[Federal Register Volume 78, Number 14 (Tuesday, January 22, 2013)]
[Proposed Rules]
[Pages 4349-4353]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01080]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 360
RIN 3064-AD99
Records of Failed Insured Depository Institutions
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
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SUMMARY: The FDIC is proposing a rule, with request for comments, that
would implement section 11(d)(15)(D) of the Federal Deposit Insurance
Act (12 U.S.C. 1821(d)(15)(D)). This statutory provision provides time
frames for the retention of records of a failed insured depository
institution. The proposed rule incorporates the statutory time frames
and defines the term ``records.''
DATES: Written comments on the Rule must be received by the FDIC no
later than March 25, 2013.
ADDRESSES: You may submit comments by any of the following methods:
Agency Web Site: http://www.fdic.gov/regulations/laws/federal. Follow instructions for Submitting comments on the Agency Web
Site.
Email: Comments@FDIC.gov. Include ``RIN 3064-AD99'' in the
subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429
Hand Delivery/Courier: Guard station at the rear of the
550 17th Street Building (located on F Street) on business days between
7 a.m. and 5 p.m. (EST).
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
[[Page 4350]]
Public Inspection: All comments received will be posted without
change to http://www.fdic.gov/regulations/laws/federal including any
personal information provided. Comments may be inspected and
photocopied in the FDIC Public Information Center, 3501 North Fairfax
Drive, Room E-I002, Arlington, VA 22226, between 9 a.m. and 5 p.m.
(EST) on business days. Paper copies of public comments may be ordered
from the Public Information Center by telephone at (877) 275-3342 or
(703) 562-2200.
FOR FURTHER INFORMATION CONTACT: Thomas P. Bolt, Legal Division, (703)
562-2046; Jerilyn Rogin, Legal Division, (703) 562-2409; Gregory D.
Talley, Division of Resolutions and Receiverships, (703) 516-5115.
Federal Deposit Insurance Corporation, 550 17th Street NW., Washington,
DC 20429.
SUPPLEMENTARY INFORMATION:
I. Background
When acting as receiver of a failed insured depository institution,
the FDIC succeeds to the books and records of the institution.\1\
Section 11(d)(15)(D) of the Federal Deposit Insurance Act (12 U.S.C.
1821(d)(15)(D)), hereafter ``Section 1821(d)(15)(D),'' provides that
after the end of the six-year period beginning on the date of its
appointment as receiver, the FDIC may destroy any records of a failed
insured depository institution that the FDIC in its discretion
determines to be unnecessary, unless directed not to do so by a court
of competent jurisdiction or governmental agency or prohibited by law.
In addition, the FDIC may destroy any records that are at least 10
years old as of the date of appointment.
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\1\ 12 U.S.C. 1821(d)(2)(A).
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The term ``records'' is not defined in the FDI Act and the
legislative history does not provide any guidance on how the term
should be interpreted. A broad interpretation is problematic because it
would encompass not only all documentary materials that clearly relate
to the business of the institution but also materials that have no
relevance to its business, or which lack evidentiary value and would
not ordinarily be considered ``records.'' In addition, advances in
information technology and data storage capabilities have substantially
increased the volume of material generated by financial institutions.
To illustrate, a ``terabyte'' of electronically stored information
(``ESI'') is the equivalent of 77 million printed pages. A typical
failed insured depository institution has between 3 and 9 terabytes of
ESI, or between 231 million and 693 million pages of material.
Currently, the FDIC is housing on its recordkeeping systems 775
terabytes of data from failed insured depository institutions for which
the FDIC has been appointed as receiver since 2007--the equivalent of
59.675 billion pages. If the term ``records'' were to be interpreted to
encompass all documentary material that the FDIC as receiver obtains
from a failed insured depository institution, regardless of its
significance or evidentiary value, then the capture, processing, and
maintenance of ever-increasing amounts of such material would pose
significant unnecessary burdens and inefficiencies both now and in the
future. For this reason, the FDIC is proposing a rule to define the
term ``records'' in order to designate more specifically the materials
that are subject to the FDI Act's record retention provision, thereby
enabling the FDIC to manage the records of insured depository
institutions in receivership more efficiently and in a legally
appropriate manner.
