Section 218(a) of the Nuclear Waste Policy Act (NWPA) of 1982, as amended, requires that “the Secretary [of the Department of Energy] shall establish a demonstration program, in cooperation with the private sector, for the dry storage of spent nuclear fuel at civilian nuclear power reactor sites, with the objective of establishing one or more technologies that the [Nuclear Regulatory] Commission may, by rule, approve for use at the sites of civilian nuclear power reactors without, to the maximum extent practicable, the need for additional site-specific approvals by the Commission.” Section 133 of the NWPA states, in part, that “[the Commission] shall, by rule, establish procedures for the licensing of any technology approved by the Commission under Section 219(a) [sic: 218(a)] for use at the site of any civilian nuclear power reactor.”

To implement this mandate, the Commission approved dry storage of spent nuclear fuel in NRC-approved casks under a general license by publishing a final rule in part 72 of Title 10 of the Code of Federal Regulations (10 CFR), which added a new subpart K within 10 CFR part 72 entitled, “General License for Storage of Spent Fuel at Power Reactor Sites” (55 FR 29181; July 18, 1990). This rule also established a new subpart L within 10 CFR part 72 entitled, “Approval of Spent Fuel Storage Casks,” which contains procedures and criteria for obtaining NRC approval of spent fuel storage cask designs. The NRC subsequently issued a final rule on November 21, 2008 (73 FR 70587), that approved the MAGNASTOR® Cask System design and added it to the list of NRC-approved cask designs in 10 CFR 72.214 as CoC No. 1031.

This rule is limited to the changes contained in Amendment No. 3 to CoC No. 1031 and does not include other aspects of the MAGNASTOR® Cask System design.

The NRC published in the Federal Register on March 18, 2013 (78 FR 16601), a direct final rule on this amendment. The NRC also concurrently published a companion proposed rule on March 18, 2013 (78 FR 16619). The NRC received a significant adverse comment on the proposed rule; therefore, the NRC withdrew the direct final rule on May 29, 2013 (78 FR 32077), and is proceeding, in this document, to address the comment on the companion proposed rule (see Section III, Analysis of Public Comments, of this document).

On August 26, 2010, NAC submitted a request to the NRC to amend CoC No. 1031. NAC supplemented its request on the following dates: February 4, 2011 (ADAMS Accession No. ML11138A224), February 16, 2011 (ADAMS Accession No. ML110480498), August 15, 2011 (ADAMS Accession No. ML11229A701), October 3, 2011 (ADAMS Accession No. ML11287A020), March 21, 2012 (ADAMS Accession No. ML120820463), March 30, 2012 (ADAMS Accession No. ML12094A056), April 6, 2012 (ADAMS Accession No. ML12104A025), and April 22, 2013 (ADAMS Accession No. ML13114A137). The amendment revises authorized contents to include: (1) PWR damaged fuel contained in damaged fuel cans that are placed in a damaged fuel basket assembly; (2) PWR fuel assemblies with nonfuel hardware per the expanded definition in the Amendment No. 3 application; and (3) PWR fuel assemblies with up to five activated stainless steel fuel replacement rods at a maximum burnup/exposure of 32.5 GWd/MTU.

This amendment also revises paragraph 4.3.1(i) in Appendix A of the CoC TSs to clarify that the maximum design basis earthquake accelerations of 0.37g in the horizontal direction (without cask sliding) and 0.25g in the vertical direction at the ISFSI pad top surface do not result in cask tip-over. Furthermore, this amendment makes additional changes to Appendix A (ADAMS Accession No. ML13150A388) and Appendix B (ADAMS Accession No. ML13120A264) of the CoC. The changes to the aforementioned documents are identified with revision bars in the margin of each document.

As documented in the SER (ADAMS Accession No. ML13120A262), the NRC staff performed a detailed safety evaluation of the proposed CoC amendment request. There are no significant changes to cask design requirements in the CoC amendment. Considering the specific design requirements for each accident condition, the design of the cask would prevent loss of containment, shielding, and criticality control. If there is no loss of containment, shielding, or criticality control, the environmental impacts would be insignificant. This amendment does not reflect a significant change in design or fabrication of the cask. In addition, any resulting occupational exposure or offsite dose rates from the implementation of Amendment No. 3 would remain well within the 10 CFR part 20 limits. Thus, the CoC changes will not result in any radiological or non-radiological environmental impacts that significantly differ from the environmental impacts evaluated in the environmental assessment supporting the November 21, 2008, final rule. There will be no significant change in the types or significant revisions in the amounts of any effluent released, no significant increase in the individual or cumulative radiation exposure, and no significant increase in the potential for or consequences from radiological accidents.

This final rule revises the MAGNASTOR® Cask System listing in 10 CFR 72.214 by adding Amendment No. 3 to CoC No. 1031. The amendment consists of the changes previously described, as set forth in the revised CoC and TSs. The revised TSs are identified in the SER.

The amended MAGNASTOR® Cask System design, when used under the conditions specified in the CoC, the TSs, and the NRC's regulations, will meet the requirements of 10 CFR part 72; thus, adequate protection of public health and safety will continue to be ensured. When this final rule becomes effective, persons who hold a general license under 10 CFR 72.210 may load spent nuclear fuel into MAGNASTOR® Cask Systems that meet the criteria of Amendment No. 3 to CoC No. 1031 under 10 CFR 72.212.

The NRC received one comment on the companion proposed rule to the direct final rule published on March 18, 2013. The comment was submitted by NAC on April 17, 2013 (ADAMS Accession No. ML13114A137). The public comment and the NRC's response is provided in the following paragraphs.

Comment. NAC's comment identified several corrections that needed to be made in the NRC's proposed TSs. Specifically, the corrections include:

• Modification of Table B2-4 “Bounding PWR Fuel Assembly Loading Criteria—Enrichment/Soluble Boron Limits” to include two sections; revision of the upper section title to “TSC [Transportable Storage Cannister] with Undamaged PWR Fuel Basket Assembly Max. Initial Enrichment (wt%235U [uranium-235])” from “Max. Initial Enrichment (wt% 235U).” The bottom section is titled “TSC with Damaged PWR Fuel Basket Assembly Max. Initial Enrichment (wt% 235U).”

• For the upper section of the revised table, the first five entries starting from the top of column 3, which is for an absorber with 0.036 boron-10 grams per cubic centimeter and a soluble boron concentration of 2000 parts per million, have been corrected. The values are revised from 4.0 percent to the values presented in Table 6.7.3-11 “PWR System Generic Load Limits (0.036 10B g/cm2 Absorber)” of Revision 4 of the MAGNASTOR® Final Safety Analysis Report (FSAR).

• The bottom section of the revised table contains the maximum initial enrichment values presented in the MAGNASTOR® Amendment No. 3 submittal, FSAR version 10B, changed page 6.7.8-90, Table 6.7.8-10.

Response. The NRC agrees with NAC's corrections. The corrections have been made in CoC No. 1031, Amendment No. 3, Appendix B, and the SER for this final rule.

The National Technology Transfer and Advancement Act of 1995 (Pub. L. 104-113) requires that Federal agencies use technical standards that are developed or adopted by voluntary consensus standards bodies unless the use of such a standard is inconsistent with applicable law or otherwise impractical. In this final rule, the NRC will revise the MAGNASTOR® Cask System design listed in § 72.214, List of Approved Spent Fuel Storage Casks. This action does not constitute the establishment of a standard that contains generally applicable requirements.

Under the “Policy Statement on Adequacy and Compatibility of Agreement State Programs” approved by the Commission on June 30, 1997, and published in the Federal Register on September 3, 1997 (62 FR 46517), this rule is classified as Compatibility Category “NRC.” Compatibility is not required for Category “NRC” regulations. The NRC program elements in this category are those that relate directly to areas of regulation reserved to the NRC by the Atomic Energy Act of 1954, as amended, or the provisions of 10 CFR. Although an Agreement State may not adopt program elements reserved to the NRC, it may wish to inform its licensees of certain requirements via a mechanism that is consistent with the particular State's administrative procedure laws, but does not confer regulatory authority on the State.

The Plain Writing Act of 2010 (Pub. L. 111-274) requires Federal agencies to write documents in a clear, concise, and well-organized manner. The NRC has written this document to be consistent with the Plain Writing Act as well as the Presidential Memorandum “Plain Language in Government Writing,” published June 10, 1998 (63 FR 31883).

Under the National Environmental Policy Act of 1969, as amended, and the NRC regulations in subpart A of 10 CFR part 51, the NRC has determined that this rule, if adopted, would not be a major Federal action significantly affecting the quality of the human environment and, therefore, an environmental impact statement is not required. The NRC has prepared an environmental assessment (ADAMS Accession No. ML13151A152) and, on the basis of this environmental assessment, has made a finding of no significant impact. This rule amends the CoC for the MAGNASTOR® Cask System design within the list of approved spent fuel storage casks that power reactor licensees can use to store spent fuel at reactor sites under a general license. Specifically, NAC requested changes to revise authorized contents to include: (1) PWR damaged fuel contained in damaged fuel cans that are placed in a damaged fuel basket assembly; (2) PWR fuel assemblies with nonfuel hardware per the expanded definition in the Amendment No. 3 application; and (3) PWR fuel assemblies with up to five activated stainless steel fuel replacement rods at a maximum burnup/exposure of 32.5 GWd/MTU.

This amendment also revises paragraph 4.3.1(i) in Appendix A of the CoC TSs to clarify that the maximum design basis earthquake accelerations of 0.37g in the horizontal direction (without cask sliding) and 0.25g in the vertical direction at the ISFSI pad top surface do not result in cask tip-over. Furthermore, this amendment makes additional changes to Appendix A and Appendix B of the CoC. The changes to the aforementioned documents are identified with revision bars in the margin of each document.

The environmental assessment and finding of no significant impact on which this determination is based are available for inspection at the NRC's PDR, Room O-1F21, One White Flint North, 11555 Rockville Pike, Rockville, Maryland 20852. Single copies of the environmental assessment and finding of no significant impact are available from the individual listed in the FOR FURTHER INFORMATION CONTACT section of this document.

This rule does not contain any information collection requirements and, therefore, is not subject to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). Existing requirements were approved by the Office of Management and Budget (OMB), Approval Number 3150-0132.

The NRC may not conduct or sponsor, and a person is not required to respond to, a request for information or an information collection requirement unless the requesting document displays a currently valid OMB control number.

On July 18, 1990 (55 FR 29181), the NRC issued an amendment to 10 CFR part 72 to provide for the storage of spent nuclear fuel under a general license in cask designs approved by the NRC. Any nuclear power reactor licensee can use NRC-approved cask designs to store spent nuclear fuel if it notifies the NRC in advance, the spent fuel is stored under the conditions specified in the cask's CoC, and the conditions of the general license are met. A list of NRC-approved cask designs is contained in 10 CFR 72.214. On November 21, 2008 (73 FR 70587), the NRC issued an amendment to 10 CFR part 72 that approved the MAGNASTOR® Cask System design by adding it to the list of NRC-approved cask designs in 10 CFR 72.214.

On August 26, 2010, and as supplemented on February 4, 2011, February 16, 2011, August 15, 2011, October 3, 2011, March 21, 2012, March 30, 2012, April 6, 2012, and April 22, 2013, NAC submitted an application to amend the MAGNASTOR® Cask System. The amendment revises authorized contents to include: (1) PWR damaged fuel contained in damaged fuel cans that are placed in a damaged fuel basket assembly; (2) PWR fuel assemblies with nonfuel hardware per the expanded definition in the Amendment No. 3 application; and (3) PWR fuel assemblies with up to five activated stainless steel fuel replacement rods at a maximum burnup/exposure of 32.5 GWd/MTU.

