at a minimum, to avoid unnecessary burden and expense not needed to foster
the goals of Super 23A, the Agencies should clarify that Super 23A does not prohibit a
banking entity from accepting affiliated covered funds as collateral for an extension of credit,
so long as the banking entity does not, in fact, extend credit based on collateral consisting of
affiliated covered funds. It is customary for borrowing clients to hold their covered funds in a
single securities account, together with their other investments, and pledge the entire account
to a banking entity as collateral. The amount of credit made available by the banking entity is
a function of the value of the securities held as collateral and applicable regulations limiting
such margin lending (the so-called borrowing base). Super 23A, however, as written
would prohibit a banking entity from accepting affiliated covered funds as collateral even if
no extension of credit were made in respect of the pledged affiliated covered funds (e.g., the
covered funds would not be excluded from the borrowing base). Without the requested
clarification, Super 23A would require a significant restructuring of customer accounts:
customers would have to establish a new and separate unencumbered account into which the
related covered funds would be transferred in order to avoid pledging affiliated covered
funds in violation of Super 23A. Bank of America believes an alternative and less
burdensome and costly approach would be to clarify that it would not be a violation of Super
23A to accept related covered funds as collateral, so long as the banking entity did not, in fact,
extend credit against such pledged related covered funds.
Recommendations
Bank of America recommends that the Agencies:

apply Super 23A only to those funds commonly understood to be hedge funds and
private equity funds;

128
See Proposal _.14(b)(i).
129
See 12 U.S.C. 371c(b)(7)(D).

61
incorporate the statutory exemptions in Section 23A of the Federal Reserve Act
into the definition of covered transaction under Super 23A; and
clarify that a banking entity may accept securities issued by a related covered fund
as collateral security for a loan or extension of credit to any person or entity in
order to be consistent with the treatment of debtor-in-possession property adopted
by the Agencies under the Proposal or, at a minimum, clarify that it will not be a
violation of Super 23A for a banking entity to accept a related covered fund as
collateral so long as the banking entity does not, in fact, extend credit on the basis
of such collateral.
III. The Agencies must carefully weigh the costs and benefits of the Proposal and
alternatives in terms of their effects on capital formation, market liquidity,
customers and end users, the safety and soundness of banking entities, financial
stability and economic growth
Bank of America, like other commenters, believes the Agencies must evaluate
alternatives for achieving the goals of the Volcker Rule. In doing so, the Agencies should
carefully weigh the costs and benefits of these various alternatives in terms of their effects on,
among other things, capital formation, market liquidity, customers and end users, the safety
and soundness of banking entities, U.S. financial stability and economic growth. Moreover,
although we do not attempt here to engage in a complete cost-benefit analysis, we believe we
have demonstrated that the Proposal would impose substantial costs while doing little to
further the Volcker Rules policy goals. We believe that many of our recommendations could
provide a basis for the Agencies to consider the costs and benefits of these alternatives.
We acknowledge that the Agencies made an effort to consider some of the costs and
benefits of the Proposal, including performing an analysis of the information costs as required
by the Paperwork Reduction Act
130
and, in the case of the SEC, performing a cost-benefit
analysis pursuant to Sections 3(f) and 23(a)(2) of the Securities Exchange Act.
131
As a whole,
however, and as articulated more fully by other commenters, the Agencies failed to conduct
the type of rigorous cost-benefit analysis that is required by the Business Roundtable
decision.
132

Specifically, because the Agencies wrongly concluded that the Proposal would not
have a significant economic effect on a substantial number of small entities, none of the
agencies performed the cost-benefit analysis required by the Regulatory Flexibility Act.
133

Similarly, because it wrongly determined that the Proposal would not result in expenditures

130
See Preamble, 76 Fed Reg. at 68,936-68,938.
131
See id. at 68,939-42.
132
Business Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011); see also the comment letter of the U.S.
Chamber of Commerce.
133
See Preamble, 76 Fed. Reg. at 68,939.