II. Proposed Rule
Authority and Purpose
The FDI Act gives the FDIC broad authority to carry out its
statutory responsibilities. Section 11(d)(1) of the FDI Act authorizes
the FDIC to ``prescribe such regulations as [it] determines to be
appropriate regarding the conduct of conservatorships or
receiverships.'' \2\ Additionally, section 10(g) of the FDI Act
authorizes the FDIC to prescribe regulations, including defining terms,
as necessary to carry out the FDI Act.\3\ The purpose of the proposed
rule is to identify more specifically the materials that are subject to
the FDI Act's records retention provision thereby enabling the FDIC to
manage the records of an insured depository institution in receivership
in a realistic, efficient and legally appropriate manner.
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\2\ 12 U.S.C. 1821(d)(1).
\3\ 12 U.S.C. 1820(g).
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Section-by-Section Analysis
Definitions
Under the proposed rule, documentary materials will be
characterized as records for purposes of Section 1821(d)(15)(D) by
meeting a formal definition (paragraph (a)) and a functional test
(paragraph (b)). The FDIC believes that this two-tiered approach will
have the effect of excluding extraneous material that is not related in
any way to the transaction of the failed insured depository
institution's business.
Paragraph (a)(3) of the proposed rule defines the term ``records''
for purposes of Section 1821(d)(15)(D) to mean ``any reasonably
accessible document, book, paper, map, photograph, microfiche,
microfilm, computer or electronically created record generated or
maintained by an insured depository institution in the course of and
necessary to its transaction of business.'' This definition is
consistent with the definition of ``records'' in section 210(a)(16)(D)
of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act''),\4\ which addresses the retention of records of a
systemically important financial (non-bank) institution for which the
FDIC is appointed as receiver. The qualification in the definition that
``records'' be ``reasonably accessible'' reflects the text of Federal
Rule of Civil Procedure 26(b)(2)(B), which provides that a party from
whom discovery is sought need not provide ESI from sources that the
party identifies as not reasonably accessible because of undue cost or
burden. (For example, a party may be excused from restoring ESI from
aging back-up tapes.) Use of the phrase ``reasonably accessible'' would
make the definition of ``records'' in the proposed rule consistent with
the discovery standard and would also protect the FDIC as receiver from
incurring expenses associated with restoring or maintaining the legacy
systems of multiple failed insured depository institutions in order to
extract documentary material from those systems that is not needed by
the Receiver to carry out its functions and was not in use by the
insured depository institution to carry out its day-to-day operations
prior to its failure.
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\4\ 12 U.S.C. 5390(a)(16)(D), which defines ``records'' to mean
``any document, book, paper, map, photograph, microfiche, microfilm,
computer or electronically of and necessary to its transaction of
business.''
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Paragraph (a) also provides a non-exclusive list of examples of
material that will ordinarily be understood to constitute records of
the failed institution, specifically, board or committee meeting
minutes, contracts to which the insured depository institution is a
party, deposit account information, employee and employee benefits
information, general ledger and financial reports or data, litigation
files, and loan documents.
Two types of materials are excluded from the definition of records
in paragraph (a)(3). The first exclusion is for multiple copies of
records, either in paper or electronic format. The retention of
multiple copies is unnecessary and is not cost-efficient. The second
exclusion is for
[[Page 4351]]
examination, operating, or condition reports prepared by, on behalf of,
or for the use of the FDIC or any agency responsible for the regulation
or supervision of insured depository institutions. The FDIC has
consistently maintained that reports of examination and other
confidential supervisory correspondence or information prepared by FDIC
examiners with respect to an open insured depository institution belong
exclusively to the FDIC and not to the insured depository institution,
but insured depository institutions often retain copies of reports of
examination and other supervisory correspondence.