This amendment also revises paragraph 4.3.1(i) in Appendix A of the CoC TSs to clarify that the maximum design basis earthquake accelerations of 0.37g in the horizontal direction (without cask sliding) and 0.25g in the vertical direction at the ISFSI pad top surface do not result in cask tip-over. Furthermore, this amendment makes additional changes to Appendix A and Appendix B of the CoC. The changes to the aforementioned documents are identified with revision bars in the margin of each document.

The alternative to this action is to withhold approval of Amendment No. 3 and to require any 10 CFR part 72 general licensee seeking to load spent nuclear fuel into MAGNASTOR® Cask System under the changes described in Amendment No. 3 to request an exemption from the requirements of 10 CFR 72.212 and 72.214. Under this alternative, each interested 10 CFR part 72 licensee would have to prepare, and the NRC would have to review, a separate exemption request, thereby increasing the administrative burden upon the NRC and the costs to each licensee.

Approval of the final rule is consistent with previous NRC actions. Further, as documented in the SER and the environmental assessment, the final rule will have no adverse effect on public health and safety or the environment. This final rule has no significant identifiable impact or benefit on other Government agencies. Based on this regulatory analysis, the NRC concludes that the publication of the final rule is consistent with the NRC's responsibilities for public health and safety and the common defense and security. No other available alternative is preferable, and therefore, this action is recommended.

Under the Regulatory Flexibility Act of 1980 (5 U.S.C. 605(b)), the NRC certifies that this rule will not have a significant economic impact on a substantial number of small entities. This final rule affects only nuclear power plant licensees and NAC International, Inc. These entities do not fall within the scope of the definition of small entities set forth in the Regulatory Flexibility Act or the size standards established by the NRC (10 CFR 2.810).

The NRC has determined that the backfit rule (10 CFR 72.62) does not apply to this final rule. Therefore, a backfit analysis is not required.

Under the Congressional Review Act of 1996, the NRC has determined that this action is not a major rule and has verified this determination with the Office of Information and Regulatory Affairs of OMB.

For the reasons set out in the preamble and under the authority of the Atomic Energy Act of 1954, as amended; the Energy Reorganization Act of 1974, as amended; the Nuclear Waste Policy Act of 1982, as amended; and 5 U.S.C. 552 and 553; the NRC is adopting the following amendments to 10 CFR part 72.

I. Background

Section 5200 of the Revised Statutes, 12 U.S.C. 84, provides that the total loans and extensions of credit by a national bank to a person outstanding at one time shall not exceed 15 percent of the unimpaired capital and unimpaired surplus of the bank if the loan or extension of credit is not fully secured, plus an additional 10 percent of unimpaired capital and unimpaired surplus if the loan is fully secured. Section 5(u)(1) of the Home Owners' Loan Act (HOLA), 12 U.S.C. 1464(u)(1), provides that section 5200 of the Revised Statutes “shall apply to savings associations in the same manner and to the same extent as it applies to national banks.” In addition, section 5(u)(2) of HOLA, 12 U.S.C. 1464(u)(2), includes exceptions to the lending limits for certain loans made by savings associations. These HOLA provisions apply to both Federal and state-chartered savings associations.

Section 610 of the Dodd-Frank Wall Street Reform and Consumer Protection Act 1 (Dodd-Frank Act) amends section 5200 of the Revised Statutes to provide that the definition of “loans and extensions of credit” includes any credit exposure to a person arising from a derivative transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction between a national bank and that person. This amendment was effective July 21, 2012. By virtue of section 5(u)(1) of the HOLA, this new definition of “loans and extensions of credit” applies to all savings associations as well as to national banks.

On June 21, 2012, the OCC published in the Federal Register an interim final rule 2 that amended the OCC's lending limits regulation for national banks, 12 CFR part 32, by consolidating the lending limits rules applicable to national banks and savings associations 3 and implementing section 610 of the Dodd-Frank Act. The interim final rule also removed the separate OCC regulation at 12 CFR 160.93 that governed lending limits for savings associations.4

The OCC received numerous public comments from interested parties. These comments, the provisions of the interim final rule they address, and the resulting amendments to the interim final rule are discussed below.

The OCC received no public comments in response to the amendments included in the interim final rule that integrate savings associations into part 32.5 However, upon further review, the OCC is making the following technical amendments relating to the scope of the rule with respect to savings associations in order to avoid unintended or anomalous results.

The former lending limits rule applicable to savings associations, § 160.93(a), excluded loans made by savings associations and their subsidiaries consolidated in accordance with generally accepted accounting principles (GAAP-consolidated subsidiaries) to all subordinate organizations and savings association affiliates. Rules applicable in these situations were set forth in part 159. Specifically, § 159.5(b) established lending limits for loans by a Federal savings association and its GAAP-consolidated subsidiaries to non-consolidated subsidiaries. Section 159.5(b) did not set a specific lending limit for loans to GAAP-consolidated subsidiaries but provided that such a limit could be established if warranted by safety and soundness considerations.

The interim final rule carried over the existing exclusion from the lending limits rule for loans to GAAP-consolidated subsidiaries but did not exclude from the coverage of part 32 loans made to non-consolidated subsidiaries. Therefore, loans to non-consolidated subsidiaries of Federal savings associations were made subject to the lending limits in part 32, but no corresponding change was made to the limits set forth in part 159. As a result, the interim final rule subjected loans to non-consolidated subsidiaries of Federal savings associations to the lending limits set forth in both parts 32 and 159, which differ. This result was not intended.

This final rule corrects this overlap by replacing the lending limits set forth in § 159.5(b) with a cross-reference to part 32; by removing, as unnecessary, the reference to “loans” within § 159.5(c); and by making a conforming change to § 159.3(k)(2). This amendment also removes the provision in § 159.5(b)(2) that provides that the OCC may limit the amount of loans to GAAP-consolidated subsidiaries where safety and soundness considerations warrant such action. This language merely restates the OCC's statutory authority to apply prudential standards to loans by both national banks and Federal savings associations for safety and soundness reasons. Therefore, removal of § 159.5(b)(2) does not affect this authority.

The interim final rule did not revise part 32 to address the aggregation of loans made by a service corporation with loans made by the parent savings association. For Federal savings associations, such aggregation is currently addressed by § 159.3(k)(2), which provides that loans made by a service corporation controlled by a Federal savings association are aggregated with the loans made by that savings association for purposes of the lending limits of part 32. For purposes of § 159.3(k)(2), “control” is defined by reference to 12 CFR part 174.6 The control standard in part 174 is a broad standard that could potentially result in the aggregation of loans by non-consolidated service corporations with those of the parent savings association. The final rule avoids this result by revising the scope of part 32 to aggregate loans by GAAP-consolidated service corporations with those of the parent savings association. The final rule also makes conforming changes to § 159.3(k)(2).

Prior to the interim final rule, pursuant to former §§ 160.93(a) and 159.3(k), loans made by foreign and domestic subsidiaries, as defined by part 159, of a Federal savings association were aggregated with loans made by the parent savings association. The interim final rule amended part 32 to narrow the scope of the aggregation to encompass loans by domestic operating subsidiaries of savings associations only, the same standard that applied to national banks. The interim final rule did not amend the aggregation standard in § 159.3(k). As a result, part 32 and § 159.3(k) set forth different aggregation rules for loans made by foreign subsidiaries of Federal savings association.

To correct this anomaly, the final rule revises the scope section of part 32 to aggregate loans made by operating subsidiaries and GAAP-consolidated service corporations of savings associations with loans made by the parent institution. Loans by such subsidiaries will be aggregated with loans made by the parent savings association regardless of whether the subsidiary is foreign or domestic. Loans made by foreign subsidiaries of national banks will continue to be governed by the separate lending limits set forth in Regulation K.7 Regulation K is not applicable to savings associations and, therefore, addressing loans made by foreign subsidiaries of savings associations in part 32 is appropriate.

The OCC also is removing the words “bank's or savings association's” in § 32.1(c)(1)(ii), as these words are redundant, and is making other conforming changes to § 32.1.

To implement the requirements of section 610 of the Dodd-Frank Act, the interim final rule amended the definition of “loans and extensions of credit” in § 32.2 to include certain credit exposure arising from a derivative transaction or a securities financing transaction, i.e., a repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction. The interim final rule defined “derivative transaction” to include any transaction that is a contract, agreement, swap, warrant, note, or option that is based, in whole or in part, on the value of, any interest in, or any quantitative measure or the occurrence of any event relating to, one or more commodities, securities, currencies, interest or other rates, indices, or other assets.

The interim final rule amended part 32 to provide national banks and savings associations with different options for measuring the credit exposures of derivative transactions and securities financing transactions for purposes of the lending limits rules. Providing these options was intended to reduce regulatory burden, particularly for smaller and mid-size banks and savings associations.

All of the comment letters received by the OCC on the interim final rule addressed the amendments implementing section 610. These comments, and any resulting amendments to part 32 made by this final rule, are discussed below.

We note that the OCC had extended, though a separate rulemaking,8 the temporary exception period for the application of the section 610-related provisions of part 32 from January 1, 2013, as contained in the interim final rule, to July 1, 2013. As a result, national banks and savings associations are not currently required to comply with these provisions. However, the OCC has determined that a further extension of this temporary exception period is appropriate in light of the publication date of this final rule and in order to allow institutions that wish to use the Model Methods sufficient time to develop a model, receive approval for its use, and implement the model. Moreover, the other methods provided by the rule to measure credit exposure would not be appropriate for many institutions with large portfolios, as compared with the more risk-sensitive method of measuring credit exposures. Therefore, this final rule extends this temporary exception period through October 1, 2013. As a result, national banks and savings associations will not be required to comply with the section 610-related provisions as amended by the final rule until this date. As indicated in the preamble to the interim final rule, notwithstanding this extension, the OCC retains full authority to address credit exposures that present undue concentrations on a case-by-case basis through our existing safety and soundness authorities.

Some commenters requested clarification of, or changes to, the application of the section 610-related provisions of the interim final rule to specific types of transactions. Specifically, three financial trade associations requested that the rule clarify that options sold and fully paid for are not covered by the rule because these types of exposures have no ongoing credit exposure beyond settlement, i.e., when an option is paid-up, there is no further performance obligation by the counterparty and no further credit exposure. The OCC agrees that these transactions do not give rise to credit exposure for the purpose of the lending limits. When a bank sells an option and that option is fully paid, there is no counterparty credit risk because the bank is not entitled to anything further from the counterparty. This fact is evident from the nature of the transaction, and it is not necessary to amend the final rule.

Another commenter, a nonprofit organization, requested that the final rule not exempt securities financing transactions involving Federal- and state-related securities from the lending limits 9 because this exemption is not explicitly required by section 610 and such transactions are not free from the risk to the institution of counterparty default. The OCC disagrees with this recommendation. These types of transactions typically involve less risk than other securities financing transactions. Moreover, this exception is consistent with the longstanding exceptions in sections 5200(c)(4) and (5) and § 32.3(c)(3), through (c)(5), which provide exceptions for loans secured by U.S. obligations, loans to or guaranteed by Federal agencies, or loans to or guaranteed by state or local governments. In addition, section 5200(d) grants the OCC the authority to establish limits or requirements other than those specified in the statute for particular classes or categories of loans or extensions of credit. Furthermore, an exemption for these types of securities financing transactions is consistent with the treatment of reverse repurchase agreements in § 32.2(q)(1)(vii), under which such transactions are treated as loans subject to an exception for transactions relating to Type I securities as defined in 12 CFR part 1.10 We therefore decline to remove this exemption in the final rule.

