[Federal Register Volume 83, Number 169 (Thursday, August 30, 2018)]
[Rules and Regulations]
[Pages 44195-44199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18756]
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FEDERAL RESERVE SYSTEM
12 CFR Parts 217 and 225
[Regulations Q and Y; Docket No. R-1619]
RIN 7100-AF 13
Small Bank Holding Company and Savings and Loan Holding Company
Policy Statement and Related Regulations; Changes to Reporting
Requirements
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Interim final rule with request for comment; changes to
reporting requirements.
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SUMMARY: The Board invites comment on an interim final rule that raises
the asset size threshold for determining applicability of the Board's
Small Bank Holding Company and Savings and Loan Holding Company Policy
Statement (Regulation Y, appendix C) (Policy Statement) to $3 billion
from $1 billion of total consolidated assets. The interim final rule
also makes related and conforming revisions to the Board's regulatory
capital rule (Regulation Q) and requirements for bank holding companies
(Regulation Y). In
[[Page 44196]]
connection with these changes, the Board is modifying the respondent
panel for certain holding company financial reports.
DATES: The interim final rule is effective August 30, 2018. Comments on
the interim final rule must be received no later than October 29, 2018.
ADDRESSES: You may submit comments, identified by Docket No. R-1619 and
RIN No 7100 AF 13, by any of the following methods:
Agency website: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/apps/foia/proposedregs.aspx.
Email: [email protected]. Include the
docket number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Ann Misback, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
All public comments will be made available on the Board's website
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons or to remove
personally identifiable information at the commenter's request.
Accordingly, comments will not be edited to remove any identifying or
contact information. Public comments may also be viewed electronically
or in paper in Room 3515, 1801 K Street NW (between 18th and 19th
Streets NW), between 9:00 a.m. and 5:00 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Constance M. Horsley, Deputy Associate
Director, (202) 452-5239, Cynthia Ayouch, Manager, (202) 452-2204,
Douglas Carpenter, Senior Supervisory Financial Analyst, (202) 452-
2205, Vanessa Davis, Supervisory Financial Analyst, (202) 475-6647, or
Kevin Tran, Supervisory Financial Analyst, (202) 452-2309, Division of
Supervision and Regulation; Laurie Schaffer, Associate General Counsel,
(202) 452-2272; Benjamin McDonough, Assistant General Counsel, (202)
452-2036, or Mark Buresh, (202) 452-5270, Senior Attorney, Legal
Division; Board of Governors of the Federal Reserve System, 20th and C
Streets NW, Washington, DC 20551.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. The Interim Final Rule
III. Administrative Law Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Solicitation of Comments on Use of Plain Language
I. Background
The Board issued the Small Bank Holding Company and Savings and
Loan Holding Company Policy Statement (Regulation Y, appendix C)
(Policy Statement) in 1980 to facilitate the transfer of ownership of
small community-based banks in a manner consistent with bank safety and
soundness.\1\ In general, the Board has discouraged the use of debt by
bank holding companies and savings and loan holding companies
(collectively, depository institution holding companies) to finance
acquisitions because high levels of debt can impair the ability of a
depository institution holding company to serve as a source of strength
to its subsidiary depository institutions. However, the Board has
recognized that small depository institution holding companies have
less access to equity financing than larger depository institution
holding companies and that, therefore, an acquisition by a small
depository institution holding company often requires the use of debt.
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\1\ 12 CFR part 225, app. C.
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The Board originally adopted the Policy Statement to permit the
formation and expansion of small bank holding companies with debt
levels that are higher than typically permitted for larger bank holding
companies. The Policy Statement contains several conditions and
restrictions designed to ensure that a small depository institution
holding company that operates with the heightened level of debt
permitted under the Policy Statement does not present an undue risk to
the safety and soundness of its subsidiary depository institutions.
Currently, the Policy Statement applies to bank holding companies
with pro forma consolidated assets of less than $1 billion that: (i)
Are not engaged in significant nonbanking activities either directly or
through a nonbank subsidiary; (ii) do not conduct significant off-
balance sheet activities (including securitization and asset management
or administration) either directly or through a nonbank subsidiary; \2\
and (iii) do not have a material amount of debt or equity securities
outstanding (other than trust preferred securities) that are registered
with the Securities and Exchange Commission (the foregoing enumerated
items referred to hereafter as qualitative requirements). The Policy
Statement also applies to small savings and loan holding companies as
if they were bank holding companies.\3\
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\2\ The examples provided in the Policy Statement are not
exhaustive and simply highlight off-balance sheet activities that
may involve substantial risk. Other activities than securitization
and asset management or administration may present similar concerns.