Determination of Whether Material Constitutes Records
In determining whether particular material obtained from a failed
insured depository institution constitutes a record, the FDIC will
consider four factors set forth in paragraph (b). If the FDIC in its
discretion determines that one or more of the factors weigh in favor of
classifying the material as a record, it will be classified as a record
for purposes of Section 1821(d)(15)(D).
The first factor is whether the documentary material relates to the
business of the failed insured depository institution. This factor is
modeled after section 210(a)(16)(D)(iii) of the Dodd-Frank Act defining
``records'' as materials generated or maintained ``in the course of and
necessary to [the institution's] transaction of business.''
The second factor is whether the documentary material was generated
or maintained in accordance with the failed insured depository
institution's own recordkeeping practices and procedures or pursuant to
standards established by the failed insured depository institution's
regulators. Thus, the FDIC will consider whether documentary material
was retained pursuant to the insured depository institution's
recordkeeping practices when determining whether specific documentary
material is a record for the purposes of Section 1821(d)(15)(D) and the
proposed rule. Likewise, the FDIC will consider whether documentary
material was retained pursuant standards imposed by state or federal
regulators when determining whether specific documentary material is a
record for the purposes of Section 1821(d)(15)(D) and the proposed
rule.
The third factor is whether the documentary material is needed by
the FDIC to carry out its functions as receiver. This inquiry would
permit the classification of documents as records when they are used by
the FDIC to carry out its function as receiver, for example, to
transfer the failed insured depository institution's assets or
liabilities, assume or repudiate the institution's contracts, determine
claims, and collect liabilities owed to the institution.
The fourth factor used to determine whether documentary material
should be classified as records is the expected evidentiary needs of
the FDIC. Records generated and maintained by the failed insured
depository institution are used to support enforcement actions and
litigation. In addition, records of the insured depository institution
may also be required to respond to requests filed under the Freedom of
Information Act. This factor is modeled on section 210(a)(16)(D)(i)(II)
of the Dodd-Frank Act requiring the FDIC to prescribe records retention
regulations with due regard for ``the expected evidentiary needs of the
Corporation as receiver of a covered financial company and the public
regarding the records of covered financial companies.'' \5\
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\5\ 12 U.S.C. 5390(a)(16)(D)(i)(II).
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Paragraph (c) of the proposed rule provides that the FDIC's
designation of material as records pursuant to paragraph (b) is solely
for the purpose of identifying records that are subject to the
retention requirements of Section 1821(d)(15)(D) and the FDIC's
designation of specific material as a record under Section
1821(d)(15)(D) should have no effect on whether the material is
discoverable or admissible in any court, tribunal or other adjudicative
proceeding, nor on whether such material is subject to the Freedom of
Information Act, the Privacy Act or other law. Thus, whether specific
material is a record pursuant to the proposed rule does not alter its
status under evidentiary rules such as the Federal Rules of Evidence
(``FRE''). For example, FRE 803(1) provides that ``records of regularly
conducted activity'' (``business records'') are not excluded from
evidence by the rule against hearsay, regardless of whether the
declarant is available as a witness. If certain documentary material
meets the requirements of a business record pursuant to FRE 803(1),
then whether or not the FDIC determines that specific documentary
material constitutes ``records'' pursuant to the proposed rule will not
affect the documentary material's status as a business record under FRE
803(1). Likewise, whether specific material is or is not designated as
a record for purposes of Section 1821(d)(15)(D) should not affect
whether it may be subject to a litigation hold or a request under the
Freedom of Information Act, the Privacy Act or other law.
Destruction of Records
Section 1821(d)(15)(D) sets forth the timeframes for the
destruction of a failed insured depository institution's records.