In general. The interim final rule provides three methods for calculating credit exposure of derivative transactions other than credit derivatives, and two methods for securities financing transactions.11 Unless required to use a specific method by the appropriate Federal banking agency for safety and soundness reasons, a national bank or savings association may choose which of these methods it will use.12 However, under the interim final rule, a national bank or savings association must use the same method for calculating credit exposure arising from all derivative transactions and the same method for all securities financing transactions.13

A number of financial institution trade associations requested that the OCC apply the requirement to use a specific method as determined by the appropriate Federal banking agency only prospectively and to phase it in over time. These commenters also asked the OCC to set forth the factors it might use in exercising discretion to impose this requirement. The OCC declines to limit this provision only to future transactions. We find that the discretion of the appropriate Federal banking agency to require, on a case-by-case basis, application of a specific method to prior and/or future transactions is a necessary supervisory tool for safety and soundness purposes. This discretion would permit the agency to phase in the required method, as appropriate. Examiners will coordinate with the bank or savings association to ensure any change in methods is managed fairly and is consistent with safety and soundness.

Commenters also requested that the OCC permit these institutions to apply different calculation methods based on transaction or product type, and that the rule should provide guidance with respect to transitioning between methods. While the OCC does not intend to permit institutions to exercise unlimited discretion to pick and choose among the calculation methods for different derivative or securities financing transactions, we recognize that there may be circumstances in which the use of only one calculation method for all transactions may present safety and soundness concerns or may not be practically feasible. For example, an institution may develop a new transaction type after it has developed, and received approval for the use of, its model. As discussed above, examiners already have the flexibility under the interim final rule to require that a particular measurement method for a particular subset of derivative or securities financing transactions be used to calculate credit exposure. However, in order to clarify that an institution may request to use a specific method, and that the OCC may permit a specific method to be used for one or more transactions or transaction types, we have amended both § 32.9(b)(3) (renumbered in the final rule as § 32.9(b)(4)) and § 32.9(c)(2) to provide that the appropriate Federal banking agency may, at its discretion, permit a national bank or savings association to use a specific method to calculate credit exposure, and that this method may apply to all or specific transactions if the appropriate Federal banking agency finds that such method is consistent with the safety and soundness of the bank or savings association. Institutions obtaining permission to use an alternative method should work with their examiners to ensure a proper transition to use of the new method.

Internal Model for Derivative Transactions and Securities Financing Transactions. The interim final rule permits national banks and savings associations to calculate credit exposure for derivative transactions and securities financing transactions through the use of an internal model. For derivative transactions, § 32.9(b)(1)(i) provides that counterparty credit exposure is measured by adding the current credit exposure (the greater of zero or the mark-to-market (MTM) value) of the transaction and the potential future exposure (PFE) of the transaction. Under § 32.9(b)(1)(i)(C) of the interim final rule, a bank or savings association must calculate its PFE by using an internal model that has been approved for purposes of Section 53 of the Internal-Ratings-Based and Advanced Measurement Approaches Appendix (Advanced Approaches Appendix) of the appropriate Federal banking agency's capital rules 14 or any other appropriate model approved by the appropriate Federal banking agency. Section 32.9(b)(1)(i)(D) provides that a national bank or savings association that calculates its credit exposure arising from derivative transactions by using an internal model may net exposures arising under the same qualifying master netting agreement, thereby reducing the institution's exposure to the borrower to the net exposure under the master netting agreement.

Similarly, for securities financing transactions, § 32.9(c)(1)(i) of the interim final rule permits an institution to calculate credit exposure by using an internal model approved by the appropriate Federal banking agency for purposes of Section 32(d) of the Internal-Ratings-Based Appendices of the appropriate Federal banking agency's capital rules,15 as appropriate, or any other appropriate model approved by the appropriate Federal banking agency.

Most commenters discussed this modeling option. One commenter, a nonprofit organization, stated that institutions should not be permitted to use internal models for lending limits purposes. The OCC disagrees with this comment and is retaining the modeling option in the final rule. The use of an internal model, with the safeguards described below, improves the accuracy of the calculation of the institution's credit exposures to derivative and securities financing transactions. Not including such a modeling option, as advocated by the commenter, would result in a rule that would not accurately reflect counterparty exposure for certain banks. Importantly, the rule applies appropriate supervisory safeguards to a national bank's or savings association's use of an internal model. Specifically, a national bank or savings association may not use an internal model unless the use of the model has been approved by the appropriate Federal banking agency for purposes of the Advanced Approaches Appendix of the agency's capital rule (and, as discussed below, the institution has provided prior written notice to the agency of its use of the model for part 32 purposes) or specifically approved by the agency for purposes of the lending limits rule. Furthermore, also as discussed below, this final rule provides that the use of the model for lending limits purposes following any subsequent substantive change to it must be approved by the appropriate Federal banking agency.

Some commenters requested the OCC to clarify the nature of the internal model approval process, including the standards for approval and duration of the process. For the use of a model not previously approved pursuant to the Advanced Approaches Appendix, the OCC intends that the OCC approval process will include a thorough institution and OCC review of the model's specific use for part 32 and the institution's ability to monitor the risks associated with the transactions, and will be separate and apart from any approval of the use of a model for other purposes. In addition, the approval of the use of the model will be in writing. We have amended § 32.9 to specify these criteria. National banks or Federal savings associations that seek approval for the use of a model pursuant to part 32 should contact their examiner-in-charge to begin the approval process.16 As indicated above, we also have amended § 32.9 to require a bank or savings association to provide prior written notice to the appropriate Federal banking agency before using an internal model for lending limits purposes the use of which has been previously approved by the agency for purposes of the Advanced Approaches Appendix.17 Also as indicated above, we have added to the final rule a requirement that if a national bank or savings association makes a substantive revision to a model after the appropriate Federal banking agency's approval, either pursuant to the Advanced Approaches Appendix or part 32, the use of the revised model must be approved by the agency before it may be used for purposes of part 32.18

Commenters also requested that in the event that the use of a bank's internal model is not yet approved, or approved and not yet implemented, by the end of the temporary exception period, the appropriate Federal banking agency should approve on a provisional basis a bank's or savings association's calculation of credit exposures using existing internal models. Furthermore, these commenters said that the agency should approve for lending limits purposes on a provisional basis, if appropriate, the use of models that are in the process of being approved. The OCC disagrees. As discussed above, to appropriately support the determination that a model is appropriate for measuring the credit exposure of a derivative transaction or securities financing transaction under part 32 and adequately addresses the risks of the transaction, approval of the use of a model must be made specifically for part 32 and must be obtained prior to the model's use for this purpose, unless the use of the model has already been approved for purposes of the Advanced Approaches Appendix. Therefore, in order to ensure the safety and soundness of a national bank or Federal savings association, for part 32 purposes the OCC will not approve the use of a model on a provisional basis and will not permit the model's use before final approval. However, we do not intend that this approval requirement necessitate the development of a new model specifically for use under part 32. A national bank or Federal savings association may present an existing internal model for approval by the OCC for use as a lending limits model. For example, an institution may present an internal model it has developed for use under the Advanced Approaches Appendix but which has not yet been approved for that use. Because most complex banks have developed such models that address counterparty risk, we believe compliance with the approval requirement will be possible prior to the end of the extended exception period.

Commenters also requested clarification regarding the interim final rule's reference in §§ 32.9(b)(1)(i)(C) and 32.9(c)(1)(i) to an internal model that has been approved by the appropriate Federal banking agency for purposes of the Advanced Approaches Appendix. Technically, pursuant to the Advanced Approaches Appendix, the agency does not separately approve the use of the institution's model but instead approves the institution's exit from parallel run and its use of the Advanced Approaches, for which the institution has developed the internal model.19 We confirm that this approval to exit parallel run constitutes “approval” of the use of the institution's model for purposes of part 32, and have added language to §§ 32.9(b)(1)(i)(C) and 32.9(c)(1)(i) of the final rule to clarify this point.

We also have further clarified the rule by changing the name of the method provided by §§ 32.9(b)(1)(i) and 32.9(c)(1)(i) in the final rule from “Internal Model Method” to “Model Method.” This change should alleviate confusion with the Internal Models Approach for calculating the risk-weighted asset amount for equity exposures included in the agencies' capital rules.

Furthermore, we have replaced the provisions of the Advanced Approaches Appendix referenced in the model methods. For derivative transactions, in response to a commenter, we have amended § 32.9(b)(1)(i)(C) to replace the reference to Section 53 of the Advanced Approaches Appendix with a reference to Section 32(d) of the Appendix. Section 53 refers to the modeling of equity risk (a form of market risk) rather than counterparty risk and is more general in nature. Section 32(d) more appropriately refers to the modeling of counterparty credit exposure arising from derivatives, i.e. credit risk, and specifically accounts for collateral. Likewise, for securities financing transactions, we have amended § 32.9(c)(1)(i) so that it references Section 32(b) of the Advanced Approaches Appendix instead of Section 32(d) of the Appendix. The OCC finds that the model provided for by Section 32(b) of this Appendix is the more appropriate model for measuring credit exposure of securities financing transactions for the lending limits rule.

Non-Model Methods. The interim final rule provides two non-model measurement methods for credit exposures arising from derivative transactions and one non-model measurement method for credit exposures arising from securities financing transactions.

For derivative transactions, national banks and savings associations may choose either the Conversion Factor Matrix Method, set forth in § 32.9(b)(1)(ii), or the Remaining Maturity Method, as set forth in § 32.9(b)(1)(iii). Under the Conversion Factor Matrix Method, the credit exposure is equal to, and remains fixed at, the PFE of the derivative transaction, as determined at execution of the transaction by reference to a simple look-up table (Table 1 of the interim final rule). To clarify this calculation, the OCC has made a technical amendment to the rule to provide that the PFE of the derivative transaction under this method equals the product of the notional amount of the derivative transaction and a fixed multiplicative factor determined by reference to Table 1 of this section.

The credit exposure for derivative transactions calculated under the Remaining Maturity Method incorporates both the current MTM and the transaction's remaining maturity (measured in years) as well as a fixed add-on for each year of the transaction's remaining life by adding the current MTM value of the transaction to the product of the notional amount of the transaction, the remaining maturity of the transaction, and a fixed multiplicative factor. These multiplicative factors differ based on product type and are determined by a look-up table (Table 2 of the interim final rule).

One commenter stated that the credit exposures under the Conversion Factor Matrix Method for derivative transactions should be marked-to-market rather than fixed at inception in order to properly value the amount of credit risk. Because the market value of these transactions can change significantly from the time of execution, the commenter notes that this approach could cause an institution's exposure to a borrower to exceed the lending limits on a MTM basis routinely without being required to reduce the exposure. The OCC disagrees. As noted in the preamble to the interim final rule, we are aware that, under the Conversion Factor Matrix Method, the actual MTM value at a given point in the life of a derivative contract may exceed the initially estimated PFE, and that it would be possible for a bank to make a new loan that, combined with the actual exposure (were such exposure based on current MTM value), could exceed the lending limits. However, the OCC believes that the risks in such case are limited and can be addressed in the institutions likely to use this method (smaller, less complex institutions) during the supervisory process by examiners appropriately responding to transactions or concentrations that raise safety and soundness concerns. For example, examiners could require the bank or savings association to measure credit exposure by means of a different method if doing so is appropriate for safety and soundness purposes. Allowing non-complex banks and savings associations to “lock-in” the attributable exposure at the execution of the contract provides for certainty and simplicity, with limited risk.20

A number of trade association and financial institution commenters also recommended that the OCC amend the final rule to permit the use of the “Current Exposure Methodology” (“CEM”) as an additional option for measuring credit exposure of derivative transactions. The CEM is used under the Federal banking agencies' current regulatory capital rules, both Basel I and II capital regimes, and would be retained under the Standardized and Advanced Approaches Basel III-related proposals released by the OCC and the other Federal banking agencies.21 Under the CEM, a bank calculates the credit exposure for derivative transactions by adding the current exposure (the greater of zero or the MTM value) and the PFE (calculated by multiplying the notional amount by a specified conversion factor which varies based on the type and remaining maturity of the contract) of the derivative transactions. In particular, the commenters note that the CEM incorporates additional calculations for netting arrangements and collateral and uses multipliers that are more tailored to computing the PFE of derivative transactions. The CEM, they reason, would provide a more refined analysis of credit exposure than either the Conversion Factor Matrix Method or the Remaining Maturity Method. In addition, because of its use in the capital rules, these commenters note that the CEM is familiar to both the industry and regulators as an available measure of derivative exposures and its use for measuring credit exposure under the lending limits rule would therefore introduce less burden and operational risk than would the use of a new and different methodology for a narrow regulatory purpose.