62
by state, local and tribal governments, or by the private sector, of $100 million or more in any
single year, the OCC failed to perform the cost-benefit analysis required under the Unfunded
Mandates Reform Act.
134
Moreover, the SEC did not conduct the cost-benefit analysis
required of it under the Small Business Regulatory Enforcement Fairness Act.
135

The Agencies failed to articulate any rationale for their apparent determination that
such analyses are not necessary. Under the Business Roundtable decision, it is not enough for
the Agencies simply to declare that the Proposal would not have the economic effects that
trigger the requirement of cost-benefit analysis.
136
Rather, the Agencies must provide specific
evidence to justify that conclusion.
137

Accordingly, Bank of America agrees with those commenters that have urged the
Agencies to undertake a rigorous analysis of the costs and benefits of the Proposal as a whole
and of each specific rule. Doing so is not only legally required, but given the substantial costs
of the Proposals unintended consequences that our letter highlights, it is also required to
ensure that the Agencies implement the Volcker Rule in a way that best achieves its aims.
IV. Failure to provide banking entities with a sufficient implementation period and
clarity in regulatory oversight will result in unnecessary market disruptions and
uncertainty
Regulators should strive for an orderly transition as the Volcker Rule comes into effect
and make clear what will be required of banking entities on an ongoing basis once the
Volcker Rule becomes effective. We believe that the proposed criteria for eligibility for the
extended conformance period for investments in illiquid funds are drafted too narrowly and
would effectively read the extended conformance period out of the statute in contravention of
congressional intent. In addition, we believe that requiring banking entities to implement
required compliance programs as of the effective date of the Volcker Rule is unreasonable in
light of the fact that final rules will not have been issued until, in the best case, shortly before
the effective date. Finally, we believe that the Agencies, at a minimum, should explicitly
invest interpretive authority in a single Agency, the Federal Reserve, to avoid uncertainty and
conflicting interpretive guidance, and at the very least establish an appropriate supervisory
framework among the five Agencies for joint determinations that would avoid these
undesirable outcomes. Not doing so could lead to regulatory arbitrage and most certainly
would increase the costs and burdens associated with multiple examinations of the same entity
with respect to the same legal requirements.

134
See id.
135
Id.
136
See 647 F.3d at 1148.
137
See id. at 1150.

63
1. The criteria for eligibility for the extension for investments in illiquid
funds are overly restrictive
Bank of America agrees with other commenters that the Federal Reserves
conformance rules
138
limit the availability of the extension of the conformance period for
investments in illiquid funds in a manner that Congress neither required nor intended. The
problem arises out of how the conformance rules define certain elements of the extension
provision, such as illiquid assets, principally invested, invested, contractually
committed, contractual obligations and necessary to fulfill a contractual obligation. This
problem is particularly acute with respect to illiquid funds sponsored and managed by
unaffiliated third parties, generally private equity funds, in which Bank of America may have
made a proprietary investment. We agree with other commenters that the proposed
definitions of these elements are inconsistent with the purpose of Section 13(c) of the Bank
Holding Company Act, as added by the Dodd-Frank Act, because they would foreclose the
possibility of an extension for many if not all genuinely illiquid funds that were principally
invested, or contractually committed to principally invest, in illiquid assets as of May 1, 2010.
Unless amended, the conformance rules would have the effect of forcing banking entities to
unwind most of their investments in illiquid funds at depressed or even fire sale prices,
damaging the capital and earnings of banking entities and posing a threat to safety and
soundness.
Bank of America estimates that not one of our genuinely illiquid funds will satisfy the
conditions for the extended conformance period for illiquid funds if the conformance rules are
not amended. We anticipate having to exit these investments at the end of the general
conformance period, when hundreds of other banking entities will be forced to seek buyers for
their own illiquid fund investments. We expect that we will be forced to accept steep
discounts to the fair value of these investments. Many of our illiquid fund investments are in
funds that Bank of America does not sponsor or manage. Where we have invested as a
limited partner in a fund that is sponsored and managed by a third party, we may have limited
access to the data regarding the specific contractual terms of each of the underlying
investments that are necessary to assess whether a fund is illiquid and potentially eligible
for the extended conformance period. Typically, limited partners are not given the right to
require that such data be provided to them. While we may believe a private equity firm to be
illiquid, because we cannot access the data necessary to confirm this, we will have to presume
that they do not, increasing the number of funds from which we will have to exit prematurely
and at a discount to fair value. With respect to private equity funds that we do sponsor, the
requirement that we solicit consents from investors to escape contractual obligations to retain
our investments
139
will be extremely burdensome and costly. Some of these funds have in

138
See Conformance Period for Entities Engaged in Prohibited Proprietary Trading or Private Equity Fund or
Hedge Fund Activities, 76 Fed. Reg. 8265 (February 14, 2011). The Agencies request for comment on whether any
portion of the conformance rules should be revised in light of the other elements of the Proposal. See Preamble, 76
Fed. Reg. at 68,923.
139
See 12 C.F.R. 225.181(b)(3)(iii).