Paragraph (d) of the proposed rule incorporates these timeframes: after
the end of the six-year period beginning on the date of its appointment
as receiver, the FDIC may destroy any records of a failed insured
depository institution that the FDIC in its discretion determines to be
unnecessary to maintain, unless directed not to by a court of competent
jurisdiction or governmental agency or prohibited by law. The FDIC may
destroy any records that are at least 10 years old as of the date of
appointment. In addition, the proposed rule provides that the FDIC will
not destroy records subject to a legal hold imposed by the FDIC. By
including legal holds, the proposed rule implements the policy of the
FDIC to preserve information (both ESI and paper) that the FDIC may be
required to produce to opposing parties in litigation or when otherwise
subject to a legal requirement to produce information.
Transfer of Records
In many resolutions of failed insured depository institutions, an
acquiring institution will purchase assets or assume liabilities of the
failed insured depository institution and, in such a case, must obtain
custody of records related to such assets and liabilities. Paragraph
(f) of the proposed rule provides that the FDIC's transfer of records
to a third party in connection with that party's purchase of assets or
assumption of liabilities will satisfy the records retention
obligations under Section 1821(d)(15)(D) so long as the transfer is
made pursuant to a purchase and assumption agreement under which the
transferee agrees that it will not destroy the transferred records for
at least six years from the date of the appointment of the FDIC as
receiver of the failed insured depository institution unless otherwise
notified in writing by the FDIC.
Policies and Procedures
Paragraph (f) of the proposed rule provides that the FDIC may
establish policies and procedures with respect to the retention and
destruction of records. It is expected that these policies and
procedures will address specific matters related to the capture,
processing and storage of failed bank records, such as collecting
computer hard drives, email databases, and backup and disaster recovery
tapes.
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III. Request for Comments
The FDIC seeks comments on all aspects of the Proposed Rule.
Comments will be considered by the FDIC and appropriate revisions will
be made to the Proposed Rule, if necessary, before a final rule is
issued. All comments must be received by the FDIC not later than March
25, 2013.
IV. Regulatory Analysis and Procedure
A. Paperwork Reduction Act
No collections of information pursuant to the Paperwork Reduction
Act, 44 U.S.C. 3501, et seq., are contained in the proposed rule.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, et seq.,
requires that each Federal agency either certify that a proposed rule
would not, if adopted in final form, have a significant economic impact
on a substantial number of small entities or prepare an initial
regulatory flexibility analysis of the rule and publish the analysis
for comment. For purposes of the RFA analysis or certification,
financial institutions with total assets of $175 million or less are
considered to be ``small entities.'' The FDIC hereby certifies pursuant
to 5 U.S.C. 605(b) that the proposed rule, if adopted, will not have a
significant economic impact on a substantial number of small entities.
The proposed rule defines the term ``records'' under section
1821(d)(15)(D) for purposes of the FDIC's own internal operations and
recordkeeping, enabling it to more efficiently manage the records of an
insured depository institution in receivership. Accordingly, there will
be no significant economic impact on a substantial number of small
entities as a result of this rule.
C. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
The FDIC has determined that the proposed rule will not affect
family well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, enacted as part of the Omnibus
Consolidated and Emergency Supplemental Appropriations Act of 1999
(Pub. L. 105-277, 112 Stat. 2681).
D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113
Stat. 1338, 1471), requires the Federal banking agencies to use plain
language in all proposed and final rules published after January 1,
2000. The FDIC has sought to present the Proposed Rule in a simple and
straightforward manner.
List of Subjects in 12 CFR 360
Banks, Banking, Bank deposit insurance, Holding companies, National
banks, Participations, Reporting and record keeping requirements,
Savings associations, Securitizations.
For the reasons stated above, the Board of Directors of the Federal
Deposit Insurance Corporation proposes to amend Part 360 of title 12 of
the Code of Federal Regulations as follows:
PART 360--RESOLUTION AND RECEIVERSHIP RULES
0
1. The authority citation for part 360 is revised to read as follows:
Authority: 12 U.S.C. 1817(b), 1818(a)(2), 1818(t), 1819(a)
Seventh, Ninth and Tenth, 1820(b)(3), (4), 1821(d)(1),
1821(d)(10)(c), 1821(d)(11), 1821(d)(15)(D), 1821(e)(1),
1821(e)(8)(D)(i), 1823(c)(4), 1823(e)(2); Sec. 401(h), Pub. L. 101-
73, 103 Stat. 357.