The OCC agrees with these commenters that the CEM should be permitted for use by national banks and savings associations in calculating credit exposure arising from derivative transactions (other than credit derivative transactions). For the reasons noted above, it is superior to the Remaining Maturity Method for institutions that do not model exposures but want to adopt a more risk-sensitive method than that provided by the Conversion Factor Matrix Method. Therefore, the OCC is amending part 32 to replace the Remaining Maturity Method option with a CEM option.

A number of commenters recommended that, as with the Model Method, the OCC should permit banks and savings associations using the non-model approaches to net transactions under a qualifying master netting agreement and to recognize collateral in measuring credit exposure. These commenters note that the capital rules, payment system risk reduction efforts, and the current lending limits rule recognizes the beneficial effects of netting or collateral in reducing credit exposure. Additionally, the commenters request that the rule outline the forms of collateral the bank may rely on to offset credit exposure and suggest that this collateral should reduce the credit exposure as long as the collateral is permissible and appropriate under a valid and legally enforceable agreement. The OCC notes that the CEM option as added by this final rule provides for some netting of PFEs and, therefore, along with the presence in the rule of the Model Method option, addresses the commenters' netting concerns. The OCC also notes that part 32 already provides for exemptions for loans and extensions of credit secured by certain types of collateral, and, as noted above, the CEM incorporates additional calculations for collateral.22 These exemptions apply to the credit exposures arising from derivative transactions, as well as securities financing transactions, now covered by the lending limits rule just as they do to other loans and extensions of credit. Therefore, no amendment is necessary to recognize collateral that may reduce credit exposure for derivative transactions.

Some commenters noted that the non-model methods for derivative transactions do not differentiate between the credit exposures of interest rate swaps that are amortized from those that are not amortized. These commenters suggest that the final rule should reflect amortization in any calculation of the PFE of these swaps because the risk associated with a swap that is amortized is reduced as the notional amount decreases over the life of the swap. While we acknowledge the commenters' concerns, we do not agree that a change to the rule text to address this comment is needed. The Conversion Factor Matrix Method and the CEM provide institutions with a simple, albeit more conservative, approach to measuring credit exposure. Preserving the simplicity of these non-model methods outweighs any added accuracy that may be achieved by distinguishing between amortized and non-amortized instruments. Additionally, the CEM included in the current regulatory capital rules does not distinguish between an amortizing swap and a non-amortizing swap; therefore, we believe that it is reasonable to preserve this treatment for purposes of the legal lending limits. Further, we note that institutions may use the Model Method to account for credit exposures arising from derivative transactions, including amortizing interest rate swaps, should they so desire.

For securities financing transactions, the calculation of the credit exposure under the Non-Model Method in the interim final rule is based on the type of securities financing transaction at issue. For a repurchase agreement or a securities loan where the collateral is cash, exposure under the lending limits is equal to and remains fixed at the net current exposure, i.e., the market value at execution of the transaction of securities transferred to the other party, less cash received from the other party.23 For securities lending transactions where the collateral is other securities (i.e., not cash), the exposure is equal to and remains fixed at the product of the higher of the two haircuts associated with the securities, as determined by a look-up table included in the regulation (Table 3 in the interim final rule, renamed Table 2 in the final rule), and the higher of the two par values of the securities.24 The credit exposure arising from a reverse repurchase agreement, also known as an asset repo, or a securities borrowing transaction where the collateral is cash, equals and remains fixed at the product of the haircut associated with the collateral received, as determined in this same table, and the amount of cash transferred to the other party.25 For a securities borrowing transaction where the collateral is other securities (i.e., not cash), the credit exposure equals and remains fixed at the product of the higher of the two haircuts associated with the securities, as determined in the table, and the higher of the two par values of the securities.26

Commenters requested that the OCC permit banks to measure credit exposure of securities financing transactions by applying the standard supervisory haircuts for such transactions using the current risk-based capital rules of the appropriate Federal banking agency's capital rules 27 or the proposed Basel III Advanced Approaches rules 28 once finalized (collectively, the Basel Collateral Haircut Approach) as an additional non-model approach. These commenters note that under the Basel Collateral Haircut Approach, exposure value changes as the market value of the securities changes, while under the Non-Model Method in the interim final rule, exposure remains fixed at the inception of the securities financing transaction. Furthermore, the Basel Collateral Haircut Approach applies haircuts to the market value of the securities for both repurchase/securities lending transactions and reverse repurchases/securities borrowing transactions, while the Non-Model Method of the interim final rule applies haircuts only to the cash amount of a reverse repurchase agreement/securities borrowing transaction. In addition, these commenters note that not allowing banks to use the Basel Collateral Haircut Approach means that banks would be required to perform two separate calculations, one for the lending limits rule and one for Basel II/III, even though the different calculations would not result in materially different exposure amounts.

The OCC agrees with these commenters and has included in the final rule this additional method of measuring credit exposure for securities financing transactions, named in the rule as the Basel Collateral Haircut Method, as a new § 32.9(c)(1)(iii). We find that this approach permits a more accurate characterization of the true exposure over the life of the transaction for those national banks or savings associations that do not use an internal model and for which the existing non-model approach in the interim final rule is not optimal. In addition, because this approach is currently used by certain national banks and savings associations for purposes of the capital rules, it will eliminate redundancy and associated regulatory burden for these institutions.

As a result of adding this new non-model method for securities financing transactions, the final rule changes the name of the “Non-Model Method” included in the interim rule to “Basic Method.” The final rule also makes a technical correction to renamed Table 2 to describe the correct length of maturity for sovereign entities with maturities of more than 5 years.

Under the interim final rule, exposures to central counterparties are credit exposures subject to the lending limits. Industry commenters to the interim final rule recommended that the OCC either exclude these exposures from an institution's lending limits or assign the exposures a higher lending limit. These commenters believe that the OCC should not subject these exposures to the lending limits because the Dodd-Frank Act has mandated the migration of many derivative transactions to central counterparties, and those parties will be subject to regulation. In addition, the commenters note that applying the lending limits rule to central counterparty exposures could reduce the incentive to use central counterparties or prevent some institutions from engaging in certain transactions, thus limiting the availability of certain products to customers. One commenter also notes that applying the lending limits to exposures to central counterparties is unnecessary because central counterparties are more akin to a group of borrowers than “one borrower,” with the central counterparty insulating each clearing member and clearing customer from risks associated with the default of an individual counterparty.

Commenters also addressed the issue of applying the lending limits rule to an institution's contributions to a central counterparty's guaranty fund. Some commenters stated that the lending limits rule should apply to these contributions because they are equivalent to committed lines of credit. Others argued that the rule should not apply, or its application should be tailored.

The OCC does not agree that the lending limits rule should exclude credit exposures to central counterparties or central counterparty guaranty funds given the concentrated nature of these exposures. The lending limits serve the purpose of preventing an undue concentration of credit risk to one party, including an institution's credit exposures to central counterparties. Furthermore, permitting banks to use models to measure their exposure to central counterparties, combined with prudent credit risk management practices by clearing member banks, makes it unlikely that applying the rule to such credit exposures will cause an institution's exposures to one borrower to reach the institution's legal limit. To clarify how banks and savings associations must measure counterparty exposures to central counterparties, we have added a new § 32.9(b)(3). This new provision says that, in addition to the amount calculated under § 32.9(b), the measure of exposure to a central counterparty shall include the sum of the initial margin posted, plus any contributions to a guaranty fund at the time such contribution is made, if not already reflected in the calculation. This new provision is generally consistent with interpretive positions taken by the OCC.29 However, the OCC recognizes that the role of central counterparties in the domestic and international financial industry is dynamic and that uncertainties exist as to how this role will evolve, especially given the role assigned to central clearinghouses by the Dodd-Frank Act and choices of the bank's or savings association's client as to using certain central counterparties.30 Therefore, the OCC will continue to monitor the role of central counterparties and will revisit our lending limits rule for exposures to such entities if necessary.

The OCC received a number of comments on the interim final rule's treatment of credit exposures arising from credit derivatives. Section 32.9(b)(2) of the interim final rule applies a special rule for calculating the credit exposure of credit derivatives, a transaction in which a national bank or savings association buys or sells credit protection against loss on a third-party reference entity. Specifically, a protection purchaser that uses one of the non-model methods for derivative transactions, or that uses a model without entering an effective margining arrangement with its counterparty as defined in § 32.2(l) of the interim final rule, calculates the counterparty credit exposure arising from credit derivatives by adding the net notional value of all protection purchased from the counterparty across all reference entities.31 In addition, a protection seller calculates the credit exposure to a reference entity arising from credit derivatives by adding the notional value of all protection sold on that reference entity.32 However, the protection seller may reduce its exposure to a reference entity by the amount of any eligible credit derivative, which is defined in § 32.2(m) of the interim final rule as a single-name credit derivative or standard, non-tranched index credit derivative that meets certain requirements, purchased on that reference entity from an eligible protection provider, as defined in § 32.2(o).

Some commenters requested that the OCC amend the definition of “eligible credit derivative” to allow banks to obtain relief for the purchase of credit protection using standard tranched index credit derivatives in addition to standard non-tranched index credit derivatives. As both tranched and non-tranched index credit derivatives are highly standardized, rely on the same triggering events for payments, and calculate payments from the protection provider on the basis of the same auction-determined prices, the commenters do not believe that an institution's ability to reduce its exposures under the rule should be limited to only non-tranched index credit derivatives. The OCC disagrees with these comments and has not amended the final rule to define “eligible credit derivative” to include standard tranched index credit derivatives at this time. We will address this issue if we later determine, after experience implementing this rule, that such a change is warranted.

Commenters also recommended that the OCC clarify that the definition of “eligible credit derivative” includes, in the case of sovereign or municipality reference obligors, contracts in which the credit event is a restructuring. Because bankruptcy and insolvency regimes generally do not exist for these types of reference obligors, standard credit default swap (CDS) contracts on sovereign and municipal reference exposures instead cover the buyer of protection for restructurings that, while not conducted by a bankruptcy court or receiver, nonetheless bind the holders of the sovereign or municipal debt to changes in principal, interest, or similar economic terms of the debt. It was not the OCC's intent to exclude restructurings of such obligors in this definition. Therefore, we have amended the definition of “eligible credit derivative,” at § 32.2(m)(3)(ii), by specifically including a restructuring for obligors not subject to bankruptcy or insolvency as a credit event for a CDS.

Some commenters opposed the provision in the interim final rule, § 32.9(b)(2), that requires a national bank or savings association to enter an effective margining arrangement in order to use an internal model approach to calculate counterparty exposure arising from a credit derivative. Absent the effective margining arrangement, the bank or savings association must calculate its counterparty credit risk exposure by adding notional amounts across all reference entities for each counterparty. The interim final rule defines “effective margining arrangement” as a master legal agreement governing derivative transactions between a bank or savings association and a counterparty that requires the counterparty to post, on a daily basis, variation margin to fully collateralize that amount of the bank's net credit exposure to the counterparty that exceeds $1 million created by the derivative transactions covered by the agreement. These commenters stated that selection of a $1 million threshold is arbitrary and unnecessary because an effective model should take into account whatever threshold is applicable for a particular margining arrangement. The OCC does not agree with this comment and finds that variation margin is an important credit risk mitigation tool for prudent participation in over-the-counter derivatives markets. Beyond a prudently established variation margin threshold, the OCC does not believe it is appropriate to permit an institution to use the Model Method for credit derivatives transactions. Many large institutions currently require, or likely soon will require, that all credit exposures from derivative transactions be fully collateralized. Therefore, we believe defining “effective margining arrangement” to include a threshold is appropriate from a safety and soundness perspective, conforms with current and evolving industry standards, and is consistent with efforts to prevent the type of uncollateralized credit derivatives exposures that proved problematic during the financial crisis.