See also 71 FR 9897, 9899, fn. 2 (February 28, 2006) (2006 Final
Rule).
\3\ 12 CFR 238.9.
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The Policy Statement provides that bank holding companies that meet
the qualitative requirements (qualifying small holding companies) may
use debt to finance up to 75 percent of the purchase price of an
acquisition (that is, they may have a debt-to-equity ratio of up to
3:1). However, a qualifying small holding company must satisfy
additional ongoing requirements, including that it: (i) Reduce its debt
such that all debt is retired within 25 years of the debt being
incurred; (ii) reduce its debt-to equity ratio to .30:1 or less within
12 years of the debt being incurred; (iii) ensure that each of its
subsidiary insured depository institutions is well capitalized; and
(iv) refrain from paying dividends until such time as it reduces its
debt-to-equity ratio to 1.0:1 or less. The Policy Statement also
provides that a qualifying small holding company may not use the
expedited applications procedures or obtain a waiver of the stock
redemption filing requirements applicable to bank holding companies
under the Board's Regulation Y unless the bank holding company has a
pro forma debt-to-equity ratio of 1.0:1 or less.\4\
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\4\ 12 CFR 225.4(b), 225.14, and 225.23.
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II. The Interim Final Rule
New Asset Threshold of $3 Billion
On May 24, 2018, the Economic Growth, Regulatory Relief, and
Consumer Protection Act (EGRRCPA) was enacted.\5\ Section 207 of
EGRRCPA directs the Board to revise the Policy Statement to raise the
consolidated assets threshold from $1 billion to $3 billion within 180
days of the enactment of EGRRCPA. The Board last raised the asset limit
in 2015 when it increased it from $500 million to $1 billion.\6\ The
Board is issuing this interim final rule to increase the asset
threshold to $3 billion consistent with EGRRCPA. The Board is not
making any additional modifications to the Policy Statement at this
time. The final rule applies to small savings and loan holding
companies to
[[Page 44197]]
the same extent as small bank holding companies, by operation of
Regulation LL.
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\5\ Public Law 115-174 (May 24, 2018).
\6\ See 80 FR 20153 (April 15, 2015). In this final rule, the
Board also applied the Policy Statement to small savings and loan
holding companies as if they were bank holding companies. 80 FR
20153 (April 15, 2015).
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The Board believes it is appropriate to issue an interim final rule
revising the Policy Statement and making conforming revisions to
Regulation Q and Regulation Y to apply the statutorily mandated
threshold of $3 billion to qualifying holding companies consistent with
EGRRCPA. Without such action, qualifying holding companies that cross
$1 billion during the pendency of the proposal would be required to
incur costs to implement regulatory capital and financial reporting
systems that would cease to be necessary upon issuance of the final
rule. In addition, the Board believes that it is appropriate to allow
holding companies with total consolidated assets of $1 billion or more
but less than $3 billion to immediately become subject to reduced
regulatory and reporting requirements, consistent with the
congressionally-mandated increase in the threshold, so that such firms
are not obligated to incur significant compliance costs in the interim
until the traditional rulemaking process is completed.
Conforming Regulation Q Change
For the reasons described previously, the Board is revising
Regulation Q to conform the language in Sec. 217.1 to reflect the
heightened threshold of the Policy Statement resulting from the interim
final rule. Specifically, Sec. 217.1(c)(1)(iii) is revised to remove
the reference to the $1 billion threshold.
Other Conforming Amendments
A number of reporting, filing, and other provisions in Regulation Y
are triggered by the consolidated asset threshold established by the
Policy Statement. In connection with revising the threshold under the
Policy Statement, the Board is making technical and conforming
amendments to these provisions to provide that qualifying small holding
companies may take advantage of the streamlined informational, notice,
and other requirements embodied in these rules. These technical and
conforming amendments will provide regulatory burden relief to most
holding companies with less than $3 billion of consolidated total
assets. The final rule makes the following changes:
In Sec. 225.2(r), footnote 2, the footnote describing the
application of the definition of ``well-capitalized'' in the Board's
Regulation Y (12 CFR part 225) to entities subject to the Policy
Statement is revised to remove the reference to the threshold of $1
billion under the Policy Statement.
In Sec. 225.4(b)(2)(iii), the thresholds for the
different pro forma financial information required of smaller bank
holding companies compared to larger bank holding companies under Sec.