0
2. Add new Sec. 360.11 to read as follows:
Sec. 360.11 Records of failed insured depository institutions.
(a) Definitions. For purposes of this section, the following
definitions apply--
(1) Failed insured depository institution is an insured depository
institution for which the FDIC has been appointed receiver pursuant to
12 U.S.C. 1821(c)(1).
(2) Insured depository institution has the same meaning as provided
by 12 U.S.C. 1813(c)(2).
(3) Records means any reasonably accessible document, book, paper,
map, photograph, microfiche, microfilm, computer or electronically-
created record generated or maintained by an insured depository
institution in the course of and necessary to its transaction of
business.
(i) Examples of records include, without limitation, board or
committee meeting minutes, contracts to which the insured depository
institution is a party, deposit account information, employee and
employee benefits information, general ledger and financial reports or
data, litigation files, and loan documents.
(ii) Records do not include:
(A) Multiple copies of records; or
(B) Examination, operating, or condition reports prepared by, on
behalf of, or for the use of the FDIC or any agency responsible for the
regulation or supervision of insured depository institutions.
(b) Determination of records. In determining whether particular
documentary material obtained from a failed insured depository
institution is a record for purposes of 12 U.S.C. 1821(d)(15)(D), the
FDIC in its discretion will determine whether one or more of the
following factors weigh in favor of classifying the material as a
record:
(1) Whether the documentary material relates to the business of the
failed insured depository institution,
(2) Whether the documentary material was generated or maintained as
records in the regular course of the business of the failed insured
depository institution in accordance with its own recordkeeping
practices and procedures or pursuant to standards established by the
failed insured depository institution's regulators,
(3) Whether the documentary material is needed by the FDIC to carry
out its receivership function, and
(4) The expected evidentiary needs of the FDIC.
(c) The FDIC's determination that documentary materials from a
failed insured depository institution constitute records is solely for
the purpose of identifying those documentary materials that must be
maintained pursuant to 12 U.S.C. 1821(d)(15)(D) and shall not bear on
the discoverability or admissibility of such documentary materials in
any court, tribunal or other adjudicative proceeding, nor on whether
such documentary materials are subject to release under the Freedom of
Information Act, the Privacy Act or other law.
(d) Destruction of records.
(1) Except as provided in paragraph (d)(2) of this section, after
the end of the six-year period beginning on the date the FDIC is
appointed as receiver of an insured depository institution, the FDIC
may destroy any records of such institution which the FDIC, in its
discretion, determines to be unnecessary unless directed not to do so
by a court of competent jurisdiction or governmental agency, prohibited
by law, or subject to a legal hold imposed by the FDIC.
(2) Notwithstanding paragraph (d)(1) of this section, the FDIC may
destroy records of an insured depository institution which are at least
10 years old as of the date on which the FDIC is appointed as the
receiver of such depository institution in accordance with paragraph
(d)(1) of this section at any time after such appointment is final,
without regard to the six-year period of limitation contained in
paragraph (d)(1) of this section.
(e) Transfer of records. If the FDIC transfers records to a third
party in connection with an agreement for the
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purchase and assumption of assets and liabilities of a failed insured
depository institution, the recordkeeping requirements of 12 U.S.C.
1821(d)(15)(D), and paragraph (d) of this section shall be satisfied if
the transferee agrees that it will not destroy such records for six
years from the date the FDIC was appointed as receiver of such failed
insured depository institution unless otherwise notified in writing by
the FDIC.
(f) Policies and procedures. The FDIC may establish policies and
procedures with respect to the retention and destruction of records
that are consistent with this section.
Dated at Washington, DC, this 15th day of January 2013.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2013-01080 Filed 1-18-13; 8:45 am]
BILLING CODE 6714-01-P