After further review of this issue, however, we believe that it is appropriate to increase the threshold amount in the definition of effective margining arrangement to reflect any existing agreements with thresholds above $1 million. This change would allow banks and savings associations with such existing margining agreements to use the Model Method without having to renegotiate and modify the agreements. We have limited this increase to $25 million, an amount that we believe adequately covers the bulk of these existing agreements. To help ensure that this increase in threshold amount will not raise new safety and soundness concerns, we have adjusted the rule to provide that the amount of the threshold under an effective margining arrangement is added to the amount of counterparty exposure calculated by the Model Method. Thus, the amount of the threshold would be subject to the lending limit. Of course, this adjustment to the rule in no way obviates or modifies the ongoing requirement that an institution's margining arrangements, including as to the threshold amounts that do not exceed the threshold used in the lending limits rule, must be consistent with safe and sound banking practices.

Commenters also requested that the OCC permit national banks to purchase credit protection, such as default or total return swaps, to reduce all types of credit exposure to a borrower.33 Under the interim final rule, the purchase of credit protection can only reduce credit derivative exposure to a reference obligor, not other exposures such as traditional loans and extensions of credit. The commenters note that the purchase of credit protection is a well-accepted risk management technique and is recognized in the Comptroller's Handbook on Concentrations of Credit as a useful strategy for managing credit concentration risk.34 They recommend that where the protection contract maturity is as long as the maturity for the other exposure, protection purchased from an eligible protection provider should be permitted under the rule to be used to reduce all types of covered credit exposure.

After careful consideration, the OCC agrees that credit protection purchased should be allowed to offset other types of credit exposures, under certain circumstances as suggested by the commenters, but only on a limited basis. Specifically, we have added a new § 32.2(q)(2)(vii) to exclude from the lending limits rule that part of a loan or extension of credit for which a national bank or savings association has purchased protection if: that protection is by way of a single-name credit derivative that meets the requirements for an eligible credit derivative contained in § 32.2(m)(1) through (7); the credit derivative is purchased from an eligible protection provider; the reference obligor is the same legal entity as the borrower in the loan or extension of credit; and the amount and maturity of the protection purchased equals or exceeds the amount and maturity of the loan or extension of credit. However, even if all of these requirements are satisfied, the total amount of such exclusion may not exceed 10 percent of the bank's or savings association's capital and surplus.35 We believe this policy strikes an appropriate balance by conforming the lending limits rule to existing agency policy on the purchase of credit protection (such as the policy cited by the commenters) while placing a ceiling on a bank's ability to obtain relief from the lending limits in this manner.

Three financial trade associations stated that the interim final rule is not clear as to whether, and, if so, how, it covers credit exposures arising from tranched index credit derivatives. The commenters noted that the rule requires banks to use “notional value” to calculate credit exposure on protection sold, but there are several different notional amounts identified in tranched index CDS documentation, and none of these can reasonably be understood as a proxy for credit exposure.

The OCC understands that the interim final rule does not resolve questions regarding the measurement of exposures arising from tranched credit derivatives, whether they are standard index or bespoke tranches. However, because there are different notional amounts that could apply to tranched exposures, none of which may be indicative of the risk to a particular reference entity, it is difficult to apply a specific rule for all situations. Instead, we intend to address this issue through OCC interpretations. This approach will allow the OCC to more thoroughly examine the transactions at issue and apply approaches that most accurately calculate the notional amount attributable to each reference entity in a specific tranche.

A number of comments were directed specifically to the interim final rule's treatment of securities financing transactions.

Some commenters asked the OCC to clarify that “repurchase agreement” and “reverse repurchase agreement” as used in the definition of “securities financing transaction” are limited to transactions in securities. The lack of a definition for these specific terms could result in the impression that the same lending limits rule applicable to securities financing transactions in § 32.9 applies to other types of repurchase agreements and reverse repurchase agreements that do not involve securities. It does not.36 However, to address this concern we have added a definition of “security” to the final rule, which cross-references to the definition of this term in section 3(a)(10) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(10)). This definition clarifies that the transactions that are referred to as “securities financing transactions” are transactions that involve securities.

As indicated above, under the renamed Basic Method, the credit exposure arising from either a securities lending transaction or a securities borrowing transaction where the collateral is other securities will equal and remain fixed as the product of the higher of the two haircuts associated with the two securities, as determined in Table 2 of the final rule (formerly Table 3 of the interim final rule), and the higher of the two par values of the securities. Commenters questioned how the credit exposure would be calculated when more than one type of securities collateral is provided in these transactions. We agree that this circumstance should be addressed in the rule. Accordingly, we have amended the provisions in the rule regarding these non-cash collateral transactions, §§ 32.9(c)(1)(ii)(B)(2) and 32.9(c)(1)(ii)(D)(2), to provide that where more than one security is provided as collateral, the applicable haircut is the higher of the haircut associated with the security borrowed and the notional-weighted average of the haircuts associated with the securities provided as collateral.

Commenters also requested that the OCC clarify that the securities lending transactions secured by Federal and state (or political subdivision) obligations should receive the same treatment as “cash collateralized” transactions under the rule when calculating credit exposure. The OCC notes that the rule currently provides that credit exposures arising from securities financing transactions in which the securities financed are type I securities, as defined in 12 CFR 1.2(j), in the case of national banks (generally Federal and state securities), or securities listed in sections 5(c)(1)(C), (D), (E), and (F) of HOLA and general obligations of a state or subdivision as listed in section 5(c)(1)(H) of HOLA,37 in the case of savings associations, are exempt from the lending limits. Therefore, no further change is needed.

The interim final rule added a new paragraph (a)(3) to § 32.6 to provide that a credit exposure arising from a derivative transaction or securities financing transaction and determined by a model pursuant to § 32.9(b)(1)(i) or § 32.9(c)(1)(i), respectively, will not be deemed a violation of the lending limits statute or regulation and will be treated as nonconforming if the extension of credit was within the national bank's or savings association's legal lending limits at execution and is no longer in conformity because the exposure has increased since execution. One commenter requested that credit exposures that exceed the limits after inception of the derivative transaction should be treated as violations of the lending limits rule rather than as nonconforming, asserting that otherwise there would be an incentive to game the limits. We disagree with this comment. Because of the nature of these transactions, it would not be possible for an institution to predict with any certainty the maximum exposure amount at the execution of a transaction. Furthermore, once a transaction becomes nonconforming, the rule requires the institution to use reasonable efforts to bring it into conformity with the lending limits unless doing so would be inconsistent with safety and soundness. The OCC enforces this provision accordingly.

Other commenters requested that derivative transactions calculated using a non-model method also should be treated as “nonconforming” if credit exposure arising from the derivative transaction increases after execution of the transaction. Without this change, institutions choosing a non-model method could face violations of the lending limits due to increases in credit exposure post-execution, while banks using internal models, in similar circumstances, would only be subject to an instance of nonconformance with the opportunity to correct the nonconformance before it is deemed a violation. We agree that the provision on nonconforming loans and extensions of credit should apply to transactions calculated using a non-model method. Although the OCC intended this treatment when issuing the interim final rule, the text of the rule did not accomplish it. We therefore have made this technical change by adding reference to the Current Exposure Method as well as the Basel Collateral Haircut Method, which we have added as an additional non-model method for securities financing transactions, to § 32.6(a)(3) of the final rule.38

Unless specifically noted in the rule, all provisions of part 32 apply to credit exposures arising from a derivative transaction or a securities financing transaction, including the lending limits calculation rules of § 32.4 and the combination rules of § 32.5. Some commenters took issue with the application of the direct benefit test in § 32.5, which provides for the attribution and combination of loans and extensions of credit under certain circumstances, to derivative and securities financing transactions. They stated that the direct benefit test would be difficult to monitor in these transactions because of the complexity of these transactions and would likely require significant changes to market practices or revisions to standard documentation to implement. Instead they recommend that for these transactions the direct benefit test should be limited by its terms to situations of evasion. The OCC has carefully considered this comment. The direct benefit test is dependent on the facts of a particular case, and the OCC understands that the nature of derivative and securities financing transactions may raise factual issues not found in traditional loan transactions. However, the OCC has determined not to make changes to the long-established text of the direct benefit test at this time. The OCC will continue to apply the test sensibly to these transactions in light of their facts and circumstances and will review the direct benefit test once it has experience with its application to the exposures arising from derivative transactions and securities financing transactions.

The table below is provided as an aid in understanding the final rule. A prior version was included in the interim final rule and we have revised it to simplify it and to reflect the changes included in the final rule. It is not a substitute for the final rule itself.

The Administrative Procedure Act (APA) requires that a substantive rule must be published not less than 30 days before its effective date, unless, among other things, the rule grants or recognizes an exemption or relieves a restriction.41 Current 12 CFR 32.1(d) provides a temporary exception period for the application of the section 610-related provisions of part 32 that expires on July 1, 2013. This final rule amends § 32.1(d) to extend this temporary exception period through October 1, 2013. Because this amendment postpones the application of the section 610-related provisions to national banks and savings associations, thereby relieving banks and savings associations from compliance with the section 610-related provisions on July 1, 2013, the amendment may take effect less than 30 days from publication. Because this extension must take effect before July 1, 2013 to prevent the current exception period from expiring, we have made the amendment to 12 CFR 32.1(d) contained in this final rule effective on June 25, 2013.

Section 302 of the Riegle Community Development and Regulatory Improvement Act of 1994 (12 U.S.C. 4802) (RCDRIA) requires that regulations imposing additional reporting, disclosure, or other requirements on insured depository institutions take effect on the first day of the calendar quarter after publication of the final rule, unless, among other things, the agency determines for good cause that the regulations should become effective before such time. Because the amendment to extend the temporary compliance period does not impose any additional reporting, disclosure, or other requirements, the OCC finds good cause to dispense with the delayed effective date otherwise required by RCDRIA for this provision.

All other amendments made by this final rule will take effect on the first day of the calendar quarter after publication of the final rule, October 1, 2013.

Pursuant to the Regulatory Flexibility Act (RFA),42 5 U.S.C. 603, an agency must prepare a regulatory flexibility analysis for all proposed and final rules that describe the impact of the rule on small entities, unless the head of an agency certifies that the rule will not have “a significant economic impact on a substantial number of small entities.” However, the RFA applies only to rules for which an agency publishes a general notice of proposed rulemaking pursuant to 5 U.S.C. 553(b).43 Because the OCC did not publish a notice of proposed rulemaking pursuant to 5 U.S.C. 553(b)(B),44 the RFA does not apply to this final rule.

Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency prepare a budgetary impact statement before promulgating any rule likely to result in 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. The OCC has determined that there is no Federal mandate imposed by this rulemaking 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. Accordingly, final rule is not subject to section 202 of the Unfunded Mandates Act.

In accordance with the requirements of the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521), the OCC may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. Part 32 contains information collection requirements under the PRA, which have been previously approved by OMB under OMB Control No. 1557-0221. The OCC is seeking renewal of OMB PRA approval separately from this rulemaking for these requirements. The OCC now is seeking OMB approval of the model approval process contained in § 32.9 of this final rule.

