[Federal Register Volume 72, Number 185 (Tuesday, September 25, 2007)]
[Rules and Regulations]
[Pages 54347-54349]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-4716]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 4

[Docket ID OCC-2007-00014]
RIN 1557-AD02

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 211

[Docket No. R-1279]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 337 and 347

RIN 3064-AD17

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 563

[Docket ID OTS-2007-0011]


Expanded Examination Cycle for Certain Small Insured Depository 
Institutions and U.S. Branches and Agencies of Foreign Banks

AGENCIES: Office of the Comptroller of the Currency (OCC); Board of 
Governors of the Federal Reserve System (Board); Federal Deposit 
Insurance Corporation (FDIC); and Office of Thrift Supervision (OTS), 
Treasury.

ACTION: Final rules.

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SUMMARY: The OCC, Board, FDIC, and OTS (collectively, the Agencies) are 
jointly adopting as final the interim rules issued on April 10, 2007, 
that implemented section 605 of the Financial Services Regulatory 
Relief Act of 2006 (FSRRA) and related legislation (collectively the 
Examination Amendments). The Examination Amendments permit insured 
depository institutions (institutions) that have up to $500 million in 
total assets, and that meet certain other criteria, to qualify for an 
18-month (rather than 12-month) on-site examination cycle. Prior to 
enactment of FSRRA, only institutions with less than $250 million in 
total assets were eligible for an 18-month on-site examination cycle. 
The interim rules made parallel changes to the Agencies' regulations 
governing the on-site examination cycle for U.S. branches and agencies 
of foreign banks (foreign bank offices), consistent with the 
International Banking Act of 1978 (IBA). In addition to implementing 
the changes in the Examination Amendments, the interim rules clarified 
when a small insured depository institution is considered ``well 
managed'' for purposes of qualifying for an 18-month examination cycle.

DATES: Effective on September 25, 2007, the Interim Rules published on 
April 10, 2007 (72 FR 17798) are adopted as final without change.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Mitchell Plave, Counsel, Legislative and Regulatory Activities 
Division, (202) 874-5090; Stuart E. Feldstein, Assistant Director, 
Legislative and Regulatory Activities, (202) 874-5090; Fred Finke, Mid-
size/Community Bank Supervision, (202) 874-4468; Patricia Roberts, 
Operational Risk Policy Analyst, (202) 874-5637.
    Board: Barbara Bouchard, Deputy Associate Director, (202) 452-3072, 
Mary Frances Monroe, Manager, (202) 452-5231, or Stanley Rediger, 
Supervisory Financial Analyst, (202) 452-2629, Division of Banking 
Supervision and Regulation; or Pamela G. Nardolilli, Senior Counsel, 
(202) 452-3289, for the revisions to Regulation H, or Jon Stoloff, 
Senior Counsel, (202) 452-3269, for the revisions to Regulation K, 
Legal Division. For users of Telecommunication Device for the Deaf 
(TDD) only, contact (202) 263-4869.
    FDIC: Melinda West, Senior Examination Specialist, (202) 898-7221; 
Patricia A. Colohan, Senior Examination Specialist, (202) 898-7283; 
Division of Supervision and Consumer Protection; Rodney D. Ray, 
Counsel, (202) 898-3556, for the revisions to 12 CFR Part 347; Kimberly 
A. Stock, Senior Attorney, (202) 898-3815, for the revisions to 12 CFR 
Part 337; Legal Division.
    OTS: Robyn H. Dennis, Director, Operation Risk, (202) 906-5751, 
Examinations and Supervision Policy Office of Thrift Supervision, 1700 
G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION: 

I. Background

    Section 10(d) of the Federal Deposit Insurance Act (the FDI Act) 
\1\ generally requires that the appropriate Federal banking agency for 
an insured depository institution conduct a full-scope, on-site 
examination of the institution at least once during each 12-month 
period. Prior to enactment of FSRRA, section 10(d) also authorized the 
appropriate Federal banking agency to lengthen the on-site examination