225.4(b)(1) of the Board's Regulation Y is revised to refer to total
assets of less than $3 billion rather than total assets of less than $1
billion.
In Sec. 225.14(a)(1)(v), the thresholds for the different
pro forma financial information required of smaller bank holding
companies compared to larger bank holding companies under Sec. 225.14
of the Board's Regulation Y is revised to refer to total assets of less
than $3 billion rather than total assets of less than $1 billion.
In Sec. 225.17(a)(6), footnote 6, the total asset
threshold for application of the footnote related to demonstrating that
debt incurred will not unduly burden the bank holding company is
revised to refer to total assets of less than $3 billion rather than
total assets of less than $1 billion.
In Sec. 225.23(a)(1)(iii), the threshold for the
different pro forma financial information required of smaller bank
holding companies compared to larger bank holding companies under Sec.
225.23 of the Board's Regulation Y is revised to refer to total assets
of less than $3 billion rather than total assets of less than $1
billion.
Regulatory Reporting Changes
The Board requires all depository institution holding companies to
file certain reports with the Federal Reserve to monitor the financial
condition and operations of depository institution holding companies.
Those reports include the Financial Statements for Holding Companies
(FR Y-9 series of reports; OMB No. 7100-0128). Depository institution
holding companies with consolidated assets of less than $1 billion that
also meet qualitative requirements submit summary parent-only financial
data semiannually on the FR Y-9SP. Bank holding companies and savings
and loan holding companies with consolidated assets of $1 billion or
more--or that are otherwise not subject to the Policy Statement--submit
consolidated financial data on the FR Y-9C and parent-only financial
data on the FR Y-9LP, both quarterly.
The Board is modifying, effective immediately, the respondent panel
for the FR Y-9SP, FR Y-9C, and FR Y-9LP for bank holding companies and
savings and loan holding companies with $1 billion or more but less
than $3 billion in total consolidated assets to align the threshold in
the Policy Statement. If these institutions meet the qualitative
requirements, they will not be required to file the FR Y-9C and the FR
Y-9LP (including regulatory capital information) and would instead file
the FR Y-9SP. These changes would be consistent with the final rule's
changes to the Policy Statement and will reduce the regulatory
reporting burden for these smaller institutions. Since most bank
holding companies and savings and loan holding companies with less than
$3 billion in total consolidated assets have limited activities outside
of their subsidiary banks, the Board believes relying on summary
parent-only financials from the FR Y-9SP and detailed depository
institution financials from the Consolidated Reports of Condition and
Income (FFIEC 031, FFIEC 041, FFIEC 051; OMB No. 7100-0036) is
sufficient for supervisory purposes.
Comments
The Board invites comments on all aspects of this interim final
rule. Interested parties are encouraged to provide comments on the $3
billion asset size threshold adjustment, the revision to Regulation Q,
and the related and conforming amendments to Regulations Y.
Effective Date/Request for Comments
The Board is issuing this interim final rule without prior notice
and the opportunity for public comment and the 30-day delayed effective
date ordinarily prescribed by the Administrative Procedure Act (APA).
Pursuant to the Administrative Procedure Act (APA), at 5 U.S.C.
553(b)(B), notice and comment are not required prior to the issuance of
a final rule if an agency, for good cause, finds that ``notice and
public procedure thereon are impracticable, unnecessary, or contrary to
the public interest.'' \7\ The interim final rule implements the
provisions in section 207 of EGRRCPA, which was enacted on May 24,
2018. EGRRCPA includes a directive that the Board revise appendix C to
part 225 of title 12 of the Code of Federal Regulations within 180 days
to raise the consolidated asset threshold under that appendix from $1
billion to $3 billion.\8\ This section of EGRRCPA was effective upon
enactment.
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\7\ 5 U.S.C. 553(b)(B).
\8\ Public Law 115-174 (May 24, 2018), section 207(b).
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The Board believes that the public interest is best served by
implementing the statutorily amended thresholds as soon as possible.
Delaying the revisions to the Policy Statement, Regulation Q,
[[Page 44198]]
and Regulation Y to complete a traditional notice and comment
rulemaking process would cause holding companies with total
consolidated assets of $1 billion or more and less than $3 billion to
expend significant resources to continue to comply with Regulation Q
and would subject these firms to heightened requirements under
Regulation Y for the time necessary for the Board to go through the
notice and comment rulemaking process. In addition, any holding
companies that qualified under the Policy Statement and that came to
have $1 billion or more in total consolidated assets while the
rulemaking process was ongoing would be required to expend significant
resources to comply with Regulation Q. The Board believes that
providing a notice and comment period prior to issuance of the interim
final rules is unnecessary because the Board does not expect public
objection to the interim final rule being promulgated, as the rule
merely provides the relief that Congress intended.