In response to comments received, we have clarified the model approval process in § 32.9(b)(1)(i)(C). The use of a model (other than the model approved for purposes of the Advanced Measurement Approach in the capital rules) must be approved by the OCC specifically for part 32 purposes and must be approved in writing. If a national bank or Federal savings association proposes to use an internal model that has been approved by the OCC for purposes of the Advanced Measurement Approach, the institution must provide prior written notification to the OCC prior to use of the model for lending limits purposes. OCC approval is also required before substantive revisions are made to a model that is used for lending limits purposes.

Estimated Number of Respondents: 238.

Estimated Burden per Respondent: 1 hour per model; 2 models per respondent.

Estimated Total Burden: 476 hours.

Comments are invited on:

(a) Whether the collection of information is necessary for the proper performance of the OCC's functions, including whether the information has practical utility;

(b) The accuracy of the estimates of the burden of the information collection, including the validity of the methodology and assumptions used;

(c) Ways to enhance the quality, utility, and clarity of the information to be collected;

(d) Ways to minimize the information collection burden, including through the use of automated collection techniques or other forms of information technology; and

(e) Estimates of capital or start up costs and costs of operation, maintenance, and purchase of services to provide information.

Because paper mail in the Washington, DC area and at the OCC is subject to delay, commenters are encouraged to submit comments by email if possible. Comments may be sent to: Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, Suite 3E-218, Mail Stop 9W-11, Attention: 1557-NEW, 400 7th Street SW., Washington, DC 20219. In addition, comments may be sent by fax to (571) 465-4326 or by electronic mail to regs.comments@occ.treas.gov. You may personally inspect and photocopy comments at the OCC, 400 7th Street SW., Washington, DC 20219. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling (202) 649-6700. Upon arrival, visitors will be required to present valid government-issued photo identification and to submit to security screening in order to inspect and photocopy comments.

All comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure.

Additionally, please send a copy of your comments by mail to: OCC Desk Officer, 1557-NEW, U.S. Office of Management and Budget, 725 17th Street NW., #10235, Washington, DC 20503, or by email to: oira submission@omb.eop.gov.

For the reasons set forth in the preamble, the interim final rule amending chapter I of title 12 of the Code of Federal Regulations that was published at 77 FR 37265 on June 21, 2012 is adopted as final with the following amendments.

I. Background II. Summary of Public Comments III. Section-by-Section Analysis of the Final Rule IV. Regulatory Procedures I. Background A. Why is NCUA adopting this rule?

Loan participations strengthen the credit union industry by providing a useful way for credit unions to diversify their loan portfolios, improve earnings, generate loan growth, manage their balance sheets, and comply with regulatory requirements. Credit unions also use liquidity obtained through the sale of loan participations to increase the availability of credit to small businesses and consumers.

Nevertheless, the NCUA Board (Board) believes that loan participations also pose an inherent risk to the National Credit Union Share Insurance Fund (NCUSIF) due to the interconnectedness between participants. For example, large volumes of participated loans may be tied to a single originator, borrower, or industry or they may be serviced by a single entity. If any one of those entities experiences a financial or other problem, the effects of such concentration could impact multiple credit unions. Additionally, because both federal credit unions (FCUs) and federally insured, state-chartered credit unions (FISCUs) actively engage in loan participations, there is potential risk to the NCUSIF. Accordingly, it is important to the safety and soundness of the NCUSIF that all federally insured credit unions (FICUs) adhere to appropriate standards when transacting loan participations.

Finally, it has come to NCUA's attention during examinations and other supervisory contacts with FICUs that many credit union officials find the loan participation rule unclear as to whom it applies, and what transactions it covers. This rule is intended to address this concern. For these reasons, the Board is issuing this final rule to amend §§ 701.22, 701.23, and 741.8.

In December 2011, the Board issued a proposed rule to amend the loan participation rule.1 The proposal reorganized the rule to make it easier to read and understand. It also changed the rule's focus to address the requirements for a credit union purchasing a loan participation. In addition, to ensure that loan participation transactions are conducted in a safe and sound manner, the proposed rule prescribed certain concentration limits on credit unions and encouraged credit unions to establish others of their own. It also required that a loan participation agreement include specific provisions to assist a purchasing credit union in conducting its due diligence. The Board proposed these changes to better detail NCUA's regulatory expectations regarding key aspects of a loan participation purchase, including: (1) The credit union's loan participation policy; (2) the loan participation agreement; and (3) ongoing monitoring of the loan participation.

The public comment period for the proposed rule ended on February 21, 2012. NCUA received 215 comments on the proposed rule: 48 from FCUs; 53 from state-chartered credit unions; 5 from trade associations (1 representing community development credit unions; 2 representing credit unions; 1 representing state credit union supervisors; and 1 representing credit union service organizations (CUSOs)); 23 from state credit union leagues; 11 from CUSOs or third party vendors; 73 from individuals or credit union volunteers (including 67 identical letters); and 1 from a law firm.

A majority of the comments on the proposal expressed opposition to, or raised concerns about, one or more aspects of the proposal. A number of commenters, however, supported at least one specific aspect of the proposal or expressed general support for its overall intent and key principles.

A significant number of commenters supported applying the loan participation rule's provisions to FISCUs. These commenters maintained that the data quoted in the proposed rule's preamble demonstrates that applying the rule to FISCUs is appropriate. Some commenters also suggested that subjecting FCUs and FISCUs to the same requirements would promote the loan participation market and increase participation activity.

Commenters expressed general support for the loan originator retention requirement of 10 percent of the loan amount as required by the Federal Credit Union Act (FCU Act) for FCUs, and the single borrower concentration limit of 15 percent of a credit union's net worth.

Additionally, some commenters supported the proposed provision requiring a credit union to use underwriting standards for purchasing loan participations similar to those the credit union uses when it originates a loan. As discussed below, however, the majority of commenters opposed this provision.

There were two proposed provisions that generated the greatest degree of concern for the majority of commenters. They were: (1) The single originator concentration limit of 25 percent of net worth; and (2) the requirement that a FICU establish underwriting standards for loan participations which, at a minimum, meet the same underwriting standards the FICU uses when it originates its own loan.

More generally, commenters suggested that the proposal would significantly limit a FICU's ability to sell and purchase loan participations, while providing only limited safety and soundness benefits. They argued that the rule should allow greater flexibility, particularly because of the importance of loan participations in helping credit unions to diversify their portfolios, improve earnings, manage and generate liquidity, manage asset growth, maintain an adequate capital ratio, diversify lending risk, and address loan concentration issues.

Commenters also expressed concern that the rule would impose undue regulatory burdens on credit unions, with a disproportionately adverse impact on smaller credit unions. They asserted that the proposal was misguided in prescribing a one-size-fits-all approach, without considering the asset size, level of experience, or risk profile of each individual credit union. Instead, commenters suggested that the rule should focus on identified problem areas or on participations where the risk profile for the underlying loans is higher, such as participations in member business loans (MBLs) and commercial real estate loans.

In addition, commenters maintained that loan participations do not represent a systemic risk to the NCUSIF and suggested the proposal may actually increase the overall risk to the NCUSIF. Commenters argued that limiting the ability of credit unions to mitigate risk through diversification could increase, rather than reduce, risk exposures.

Several commenters also expressed concern that the proposal would undermine the dual chartering system. These commenters suggested that state law and regulation should continue to govern loan participations for FISCUs.

NCUA has carefully reviewed and considered all the comments it received in response to the proposal. Acknowledging the substantial concerns raised by commenters, the Board has made adjustments to the final rule. Most notably, the final rule establishes a higher, more flexible single originator concentration limit. It also permits a FICU to purchase a participation in a loan even if it does not originate that kind of loan. A section-by-section analysis of the final rule and a discussion of the pertinent public comments follows.

The introductory text clarifies the scope of the rule and helps distinguish a loan participation under § 701.22 from an eligible obligation under § 701.23. Further, it clarifies that the rule applies to a natural person FICU's purchase of a loan participation where the borrower is not a member of that credit union. Generally, an FCU's purchase, in whole or in part, of its member's loan is covered by NCUA's eligible obligations rule at § 701.23.2 Additionally, by a cross-reference to Part 741 of NCUA's regulations, the rule also is made applicable to natural person FISCUs. The Board notes that corporate credit unions are subject to the loan participation requirements set forth in Part 704 and, therefore, are not subject to § 701.22 of NCUA's regulations.

Some commenters expressed continued confusion regarding the scope of § 701.22 and § 701.23 of NCUA's regulations. The final rule clarifies the interplay between § 701.22 and § 701.23, but the Board acknowledges these regulations are complex so additional modifications have been made to further clarify the introductory text to the final rule.

The final rule revises the definitions for “originating lender” and “participation loan” to clarify that the originating lender must participate in the loan throughout the life of the loan. It also adds a new definition of “associated borrower.” The definitions of “credit union,” “credit union organization,” “eligible organization,” and “financial organization” were not part of the proposed amendments and are generally unmodified from the existing rule. For consistency with the formatting conventions recommended by the Federal Register, however, the final rule amends the paragraph's format by listing all definitions alphabetically and removing the numeric designations. A brief discussion of each definition, and the public comments pertinent to each, follows.

The proposed rule added a new definition of the term “associated borrower.” Some commenters stated that the proposed definition is too broad. They also expressed concerns that the definition is inconsistent with the MBL rule's definition of “associated member.” 3 The Board notes the “associated borrower” definition is more specific than, but not an expansion of, the definition of “associated member” under Part 723. The definition tracks closely with the MBL rule, but it more clearly defines the types of relationships considered to be an associated relationship by providing examples of the types of parties who qualify as an associated borrower. Each of the defined relationships under § 701.22(a) is also captured under the broader language in § 723.21. In addition, use of the word “borrower” instead of “member” is intentional, as not all participation loans would be made to a member of the purchasing credit union. As such, the Board believes the definition of “associated borrower” is appropriate.

The loan participation rule defines “credit union organization” as “any credit union service organization meeting the requirements of part 712 of this chapter,” but excludes “trade associations or membership organizations principally composed of credit unions.”

While this definition was not included in any proposed amendments, several commenters suggested the definition of “credit union organization” could be interpreted to exclude FISCUs' CUSOs because NCUA's CUSO rule (Part 712) does not apply in full to CUSOs formed by state-chartered credit unions. The Board clarifies that the definition includes CUSOs subject to any requirement under Part 712, including CUSOs invested in or loaned to by FISCUs.

Under the current rule, the term “eligible organization” means “a credit union, credit union organization, or financial organization.” The definition of “eligible organization” was not part of the proposed amendments, but several commenters contended that the current definition of “eligible organization” is too limited. They argued that the definition should be expanded to include additional types of organizations to allow investors outside the credit union industry to participate in loans. The Board believes the current definition is sufficiently broad because, through the term “financial organization,” it includes any federally chartered or federally insured financial institution and a host of state and federal government sponsored and originated programs.

In a 2003 rulemaking 4 that expanded the definition of “financial organization” to include state and federal government agencies, the Board noted that the rule derives its definition from the legislative history of the 1977 public law that granted FCUs various authorities, including the authority to engage in loan participations.5 In granting this authority, Congress expressed its intent to enhance the ability of FCUs to serve their members' loan demands. Congress also expressed, however, that originating FCUs must maintain discipline in the origination process. In accordance with the FCU Act and the legislative history, the Board believes the loan participation authority must not be so broad that loan participations may be originated from any source. As such, the Board believes the current definition of eligible organization already includes all appropriate entities. Further, as discussed below, at a minimum, the seller in a loan participation agreement must be an eligible organization. The purchasing participants, however, may, but are not required to, be eligible organizations.

While the definition of “financial organization” was not part of the proposed amendments, several commenters contended the definition should be revised to include non-federally insured or non-federally chartered financial institutions, such as privately insured, state-chartered credit unions (PISCUs). The Board notes the rule's current definition of “eligible organization” already includes non-federally insured or non-federally chartered credit unions. Through the term “credit union,” an eligible organization includes any federal or state chartered credit union, including those that are privately insured.