[[Page 54348]]

cycle for an institution to 18 months if the institution (1) Had total 
assets of less than $250 million; (2) was well capitalized (as defined 
for purposes of the prompt corrective action statute at 12 U.S.C. 
1831o); (3) was found, at its most recent examination, to be well 
managed and to have a composite condition of outstanding or good; \2\ 
(4) had not undergone a change in control during the previous 12-month 
period in which a full-scope, on-site examination otherwise would have 
been required; and (5) was not subject to a formal enforcement 
proceeding or order by its appropriate Federal banking agency or the 
FDIC. The Board, the FDIC and the OTS, as the appropriate Federal 
banking agencies for state-chartered insured banks and savings 
associations, are permitted to conduct on-site examinations of such 
institutions on alternating 12-month or 18-month schedules with the 
institution's State supervisor, if the Board, FDIC, or OTS, as 
appropriate, determines that the alternating examination conducted by 
the State carries out the purposes of section 10(d) of the FDI Act and, 
if relevant, the Home Owners' Loan Act.
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    \1\ Section 10(d) of the FDI Act was added by section 111 of the 
Federal Deposit Insurance Corporation Improvement Act of 1991 
(FDICIA) and is codified at 12 U.S.C. 1820(d).
    \2\ Under section 10(d) of the FDI Act, before enactment of the 
Examination Amendments, the Agencies had the authority to allow an 
institution with assets of more than $100 million (but less than 
$250 million) and a composite CAMELS rating of 2 to qualify for an 
extended 18-month examination cycle if the Agencies determined that 
extending the 18-month cycle in this manner would be consistent with 
safety and soundness. See 12 U.S.C. 1820(d)(10). The Agencies 
exercised this discretion in 1997 and extended the 18-month 
examination cycle to 2-rated institutions with assets of more than 
$100 million (but less than $250 million). See 62 FR 6449, Feb. 12, 
1997 (interim rule); see also 63 FR 16377, April 2, 1998 (final 
rule).
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    In addition, section 7(c)(1)(C) of the IBA provides that a U.S. 
branch or agency of a foreign bank shall be subject to on-site 
examination by its appropriate Federal banking agency as frequently as 
a national or State bank would be subject to such an examination by the 
agency. The Agencies have adopted regulations to implement the 
examination cycle requirements of section 10(d) of the FDI Act and 
section 7(c)(1)(C) of the IBA, including the extended 18-month 
examination cycle available to qualifying small institutions and 
foreign bank offices.\3\
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    \3\ See 12 CFR 4.6 and 4.7 (OCC), 12 CFR 208.64 and 211.26 
(Board), 12 CFR 337.12 and 347.211 (FDIC), and 12 CFR 563.171 (OTS).
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    Section 605 of FSRRA, which became effective on October 13, 2006, 
amended section 10(d) of the FDI Act to raise, from $250 million to 
$500 million, the total asset threshold below which an insured 
depository institution may qualify for an 18-month (rather than a 12-
month) on-site examination cycle.\4\ Public Law 109-473, which became 
effective on January 11, 2007, also amended section 10(d)(10) of the 
FDI Act to authorize the appropriate agency, if it determines the 
action would be consistent with principles of safety and soundness, to 
allow an insured depository institution that falls within this expanded 
total asset threshold to qualify for an 18-month examination cycle if 
the institution received a composite rating of outstanding or good at 
its most recent examination.\5\
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    \4\ Pub. L. 109-351, 120 Stat. 1966 (2006).
    \5\ 120 Stat. 3561 (2007).
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    The Examination Amendments will allow the Agencies to better focus 
their supervisory resources on those institutions that may present 
capital, managerial, or other issues of supervisory concern, while 
concomitantly reducing the regulatory burden on small, well capitalized 
and well managed institutions. The Agencies will continue to use off-
site monitoring tools to identify potential problems in smaller, well 
capitalized and well managed institutions that present low levels of 
risk. Moreover, neither the statute nor the Agencies' regulations 
limit, and the Agencies therefore retain, the authority to examine an 
insured depository institution or foreign bank office more frequently 
than would be required by the FDI Act or IBA.