64
excess of 50 unaffiliated investors, each of which will have little incentive to consent to
releasing Bank of America from its contractual obligations without extracting value, which
will compound the financial injury that the conformance rules will impose.
Recommendation
We therefore join other commenters, particularly SIFMA, in urging the Federal
Reserve to:
amend the conformance rules to ensure that the extension for investments in
illiquid funds is available for genuinely illiquid investments in covered funds,
consistent with congressional intent.
2. Requiring banking entities to implement required compliance programs
by the effective date is unreasonable
Bank of America, like other banking entities, has already made substantial efforts
toward aligning its businesses with the requirements of the Volcker Rule as they appear in the
statute. First and foremost, Bank of America has exited its stand-alone proprietary trading
business. It has also discontinued making proprietary investments in hedge funds and private
equity funds intended to be covered by the Volcker Rules prohibition on sponsoring or
maintaining an ownership in such funds, and commenced executing transactions to sell its
interests in such funds as market opportunities arise.
The Proposal, however, requires that a banking entity will have developed and
implemented the required [compliance] program by the proposed effective date,
140
July 21,
2012. Under the Proposals compliance provisions, a banking entity must, among many other
things:
create an enterprise-wide policy, which can be done only when final rules are
adopted, that is acceptable to Bank of America Corporations Board of Directors,
which must adopt it;
map all its trading units (e.g., any desk that purchases and sells instruments
subject to the Volcker Rule) and asset management units (e.g., any unit that
sponsors or maintains an ownership interest in a covered fund);
141

establish the permissible strategies and instruments for each trading unit;
identify the personnel authorized to engage in the activities for each trading or
asset management unit;

140
See Preamble, 76 Fed. Reg. at 68,855.
141
At the present time, it is not clear to Bank of America how it would draw such a map of its asset
management units, since under the Proposals definition of covered fund virtually any subsidiary, regardless of the
activities in which it engages, will be a covered fund.

65
draw clear, documented Volcker supervisory management lines;
create the systems and processes, including through substantial technology
development, to capture certain quantitative metrics for all activities conducted
pursuant to the underwriting and risk-mitigating hedging permitted activities
exceptions and seventeen quantitative metrics for all market making-related
permitted activities;
create an enterprise-wide system to capture every covered fund operating under
the asset management exception and conduct the calculations to monitor
compliance to assure that individually each fund meets the 3 percent fund de
minimis requirement and that all such funds, in the aggregate, do not exceed 3
percent of Bank of Americas Tier 1 capital;
create, document and implement the written plan required in connection with
reliance on the asset management exception;
review its compensation policies enterprise-wide to make sure that such policies
fulfill the requirements of the Volcker Rule;
establish a compliance program to monitor the policies and procedures once
adopted; and
create relevant audit programs to test the sufficiency of policies and procedures
against the requirements of the final rules.
We submit that even if the final rules implementing the Volcker Rule were in place
today and no uncertainty or ambiguity existed regarding their requirements, in light of the
complexity and magnitude of the changes that the Volcker Rule will require, the required
compliance program could not be created and fully and appropriately implemented within the
six months that remain until effectiveness (July 21, 2012). The reality is that, even in the
best-case scenario, final rules will not be issued until shortly before the effective date, making
establishment of the compliance program contemplated by the Proposal impossible.
Recommendations
While only Congress can change the effective date of the Volcker Rule, the statute
contemplates a two-year conformance period, up to three one-year extensions, and a special
extension for illiquid funds. We request that the Agencies grant (via their authority to
establish a reasonable conformance period) banking entities sufficient time to establish
compliance programs and otherwise implement the requirements of the final rules in a manner
that is consistent with congressional intent that the Volcker Rule be implemented so as to
minimize market disruption while still steadily moving firms away from the risks of the
restricted activities.
142
Specifically, we recommend that the Agencies:

142
See Statement of Sen. Jeff Merkley (D-OR), 156 Cong. Rec. S5894 (daily ed. Jul. 15, 2010).

66
expressly provide in the final rules that all banking entities will have one year from
the issuance of the final rules to establish the core compliance program required by
the Proposal and a second year for testing of the program;
provide for a one-year period during which the Agencies will determine with
banking entities which metrics will be employed for different asset classes with
relation to the relevant factors under each exception and an additional twelve-
month period during which such metrics could be reviewedso that these metrics
would be required as a component of a banking entitys compliance program no
sooner than two years after the issuance of the final rules; and
given the complexity of these requirements, consider providing extensions of these
periods under specified circumstances, consistent with congressional intent.
3. A single Agency should exercise interpretive authority and all supervisory
examinations should be conducted jointly
The statutory text instructs the five Agencies charged with implementing the Volcker
Rule to work together to ensure that their respective rules are comparable and provide for
consistent application and implementation . . . to avoid providing advantages or imposing
disadvantages on the banking entities subject to the Volcker Rule.
143
It also contemplates in
its anti-evasion provision
144
that any of the Agencies may identify an activity that violates the
Volcker Rule and, after due notice and opportunity for hearing, order a banking entity to
terminate the offending activity. Otherwise, the statute is silent with respect to which Agency
has interpretive, supervisory or general enforcement authority, although the Volcker Rule was
enacted as an amendment to the Bank Holding Company Act, a statute administered by the
Federal Reserve.
We are concerned that, without clarification, multiple Agencies will seek to exercise
interpretive, supervisory and enforcement authority over a given banking entity, depending on
the status and activities of such banking entity. This would result in substantial uncertainty,
potentially conflicting guidance, and the imposition of an undue regulatory burden in the form
of seriatim examinations of banking entities for Volcker Rule compliance by multiple
regulators with respect to the same activity.
To illustrate: Bank of America, N.A. is a national bank regulated primarily by the
OCC. It is also an insured depository institution subject to FDIC regulation. In addition,
Bank of America, N.A.s transactions and relationships with its parent and its affiliates that
are not insured depository institutions are subject to review by the Federal Reserve. Further,
Bank of America, N.A. shortly will be subject to supervision by the SEC and CFTC because,
as a consequence of one units swap dealer activities, the entire bank will have to register as a
CFTC swap dealer and an SEC securities-based swap dealer. Given that every one of the

143
See Bank Holding Company Act 13(b)(2)(B)(ii).
144
See id. 13(e)(2).

67
Agencies has supervisory jurisdiction over Bank of America, N.A. to some extent, we are
concerned that each will exercise supervisory authority to review Bank of America, N.A.s
policies, procedures and activities for compliance with the Volcker Rule.
Unless a single Agency is designated as responsible for interpreting and enforcing the
Volcker Rule, we are concernedparticularly in light of the complexity and interpretive
issues associated with the Proposal and the fact that we will be operating under a single
Volcker Rule policy adopted by our Board of Directorsabout the potential for conflicting
interpretations and supervisory conclusions, as well as multiple examinations by five
Agencies of the same activity against the same regulatory requirements. The Proposals
compliance provisions contemplate that Bank of America Corporations Board of Directors
(and CEO) must review, approve and be responsible for its Volcker Rule compliance program
establishing compliance standards reflected in policies and procedures across all business
lines. These standards must be implemented across different business lines regardless of the
legal entity in which they operate. Each of the five Agencies could therefore review
(potentially at different times) the enterprise-wide Volcker Rule policies and procedures
comprising the Bank of America Volcker Rule compliance program and come to different
conclusions about their adequacy. It is not clear how Bank of America and its Board of
Directors would reconcile such conflicting views and requirements.
If this recommendation were not accepted, then at a minimum, we would suggest that
a single Agency be charged with interpreting the Volcker Rule and that all examinations be
conducted jointly by the relevant Agencies, with a single examination report and set of
findings being issued. To do otherwise would subject a banking entity to multiple
examinations of the same activity by different Agencies, a needlessly burdensome and costly
approach, where another, more efficient and less costly alternative would be available.
Finally, Bank of America believes that the single Agency charged with interpretative
responsibility should be available to clarify situations where a banking entity receives a
recommendation or an action is required of it as a result of an examination by one or more
Agencies that seems in conflict with the advice or recommendations from another Agency or
Agencies.
Recommendations
To avoid such conflicts and negative consequences, we join other commenters in
strongly recommending that:
a single Agency be appointed to provide interpretations, supervision and
enforcement of the Volcker Rule, subject to its anti-evasion requirements.

If this is not deemed possible, we recommend, at a minimum, that:

a single Agency, the Federal Reserve, which is responsible for administering the
statute of which the Volcker Rule is a part, should be charged with responsibility
for providing all interpretations under the Volcker Rule and resolving potentially

68
conflicting supervisory recommendations or matters requiring attention arising
from the examination process; and
examination for compliance with Volcker Rule requirements should be done by
the Agencies jointly where they have overlapping jurisdiction, modeling
themselves on the joint examinations frequently conducted by the OCC and the
Federal Reserve, where the Agencies jointly conduct a single exam and issue a
single set of findings.
Apart from the obvious benefits of avoiding conflicting interpretations or findings
with respect to whether activities are conducted in compliance with the Volcker Rule, from
the perspective of weighing costs and benefits, such a joint approach clearly would reduce
costs (by avoiding multiple examinations of the same activity with potentially different
conclusions). It would also provide the regulatory certainty and uniformity so important to
the markets.