The proposed rule revised the definition of “loan participation” to clarify that the originating lender must participate in the loan throughout the life of the loan.

During the public comment period for the proposal, a question was raised with respect to the stipulation in the definition that “one or more eligible organizations participate” in the loan. This commenter suggested that this language is ambiguous with respect to whether one or all participants must be an eligible organization. As noted above, at a minimum, the originating lender in a loan participation agreement must be an eligible organization. Purchasing participants are not required to be eligible organizations.

In addition, commenters raised concerns that the proposed definition's requirement for “the originating lender's continuing participation throughout the life of the loan” would prohibit a FICU from purchasing a loan participation and then selling participation interests in its participated portion of that loan. These comments are addressed in the next section.

The proposed rule amended the definition of “originating lender” to clarify the requirement that a FICU may purchase a participation in a loan only from the participant with which the borrower initially or originally contracts for a loan.

Some commenters suggested the term “originating lender” should be changed to “lead lender” and the definition revised to allow the purchases of loan participation interests from a lender that did not initially originate the loan. In addition, several commenters expressed concern that the proposed definition of “originating lender,” read together with the proposed “loan participation” definition, would prohibit the resale of participation interests. These commenters suggested that the rule should permit the resale of participation interests and/or that a credit union should be permitted to buy an eligible obligation or whole loan from a CUSO or another credit union and then sell participations in that loan.

The Board notes that the current rule allows for the purchase of a loan participation interest only from the lender that initially originated the loan. A participation agreement must be made “with the originating lender,” that is, the “participant with which the member contracts.” 6 In other words, under the current rule, only the lender that initially originates a loan may sell participations in that loan to other lenders. The current rule does not permit the resale of a participation interest or the purchase of a participation interest in an eligible obligation. The proposed amendments were intended to retain and clarify this existing requirement. In a resale, a credit union cannot participate its interest in a loan because it is not the originating lender. Similarly, a credit union that purchases a loan as an eligible obligation from a CUSO or another credit union cannot participate that loan to others because the credit union is not the originating lender. The requirement that credit unions only participate with the originating lender derives from the FCU Act's requirement for originating FCUs to retain at least a 10 percent interest in the face amount of all loans they participate out.7 Moreover, the Board interprets the authority in the FCU Act for credit unions to participate in loans “with” other lenders to contemplate a shared, continuing lending arrangement.8 Simply put, the rule requires an originating lender to remain part of the participation arrangement and to retain a continuing interest in the loan in order to be a true participant. Otherwise, the transaction is not a loan participation but more akin to the sale of an eligible obligation. As the Board noted in 1991, permitting the sale of participation interests in eligible obligations “will blur the distinction between loan participations and loan purchases and sales,” arguably circumventing the purpose of the loan participation and eligible obligations rules.9 Additionally, the Board believes the continued participation of the lender that initially originated the loan is integral to a safe and sound participation arrangement. In 1991, the Board expressed its concern that a lender “may have a decreased interest in properly underwriting a loan if they know they can later reduce their risk by selling participation interests in it.” 10 The requirement for the originating lender's continued participation in a loan participation arrangement is intended to address this safety and soundness concern. Accordingly, the definition of “originating lender” is adopted substantively as proposed in the final rule.

The Board, however, notes FICUs experiencing liquidity needs have several options for liquidating their participation interests in a manner consistent with the final rule. For example, an FICU may sell its participation interest back to the originating lender or it may sell its interest to another lender within the same participation arrangement. Subject to the requirements in § 701.23, a FICU may also sell its interest as an eligible obligation. A FICU may also enter into an assumption agreement whereby another lender would agree to assume, in whole, the FICU's participation interest in a loan.11

Additionally, several commenters suggested the word “member” in the definition of originating lender be replaced with “borrower” for consistency with the introductory language to § 701.22. The Board agrees, and the final definition has been modified accordingly.

Commenters also expressed concern about the definition of “originating lender” and its application to CUSOs. These commenters observed that a CUSO often serves as an originator in name only and, thus, is not the most appropriate party to regard as the originating lender for the purposes of the rule. For example, loans may be underwritten and processed by a CUSO, but funded by its owner credit union. The Board acknowledges that this CUSO model is not uncommon within the industry and permissible under § 712.5. For purposes of this final rule, it is the Board's intent that the originating lender is the entity with which the borrower initially or originally contracts for the loan.

The final rule reorganizes and revises the provisions of §§ 701.22(b), (c), and (d) of the current rule and consolidates them into revised § 701.22(b). The revised section also includes additional details to improve clarity and address safety and soundness concerns. Specifically, revised § 701.22(b) provides that a FICU may only purchase a loan participation if the seller is an eligible organization and if the loan is one the FICU is empowered to grant under applicable law and its own internal loan policies. Empowered to grant refers to a FICU's authority to make a loan under the FCU Act, applicable state law, NCUA regulations, and its own bylaws and internal policies.12 Other requirements for purchasing a loan participation include adopting a written loan participation agreement, establishing the borrower's membership in the originating FICU or one of the participating FICUs by the time the loan participation is purchased, and having/evidencing a continuing participation interest by the originating lender for the loan's duration. As further discussed below, such continuing interest by the originating lender must be at least 5 percent of the outstanding balance of the loan through the life of the loan. As mandated by the FCU Act, however, originating FCUs must retain at least 10 percent.13

The final rule requires a FICU to adopt a written loan participation policy, and it requires the policy to include certain provisions. Specifically, a FICU's loan participation policy must address various concentration limits and the maximum limit a FICU intends to place on its outstanding loan participations. The Board emphasizes that there may be other factors a FICU should consider in formulating a loan participation policy based on its size, complexity, and lending experience. The Board expects a FICU to consider all of these factors in establishing its policy. For example, a FICU purchasing a loan participation pool might perform statistical sampling in evaluating the underwriting standards of the pool. Conversely, a large purchase representing a significant portion of the FICU's net worth should require a full review of the loan documentation before approval. The Board expects a FICU to establish the parameters for review, including a periodic review for appropriateness, and adhere to such parameters.

Section 701.22(b)(5)(i) of the proposal required a FICU to establish underwriting standards for loan participations meeting at least the same underwriting standards the FICU uses when it originates its own loan. Consistent with this, the proposal also eliminated an exception in § 701.22(c)(4) of the current rule, which permits an FCU to purchase a loan participation that was originated with underwriting standards different than its own.

While several commenters supported this proposed provision, a majority expressed concern that this aspect would effectively limit a credit union's loan participation purchases to those involving the types of loans that the purchasing credit union originates. Commenters suggested this could significantly inhibit loan participation programs. Commenters argued this would undermine safety and soundness by limiting diversification of credit unions' loan portfolios. They also stated this would limit the pool of credit unions to which originating credit unions could sell participation interests.

After careful consideration of these comments, the Board has determined to modify the rule to permit a purchasing credit union to participate in types of loans it does not originate. The Board recognizes that one of the principal benefits of loan participation is greater loan portfolio diversification. Accordingly, the final rule permits a FICU to purchase a participation in a loan it is empowered to grant, even if it does not originate that type of loan or if the loan is underwritten using standards other than those it uses when originating loans. It does not prevent a FICU from establishing different, or, where appropriate, even less stringent, underwriting standards for loan participations than it uses when originating its own loans. Moreover, where a FICU both originates and purchases participations in the same types of loans, the FICU is permitted to establish different underwriting standards for originating such loans and for purchasing participations in those loans. For example, if a FICU is empowered to grant MBLs, it may establish in its loan policy two distinct sets of underwriting standards, one for purchasing participations in MBLs and one for originating MBLs.

The Board emphasizes, however, that a FICU must establish prudent underwriting standards for loan participations and conduct appropriate due diligence before purchasing a loan participation. Such due diligence should be independently conducted by the purchasing FICU or outsourced to a qualified third party that is not otherwise affiliated with the loan. A purchasing FICU may not rely on an originating lender's due diligence.

As discussed in the preamble to the proposal, in establishing concentration limits on loan participations, the Board sought to mitigate risk to the NCUSIF without discouraging continued growth.14 By instituting concentration limits for loan participations that are tied to net worth, the proposal aimed to strike this balance by tying the concentration limits to net worth. The proposal also recognized the need for FICUs to identify and manage concentration risk on their balance sheets. Key among these risks are concentrations related to purchasing from a single or too few originators, loans to one or too few borrowers or a group of associated borrowers, and too many loans of a particular type.

The Board proposed to limit a FICU's loan participation purchases from any one originator to a maximum of 25 percent of the FICU's net worth, with no provision for waiver. The Board also proposed to limit a FICU's loan participation purchases involving any one borrower or group of associated borrowers to 15 percent of the FICU's net worth, unless the appropriate regional director grants a waiver. The Board requested public comment on the appropriateness of these caps, how they should be structured, and any alternative approaches to them.

A majority of commenters opposed the proposed 25 percent net worth limitation on loan participation purchases from any one originator. Some commenters supported the reason for this limitation, but most indicated that a 25 percent cap is too low. Commenters stated that the proposed 25 percent limit would be cumbersome to manage and immaterial to overall risk mitigation. They also argued that the limit could actually increase, rather than decrease, risk exposures, as credit unions would be required to manage and monitor multiple originators.

Some commenters disagreed that purchasing participations from one originator will necessarily increase risks. These commenters argued that it is more prudent to focus on diversification of risk in a participation portfolio than to limit purchases from a single originator. Other commenters observed that the quality of the underlying loans determines the level of potential risk more than the originating lender. Commenters also raised concerns that the proposed limit failed to consider the differences in the types of loans being participated. For example, large pools of auto loans represent multiple streams of repayment, whereas an equal dollar amount of mortgage or commercial loans may rely on a far less diverse stream of repayment. These commenters contended it is unreasonable for the proposal to limit all of a FICU's participation purchases from any one originator, which are spread out over many loans and borrowers, to 25 percent of net worth, when under the MBL rule, a FICU could make one loan to one borrower in the amount of up to15 percent of net worth.15

Several commenters also stated that there is no similar concentration limit in banking regulations. These commenters believed that the proposed limitation would arbitrarily disadvantage credit union loan participation programs in comparison to banks.

Commenters also expressed concern that the requirement would disrupt established, effective relationships with originators. Many noted that a purchasing credit union may have years of experience dealing with only one or a few originators. These credit unions would be forced to seek out new relationships. Commenters indicated that it takes a significant amount of time and resources to establish strong relationships with originators and the proposal would mitigate the value of those existing relationships. In addition, commenters argued that the proposed limitation would have a disproportionately negative impact on smaller credit unions by increasing due diligence costs. Also, many smaller credit unions may not have the capacity or expertise to monitor multiple originators.

Similarly, several commenters suggested that the proposal would have a disproportionately negative impact on certain originators. For example, there are only a limited number of originators of taxi medallion loans. Moreover, commenters stated that originators on the whole would be negatively impacted because the proposed restriction would limit the pool of available participant purchasers.

Commenters also raised concerns that the proposed limitation would impact a particular CUSO model. Under this model, in order to aggregate resources for lending expertise, credit unions form a CUSO to originate mortgage or business loans in either the CUSO's name or in an owner credit union's name. The originating lender then sells loan participation interests to the CUSO's other owner credit unions. Commenters indicated that, if the proposed 25 percent single originator limit were adopted, many credit unions involved in these types of CUSOs would be immediately out of compliance with the new rule due to the interconnectedness that is inherent in this business model.

The Board is sensitive to these concerns. As noted above, in prescribing concentration limits on loan participations, the Board seeks to strike an appropriate balance between mitigating risk and fostering the industry's growth and stability. Upon consideration of commenters' feedback, the Board believes that a higher, more flexible cap for loan participations involving a single originator is appropriate.