II. Interim Rule and Comments

    On April 10, 2007, the Agencies published and requested comment on 
interim rules to implement the Examination Amendments.\6\ In 
particular, the Agencies amended their respective rules to raise, from 
$250 million to $500 million, the total asset threshold below which an 
insured depository institution that meets the qualifying criteria in 
section 10(d) and the Agencies' rules may qualify for an 18-month on-
site examination cycle. In addition, as authorized by the Examination 
Amendments, the Agencies determined that it is consistent with safety 
and soundness to permit institutions with between $250 million and $500 
million in total assets that received a composite rating of 1 or 2, 
which corresponds to ``outstanding'' and ``good'' respectively, under 
the Uniform Financial Institutions Rating System (commonly referred to 
as CAMELS),\7\ and that meet the other qualifying criteria set forth in 
section 10(d) and the Agencies' rules, to qualify for an 18-month 
examination cycle. Consistent with section 7(c)(1)(C) of the IBA, the 
OCC, Board and FDIC also made conforming changes to their regulations 
governing the on-site examination cycle for the U.S. branches and 
agencies of foreign banks. These changes permit a foreign bank office 
with total assets of less than $500 million to qualify for an 18-month 
examination cycle if the office received a composite ROCA rating of 1 
or 2 at its most recent examination.\8\
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    \6\ 72 FR 17798, April 10, 2007.
    \7\ CAMELS is an acronym that is drawn from the first letters of 
the individual components of the rating system: Capital adequacy, 
Asset quality, Management, Earnings, Liquidity, and Sensitivity to 
market risk.
    \8\ The four components of the ROCA supervisory rating system 
for foreign bank offices are: Risk management, Operational controls, 
Compliance, and Asset quality.
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    In connection with these changes, the Agencies also modified their 
rules to specify that a small institution meets the statutory ``well 
managed'' criteria for an 18-month cycle if the institution, besides 
having a CAMELS composite rating of 1 or 2, also received a rating of 1 
or 2 for the management component of the CAMELS rating at its most 
recent examination.
    The Agencies received comments on the interim rules from 11 
commenters, although many commenters submitted identical letters to 
each Agency. Comments were submitted by six banking trade associations, 
four insured depository institutions, and one law firm. All commenters 
supported the interim rules. Commenters generally agreed that the rules 
would appropriately reduce regulatory burden for qualifying small 
institutions and foreign offices without creating undue risk to the 
institutions, officers or the deposit insurance fund.\9\
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    \9\ One commenter indicated that it would support increasing the 
total asset threshold in section 10(d) to $1 billion. The Agencies 
note that section 10(d) of the FDI Act currently does not allow the 
Agencies to raise the asset threshold above $500 million.
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    After carefully reviewing the comments and for the reasons set 
forth above and in the SUPPLEMENTARY INFORMATION to the interim rules, 
the Agencies have determined to make final the interim rules as 
published in April 2007.
    The Agencies estimate that the final rules, like the interim rules, 
will increase the number of insured depository institutions that may 
qualify for an extended 18-month examination cycle by approximately 
1,089 institutions, for a total of 6,670 insured depository 
institutions. Approximately 126 foreign branches and agencies would be 
eligible for the extended

[[Page 54349]]

examination cycle based on the interim rules, for an increase of 31 
offices.\10\
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    \10\ Data are as of June 30, 2006, and reflect the number of 
institutions and foreign bank offices with total assets of less than 
$500 million.
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    The FDI Act and the IBA set the outside limits within which an on-
site safety and soundness examination of an institution or foreign bank 
office must commence, and permit the appropriate Agency for an 
institution or foreign bank to conduct an on-site examination more 
frequently than required. The Agencies' rules continue to expressly 
recognize that the appropriate Agency may examine an institution or 
foreign bank office as frequently as the Agency deems necessary.