The APA also requires a 30-day delayed effective date, except for
(1) substantive rules which grant or recognize an exemption or relieve
a restriction; (2) interpretative rules and statements of policy; or
(3) as otherwise provided by the agency for good cause.\9\ The Board
has concluded that, because the rule recognizes an exemption, the
interim final rule is exempt from the APA's delayed effective date
requirement.\10\ Additionally, the Board finds good cause to publish
the interim final rule with an immediate effective date for the same
reasons set forth above under the discussion of section 553(b)(B) of
the APA.
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\9\ 5 U.S.C. 553(d).
\10\ 5 U.S.C. 553(d)(1).
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While the Board believes there is good cause to issue the rules
without advance notice and comment and with an immediate effective
date, the Board is interested in the views of the public and request
comment on all aspects of the interim final rule.
III. Administrative Law Matters
A. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., applies only
to rules for which an agency publishes a general notice of proposed
rulemaking. Because the Board has determined for good cause that a
notice of proposed rulemaking for this rule is unnecessary, the
Regulatory Flexibility Act does not apply to this final rule.
B. Paperwork Reduction Act
The Board has revised the respondent panel for each of the FR Y-
9SP, FR Y-9C, and FR Y-9LP in connection with this final rule.
Specifically, the minimum total consolidated asset threshold for filing
the FR Y-9C and FR Y-9LP has been increased to $3 billion, and the FR
Y-9SP has been updated to apply to holding companies with less than $3
billion in total consolidated assets. Though the number of total
respondents is not affected, the result of this modification is to
reduce the aggregate burden for the FR Y-9C, FR Y-9LP, and FR Y-9SP by
75,233 hours because more firms will file the less complex FR Y-9SP.
C. Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the Federal
banking agencies to use ``plain language'' in all proposed and final
rules published after January 1, 2000. In light of this requirement,
the Board has sought to present the interim final rule in a simple and
straightforward manner. The Board invites comments on whether there are
additional steps it could take to make the rule easier to understand.
List of Subjects
12 CFR Part 217
Administrative practice and procedure, Banks, Banking, Federal
Reserve System, Holding companies, Reporting and recordkeeping
requirements.
12 CFR Part 225
Administrative practice and procedure, Banks, Banking, Federal
Reserve System, Holding companies, Reporting and recordkeeping
requirements.
Federal Reserve System
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the preamble, chapter II of title 12
of the Code of Federal Regulations is amended as set forth below:
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
0
1. The authority citation for part 217 continues to read as follows:
Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a,
1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904,
3906-3909, 4808, 5365, 5368, 5371.
0
2. In Sec. 217.1, revise paragraph (c)(1)(iii) to read as follows:
Sec. 217.1 Purpose, applicability, reservations of authority, and
timing.
* * * * *
(c) * * *
(1) * * *
(iii) A covered savings and loan holding company domiciled in the
United States, other than a savings and loan holding company that meets
the requirements of 12 CFR part 225, appendix C, as if the savings and
loan holding company were a bank holding company and the savings
association were a bank. For purposes of compliance with the capital
adequacy requirements and calculations in this part, savings and loan
holding companies that do not file the FR Y-9C should follow the
instructions to the FR Y-9C.
* * * * *
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
0
3. The authority citation for part 225 continues to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1,
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3906,
3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.
0
4. In Sec. 225.2(r), revise footnote 2 to read as follows:
Sec. 225.2 Definitions.
* * * * *
(r) * * *
\2\ For purposes of this subpart and subparts B and C of this part,
a bank holding company that is subject to the Small Bank Holding
Company and Savings and Loan Holding Company Policy Statement in
appendix C of this part will be deemed to be ``well-capitalized'' if
the bank holding company meets the requirements for expedited/waived
processing in appendix C.
* * * * *
0
5. In Sec. 225.4, revise paragraph (b)(2)(iii) to read as follows:
Sec. 225.4 Corporate practices.
* * * * *
(b) * * *
(2) * * *
(iii)(A) If the bank holding company has consolidated assets of $3
billion or more, consolidated pro forma risk-based capital and leverage
ratio calculations for the bank holding company as of the most recent
quarter, and, if the redemption is to be debt funded, a
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parent-only pro forma balance sheet as of the most recent quarter; or
(B) If the bank holding company has consolidated assets of less
than $3 billion, a pro forma parent-only balance sheet as of the most
recent quarter, and, if the redemption is to be debt funded, one-year
income statement and cash flow projections.
