[Federal Register Volume 60, Number 113 (Tuesday, June 13, 1995)]
[Rules and Regulations]
[Pages 31053-31054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14413]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
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Federal Register / Vol. 60, No. 113 / Tuesday, June 13, 1995 / Rules
and Regulations
[[Page 31053]]
FEDERAL RESERVE SYSTEM
12 CFR Part 215
[Regulation O; Docket No. R-0875]
Loans to Executive Officers, Directors, and Principal
Shareholders of Member Banks; Loans to Holding Companies and Affiliates
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board is adopting an amendment to Regulation O to conform
the definition of unimpaired capital and unimpaired surplus used in
calculating a bank's Regulation O lending limit to the definition of
capital and surplus recently adopted by the Office of the Comptroller
of the Currency in calculating the limit on loans by a national bank to
a single borrower. The final rule will reduce the regulatory burden for
member banks monitoring lending to their insiders.
EFFECTIVE DATE: Effective July 1, 1995.
FOR FURTHER INFORMATION CONTACT: Gregory Baer, Managing Senior Counsel
(202/452-3236), or Gordon Miller, Attorney (202/452-2534), Legal
Division; or William G. Spaniel, Assistant to the Director (202/452-
3469), Division of Banking Supervision and Regulation, Board of
Governors of the Federal Reserve System. For the hearing impaired only,
Telecommunications Device for the Deaf (TDD), Dorothea Thompson (202/
452-3544).
SUPPLEMENTARY INFORMATION:
Background
The Board's Regulation O (12 CFR Part 215) implements the insider
lending prohibitions of section 22(h) of the Federal Reserve Act.
Section 215.2(i) of the regulation (12 CFR 215.2(i)) defines the limit
for loans to any insider of a member bank and insider of the bank's
affiliates as an amount equal to the limit on loans to a single
borrower established by the National Bank Act (12 U.S.C. 84). That
amount is 15 percent of the bank's unimpaired capital and unimpaired
surplus for loans that are not fully secured, and an additional 10
percent of the bank's unimpaired capital and unimpaired surplus for
loans that are fully secured by certain readily marketable
collateral.\1\
\1\ The lending limit also includes any higher amounts that are
permitted by the exceptions included in 12 U.S.C. 84. Where state
law establishes a lower lending limit for a state member bank, that
lower lending limit is the lending limit for the state member bank.
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Although Regulation O adopts the percentage limits used in the
National Bank Act, Regulation O provides its own definition of what
constitutes unimpaired capital and unimpaired surplus. Unimpaired
capital and unimpaired surplus have been defined as the sum of (i)
``total equity capital'' as reported on the bank's most recent
consolidated report of condition, (ii) any subordinated notes and
debentures that comply with requirements of the bank's primary
regulator for inclusion in the bank's capital structure and are
reported on the bank's most recent consolidated report of condition,
and (iii) any valuation reserves created by charges to the bank's
income and reported on the bank's most recent consolidated report of
condition. 12 CFR 215.2(i).
The Office of the Comptroller of the Currency (OCC) has recently
revised its regulatory definition of unimpaired capital and unimpaired
surplus for purposes of implementing the single borrower limit of the
National Bank Act. See 60 FR 8,533, February 15, 1995. Under that
revised definition, a national bank's ``capital and surplus'' are equal
to Tier 1 and Tier 2 capital included in the calculation of the bank's
risk-based capital together with the amount of the bank's allowance for
loan and lease losses not included in this calculation. 12 CFR 32.2(b).
On April 20, 1995 (60 FR 19,689), the Board proposed to amend
Regulation O to conform its definition of unimpaired capital and
unimpaired surplus to the OCC's revised definition of capital and
surplus. As stated in the notice of proposed rulemaking, the Board
believes that in substantially all cases calculating the insider
lending limits of Regulation O using the revised definition would not
significantly increase or decrease a bank's insider lending limit. The
elimination of the separate definition of unimpaired capital and
unimpaired surplus in Regulation O therefore is expected to create
minimal disruption in lending by member banks to their insiders and to
insiders of their affiliates, while eliminating confusion and
duplication of effort caused by requiring banks to calculate capital
two different ways for two regulations.
The Board received 24 written comments, including comments from 11
banks, 3 bank holding companies, 6 Federal Reserve Banks, and 4 trade
associations. Twenty-three commenters supported the Board's amendment.