Regulatory Flexibility Act

    The final rules do not impose any new obligations, restrictions or 
burdens on banking organizations, including small banking 
organizations, and, indeed, reduce regulatory burden associated with 
on-site examinations for qualifying small institutions and foreign bank 
offices. For these reasons, the Agencies certify that the final rules 
will not have a significant impact on a substantial number of small 
entities, as defined in the Regulatory Flexibility Act, 5 U.S.C. 601 et 
seq., and therefore a regulatory flexibility analysis is not required. 
The objective and legal basis for the rules are discussed in the 
Supplementary Information.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995,\11\ the 
Agencies have determined that no collections of information pursuant to 
the Paperwork Reduction Act are contained in these final rules.
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    \11\ 44 U.S.C. 3506; 5 CFR 1320, Appendix A.1.
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Administrative Procedure Act

    The Agencies conclude that because the interim rules are in effect 
and recognize an exemption, and the Agencies have made no changes in 
the final rules, the rules are exempt from the delayed effective date 
requirement of the Administrative Procedure Act. 5 U.S.C. 553(d).

OCC and OTS Executive Order 12866 Statement

    The OCC and OTS have each independently determined that the final 
rules are not significant regulatory actions under Executive Order 
12866.

OCC and OTS Unfunded Mandates Act of 1995 Statement

    Section 202 of the Unfunded Mandates Reform Act of 1995 \12\ 
requires that an agency prepare a budgetary impact statement before 
promulgating a rule that includes a Federal mandate that may result in 
the expenditure by State, local, and tribal governments, in the 
aggregate, or by the private sector, of $100 million or more in any one 
year. If a budgetary impact statement is required, section 205 of the 
Unfunded Mandates Act also requires an agency to identify and consider 
a reasonable number of regulatory alternatives before promulgating a 
rule. Because the OCC and the OTS have each independently determined 
that the rules will not result in expenditures by State, local, and 
tribal governments, in the aggregate, or by the private sector, of more 
than $100 million in any one year, the OCC and the OTS have not 
prepared a budgetary impact statement or specifically addressed the 
regulatory alternatives considered. Nevertheless, as discussed in the 
preamble, the rules will have the effect of reducing regulatory burden 
on certain institutions and foreign bank offices.
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    \12\ Pub. L. 104-4, 109 Stat. 48 (March 22, 1995) (Unfunded 
Mandates Act).
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Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (12 U.S.C. 4809) requires 
the Agencies to use ``plain language'' in all proposed and final rules 
published in the Federal Register. The Agencies believe the final rules 
are presented in a clear and straightforward manner and received no 
comments on how to make the rules easier to understand.

List of Subjects

12 CFR Part 4

    Administrative practice and procedure, Availability and release of 
information, Confidential business information, Contracting outreach 
program, Freedom of information, National banks, Organization and 
functions (government agencies), Reporting and recordkeeping 
requirements, Women and minority businesses.

12 CFR Part 208

    Accounting, Agriculture, Banks, Banking, Confidential business 
information, Crime, Currency, Federal Reserve System, Flood insurance, 
Mortgages, Reporting and recordkeeping requirements, Safety and 
soundness, Securities.

12 CFR Part 211

    Exports, Federal Reserve System, Foreign banking, Holding 
companies, Investments, Reporting and recordkeeping requirements.

12 CFR Part 337

    Banks, banking, Reporting and recordkeeping requirements, 
Securities.

12 CFR Part 347

    Authority delegations (Government agencies), Bank deposit 
insurance, Banks, Banking, Credit, Foreign banking, Investments, 
Reporting and recordkeeping requirements, United States investments 
abroad.

12 CFR Part 563

    Accounting, Advertising, Crime, Currency, Investments, Reporting 
and recordkeeping requirements, Savings associations, Securities, 
Surety bonds.

Authority and Issuance

0
For the reasons set forth in the joint preamble, the interim rules 
amending 12 CFR parts 4, 208, 211, 337, 347, and 563 which were 
published at 72 FR 17798 on April 10, 2007, are adopted as final rules 
without change.

    Dated: September 17, 2007.
John C. Dugan,
Comptroller of the Currency, Office of the Comptroller of the Currency.

    Board of Governors of the Federal Reserve System, September 19, 
2007.
Jennifer J. Johnson,
Secretary of the Board.

    Dated at Washington, DC, this 11th day of September, 2007.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.

    Dated: September 13, 2007.

    By the Office of Thrift Supervision.
John M. Reich,
Director.
[FR Doc. 07-4716 Filed 9-24-07; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6720-01-P