* * * * *
0
6. In Sec. 225.14, revise paragraph (a)(1)(v) to read as follows:
Sec. 225.14 Expedited action for certain bank acquisitions by well-
run bank holding companies.
(a) * * *
(1) * * *
(v)(A) If the bank holding company has consolidated assets of $3
billion or more, an abbreviated consolidated pro forma balance sheet as
of the most recent quarter showing credit and debit adjustments that
reflect the proposed transaction, consolidated pro forma risk-based
capital ratios for the acquiring bank holding company as of the most
recent quarter, and a description of the purchase price and the terms
and sources of funding for the transaction; or
(B) If the bank holding company has consolidated assets of less
than $3 billion, a pro forma parent-only balance sheet as of the most
recent quarter showing credit and debit adjustments that reflect the
proposed transaction, and a description of the purchase price, the
terms and sources of funding for the transaction, and the sources and
schedule for retiring any debt incurred in the transaction;
* * * * *
0
7. In Sec. 225.17(a)(6), revise footnote 6 to read as follows:
Sec. 225.17 Notice procedure for one-bank holding company
formations.
(a) * * *
(6) * * *
\6\ For a banking organization with consolidated assets, on a pro
forma basis, of less than $3 billion (other than a banking organization
that will control a de novo bank), this requirement is satisfied if the
proposal complies with the Board's Small Bank Holding Company and
Savings and Loan Holding Company Policy Statement (appendix C of this
part).
* * * * *
0
8. In Sec. 225.23, revise paragraph (a)(1)(iii) to read as follows:
Sec. 225.23 Expedited action for certain nonbanking proposals by
well-run bank holding companies.
(a) * * *
(1) * * *
(iii) If the proposal involves an acquisition of a going concern:
(A) If the bank holding company has consolidated assets of $3
billion or more, an abbreviated consolidated pro forma balance sheet
for the acquiring bank holding company as of the most recent quarter
showing credit and debit adjustments that reflect the proposed
transaction, consolidated pro forma risk-based capital ratios for the
acquiring bank holding company as of the most recent quarter, a
description of the purchase price and the terms and sources of funding
for the transaction, and the total revenue and net income of the
company to be acquired;
(B) If the bank holding company has consolidated assets of less
than $3 billion, a pro forma parent-only balance sheet as of the most
recent quarter showing credit and debit adjustments that reflect the
proposed transaction, a description of the purchase price and the terms
and sources of funding for the transaction and the sources and schedule
for retiring any debt incurred in the transaction, and the total
assets, off-balance sheet items, revenue and net income of the company
to be acquired; or
(C) For each insured depository institution whose Tier 1 capital,
total capital, total assets or risk-weighted assets change as a result
of the transaction, the total risk-weighted assets, total assets, Tier
1 capital and total capital of the institution on a pro forma basis;
* * * * *
0
9. In appendix C, under the header ``1. Applicability of Policy
Statement,'' revise the first undesignated paragraph to read as
follows:
Appendix C to Part 225--Small Bank Holding Company and Savings and Loan
Holding Company Policy Statement
* * * * *
1. Applicability of Policy Statement
This policy statement applies only to bank holding companies
with pro forma consolidated assets of less than $3 billion that (i)
are not engaged in significant nonbanking activities either directly
or through a nonbank subsidiary; (ii) do not conduct significant
off-balance sheet activities (including securitization and asset
management or administration) either directly or through a nonbank
subsidiary; and (iii) do not have a material amount of debt or
equity securities outstanding (other than trust preferred
securities) that are registered with the Securities and Exchange
Commission. The Board may in its discretion exclude any bank holding
company, regardless of asset size, from the policy statement if such
action is warranted for supervisory purposes.\1\ With the exception
of section 4 (Additional Application Requirements for Expedited/
Waived Processing), the policy statement applies to savings and loan
holding companies as if they were bank holding companies.
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\1\ [RESERVED].
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* * * * *
By order of the Board of Governors of the Federal Reserve
System, April 24, 2018.
Ann Misback,
Secretary of the Board.
Editorial note: This document was received for publication by
the Office of the Federal Register on August 24, 2018.
[FR Doc. 2018-18756 Filed 8-29-18; 8:45 am]
BILLING CODE 6210-01-P