All commenters in support felt that the amendment would make
recordkeeping simpler and more consistent, and several also noted that
the amendment would not significantly change their lending level. Two
commenters noted that the amendment would both greatly reduce its
recordkeeping burden and help its compliance.
One commenter opposed the amendment and expressed concern that a
bank's Tier 1 and Tier 2 capital did not include certain intangible
assets, and that eliminating these assets could harm some community
banks by effectively reducing their lending limits. One bank holding
company supporting the amendment also noted that some of its affiliated
banks would have their lending limits reduced because of the goodwill
on their books. The Board believes, however, that few small community
banks have a sufficient amount of intangible assets, such as goodwill
or purchased mortgage servicing rights, on their books to cause a
significant reduction of their insider lending limits from their
current levels. Accordingly, after reviewing the public comments, the
Board is adopting the amendment as proposed.
Determination of Effective Date
Because the final rule adjusts a requirement on insured depository
institutions, the final rule will become effective July 1, 1995, the
first day of the calendar quarter after the date of the final rule's
publication. See 12 U.S.C. 4802(b). For the foregoing reason, the final
rule will become effective without regard for the 30-day period
provided for in 5 U.S.C. 553(d). [[Page 31054]]
Final Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires an
agency to publish a final regulatory flexibility analysis when the
agency publishes a final rule. Two of the requirements of an initial
regulatory flexibility analysis (5 U.S.C. 604(b))--a succinct statement
of the need for, and the objectives of, the rule, and a summary of the
issues raised by the public comments received, the agency assessment
thereof, and any changes made in response thereto--are contained in the
supplementary information above. No significant alternatives to the
final rule were considered by the agency.
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 605(b)), the Board certifies that the amendment to Regulation O
will not have a significant economic impact on a substantial number of
small entities, and that any impact on those entities should be
positive. The amendment will reduce the regulatory burden for most
banks by simplifying the calculation of lending limits without
significantly changing the amount of the limit, and will have no effect
in other cases.
Paperwork Reduction Act
In accordance with section 3507 of the Paperwork Reduction Act of
1980 (44 U.S.C. 3507), the Board reviewed the information collection
requirements of its amendment to Regulation O under authority delegated
to the Board by the Office of Management and Budget (5 CFR Part 1320,
Appendix A) after considering comments received during the public
comment period.
The recordkeeping requirements are authorized by 12 U.S.C. 375a(6)
and (10), 375b(7), and 1972(2)(G). This information is required to
prevent preferential lending by a member bank to its executive
officers, directors, principal shareholders, and their related
interests. The amendment is not estimated to change the annual burden
of recordkeeping associated with Regulation O for state member banks,
which is estimated to be 6,255 hours.
List of Subjects in 12 CFR Part 215
Credit, Federal Reserve System, Penalties, Reporting and
recordkeeping requirements.
For the reasons set forth in the preamble, the Board is amending 12
CFR part 215 as follows:
PART 215--LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL
SHAREHOLDERS OF MEMBER BANKS (REGULATION O)
1. The authority citation for part 215 is revised to read as
follows:
Authority: 12 U.S.C. 248(i), 375a(10), 375b(9) and (10),
1817(k)(3) and 1972(2)(G)(ii); Pub. L. 102-242, 105 Stat. 2236.
2. Section 215.2 is amended as follows:
a. The last sentence of paragraph (i) introductory text is revised;
b. Paragraphs (i)(1) and (i)(2) are revised; and
c. Paragraph (i)(3) is removed.
The revisions read as follows:
Sec. 215.2 Definitions.
* * * * *
(i) * * * A member bank's unimpaired capital and unimpaired surplus
equals:
(1) The bank's Tier 1 and Tier 2 capital included in the bank's
risk-based capital under the capital guidelines of the appropriate
Federal banking agency, based on the bank's most recent consolidated
report of condition filed under 12 USC 1817(a)(3); and
(2) The balance of the bank's allowance for loan and lease losses
not included in the bank's Tier 2 capital for purposes of the
calculation of risk-based capital by the appropriate Federal banking
agency, based on the bank's most recent consolidated report of
condition filed under 12 U.S.C. 1817(a)(3).
* * * * *
By order of the Board of Governors of the Federal Reserve
System, June 7, 1995.
William W. Wiles,
Secretary of the Board.
[FR Doc. 95-14413 Filed 6-12-95; 8:45 am]
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