Some commenters suggested the cap should be removed entirely, or that certain exemptions from the single originator limitation should be provided. Most commenters, however, favored keeping the single originator cap, but advocated a higher limit. A number of commenters suggested that a higher concentration limit should be permitted for loans originated by CAMEL 1 or 2 FICUs. One commenter argued that the limit should be 400 percent of net worth. Another commenter suggested that the limit be 100 percent of capital. Commenters also suggested that if the loan-to-value ratio of the underlying loans is under 75 percent, a higher limit should be permitted. A significant number of commenters also requested that the rule permit waivers from the single originator concentration limit.

Based on the comments, the Board has determined to substantially raise the single originator cap. The final rule includes a single originator cap not to exceed the greater of $5 million or 100 percent of net worth. The Board continues to believe that net worth is the appropriate measure for this cap. Net worth cushions fluctuations in earnings, supports growth, and provides protection against insolvency. As the reserve of funds available to absorb losses, it is the best measure to gauge a credit union's risk exposure. The Board believes a limit of 100 percent of net worth provides sufficient concentration risk mitigation, yet is not too restrictive as to adversely impact a significant number of credit unions.

NCUA does not currently collect the amount of loan participations purchased from a particular originator on the quarterly 5300 Call Report. Using reasonable assumptions, however, the agency is able to gauge some of the impact this limit may have on the industry. For example, assuming all loan participations were purchased from one originator, only 79 of the 1,316 FICUs reporting purchased loan participations outstanding were over the 100 percent net worth limit as of December 31, 2012. In fact, this is a conservative analysis and likely overstates the number of FICUs over the aggregate limit, as many credit unions purchase participations from multiple originators. Therefore, the following table illustrates the difference in the number of affected credit unions, depending on the number of originators 16 and the single originator limit in effect:

The FAA has determined that notice and opportunity for prior public comment hereon are impracticable because these procedures would significantly delay issuance of the design approval and thus delivery of the affected aircraft. In addition, the substance of these special conditions has been subject to the public comment process in several prior instances with no substantive comments received. The FAA therefore finds that good cause exists for making these special conditions effective upon issuance.

We invite interested people to take part in this rulemaking by sending written comments, data, or views. The most helpful comments reference a specific portion of the special conditions, explain the reason for any recommended change, and include supporting data. We ask that you send us two copies of written comments.

We will consider all comments we receive on or before the closing date for comments. We will consider comments filed late if it is possible to do so without incurring expense or delay. We may change these special conditions based on the comments we receive.

On April 2, 2012, Cessna Aircraft Company applied for an amendment to Type Certificate No. 3A13 to include the new model J182T which will incorporate the installation of the Societe de Motorisation Aeronautiques (SMA) Engines, Inc. SR305-230E-C1 which is a four-stroke, air cooled, diesel cycle engine that uses turbine (jet) fuel. The J182T incorporates an engine controlled by an electronic engine control (EEC), also known as a Full Authority Digital Engine Control (FADEC). The EEC system performs critical functions throughout the operational envelope such as the control of the fuel flow and ignition. These functions and their impact on the engine are required by 14 CFR parts 33 and 23. Additionally, the EEC systems have incorporated functions, that while not required in either parts 33 or 23, have potential failure(s) and malfunction(s) that may be catastrophic or unacceptably degrade the airplane level of safety. Examples of the additional functions include thrust management, engine parameter indication, engine speed synchronization, engine torque equalization, etc. Considerations for installation of EEC systems were not envisaged and are not adequately addressed in part 23. Therefore, special conditions are required to define the additional safety standards the Administrator considers necessary to establish a level of safety equivalent to the existing airworthiness standards. Cessna will use an EEC instead of a traditional mechanical control system on the J182T airplane. The J182T, which is a derivative of the T182T currently approved under Type Certificate No. 3A13, is an aluminum, four place, single engine airplane with a cantilever high wing, with the SMA SR305-230E-C1 diesel cycle engine and equipped with an electronic engine control.

The EEC is part 33 certified as part of the engine, and the certification requirements for engine control systems are driven by part 33 requirements. The guidance for the part 33 EEC certification requirement is contained in two advisory circulars: AC 33.28-1 and AC 33.28-2. The EEC certification, as part of the engine, addresses those aspects of the engine specifically addressed by part 33 and is not intended to address part 23 installation requirements. However, the guidance does highlight some of the installation aspects that the engine applicant should consider during engine certification. The installation of an engine with an EEC system requires evaluation of environmental effects and possible effects on or by other airplane systems, including the part 23 installation aspects of the EEC functions. For example, the indirect effects of lightning, radio interference with other airplane electronic systems, and shared engine and airplane data and power sources.

The regulatory requirements in part 23 for evaluating the installation of complex electronic systems are contained in § 23.1309. However, when § 23.1309 was developed, the requirements of the rule excluded powerplant systems as part of the certificated engine (reference § 23.1309(f)(1), amendment No. 23-49). Although the parts of the system that are not certificated with the engine could be evaluated using the criteria of § 23.1309, the analysis would be incomplete because it would not include the effects of the aircraft supplied power and data failures on the engine control system, and the resulting effects on engine power/thrust. The integral nature of EEC installations require review of EEC functionality at the airplane level because behavior acceptable for part 33 certification may not be acceptable for part 23 certification.

The Small Airplane Directorate has applied a Special Condition for over a decade that required all EEC installations to comply with the requirements of §§ 23.1309(a) through (e), amendment No. 23-49. The rationale for applying § 23.1309 was that it was an existing rule that contained the best available requirements to apply to the installation of a complex electronic system; in this case, an electronic engine control with aircraft interfaces. Additionally, Special Conditions for High Intensity Radiated Fields (HIRF) were also applied prior to the codification of § 23.1308.

There are several difficulties for propulsion systems directly complying with the requirements of § 23.1309. There are conflicts between the guidance material for § 23.1309 and propulsion system capabilities and failure susceptibilities. The following figure is an excerpt from AC 23.1309-1E showing the relationship among airplane classes, probabilities, severity of failure conditions, and software and complex hardware Development Assurance Level.

There is a conflict between the EEC system loss-of-thrust-control (LOTC), or loss-of-power control (LOPC), probability per hour requirements given in part 33 guidance material and the failure rate requirements associated with the hazard created by a total loss of power/thrust as given in part 23 AC 23.1309-1E guidance. The part 33 requirements for engine control LOTC/LOPC probabilities are shown below:

The part 23 classification of the failure condition for LOTC/LOPC event on a single engine airplane ranges from Hazardous to Catastrophic. The classification of the failure condition for a single engine LOTC/LOPC event on a multi-engine airplane ranges from Major to Catastrophic. The classification of the failure condition for a multi-engine LOTC/LOPC event on a multi-engine airplane is Catastrophic. From the AC 23.1309-lE failure probability values, it is obvious that a single engine airplane electronic engine control system will not be able to meet the failure probabilities as shown in the guidance material for § 23.1309. As a result, applicants have inappropriately declared a reduced hazard severity for a failure of the electronic engine control system. This is not the intent of § 23.1309. The greater hazard severity should be associated with lower probabilities of failure, and higher probabilities of failure should not artificially establish lower hazard severities. There is also a conflict between the classification of the failure condition of an electronic engine control system and the required test levels for the effects of lightning and high intensity radiated frequency (HIRF). Testing to a level lower than required for a catastrophic failure results in a lower level of safety than the mechanical system it replaces. This is contrary to the intent of certification requirements.

The advent of electronic engine controls also created the ability to dispatch with certain allowable loss of functionality and/or redundancy. This is known as Time Limited Dispatch (TLD). The TLD allowable configurations must meet the specific risk LOTC/LOPC failure probabilities. FAA Policy Statement, ANE-1993-33.28TLD-Rl, defines the full up and TLD allowable failure probabilities for turbine engines. The ability to use TLD is a risk management endeavor that uses a limited time between inspection/maintenance intervals to mitigate the hazard. As such, the FAA has issued specific guidance for part 23 aircraft in addition to Policy Statement, ANE-1993-33.28TLD-Rl, in order to capture the necessary time limits between maintenance intervals.

The advent of electronic engine controls also led to incorporating functions that; while not required by the CFRs; also introduce potentially catastrophic failure(s) and malfunction(s). Consequently, incorporation of these additional functions must be shown to retain part 23 safety levels. These additional functions have included thrust management, portions of engine indication otherwise provided as part of the engine installation, engine speed synchronization, ignition control, auto-feather, etc.

Part 25, unlike part 23, does not apply § 25.1309 via special condition to the electronic engine control installation. Section 25.1309 is applicable to the powerplant installations in general and as a whole. The part 25 hazard classifications for LOTC/LOPC differ from part 23 due to the required multi-engine configuration of part 25 aircraft. Additional applicable part 25 subpart E requirements are those contained within § 25.901(b)(2) and (c):

In the Federal Register of April 1, 2013, we amended the color additive regulations in §§ 73.3100 and 73.3106 (21 CFR 73.3100 and 73.3106), respectively, to provide for the safe use of additional copolymers of 1,4-bis[(2-hydroxyethyl)amino]-9,10-anthracenedione bis(2-methyl-2-propenoic)ester (C.I. Reactive Blue 247) and additional copolymers of 1,4-bis[4-(2-methacryloxyethyl)phenylamino] corrected the nomenclature for Reactive Blue 247 by inserting “2-methyl” before “2-propenoic.”

We gave interested persons until May 1, 2013, to file objections or requests for a hearing. We received no objections or requests for a hearing on the final rule. Therefore, we find that the effective date of the final rule that published in the Federal Register of April 1, 2013, should be confirmed.

Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs, and redelegated to the Director, Office of Food Additive Safety, we are giving notice that no objections or requests for a hearing were filed in response to the April 1, 2013, final rule. Accordingly, the amendments issued thereby became effective May 2, 2013.

The Coast Guard will enforce the safety zone listed in 33 CFR 165.929(a)(77) as well as the general regulations in 33 CFR 165.929, Safety Zones; Annual events requiring safety zones in the Captain of the Port Lake Michigan zone, for the 105th Race to Mackinac. This zone will be enforced from 2 p.m. until 4:30 p.m. on July 12, and from 9 a.m. until 3 p.m. on July 13, 2013.

All vessels must obtain permission from the Captain of the Port, Lake Michigan, or the on-scene representative to enter, move within, or exit a safety zone. Vessels and persons granted permission to enter the safety zone shall obey all lawful orders or directions of the Captain of the Port, Lake Michigan, or a designated representative. Vessels that wish to transit through the safety zones may request permission from the Captain of the Port Lake Michigan. Requests must be made in advance and approved by the Captain of the Port before transits will be authorized. Approvals will be granted on a case by case basis.

This notice is issued under authority of 33 CFR 165.929(a)(77), Safety Zones; Annual events requiring safety zones in the Captain of the Port Lake Michigan zone and 5 U.S.C. 552(a). In addition to this notice in the Federal Register, the Coast Guard will provide the maritime community with advance notification of this event via Broadcast Notice to Mariners or Local Notice to Mariners that the regulation is in effect. The Captain of the Port, Lake Michigan, or his or her on-scene representative may be contacted via Channel 16, VHF-FM.

The regulation for this fireworks display is located at 33 CFR 165.506, Table to § 165.506, section (d.) line 2. The Coast Guard plans to permanently amend the regulation at 33 CFR 165.506 at a later date to reflect this change.

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because it is impracticable and immediate action is needed to minimize potential danger to the public during the event. The potential dangers posed by fireworks displays conducted on the Cape Fear River with other vessel traffic makes a safety zone necessary to provide for the safety of participants, spectator craft and other vessels transiting the event area. For the safety concerns noted, it is in the public interest to have these regulations in effect during the event. The Coast Guard will issue broadcast notice to mariners to advise vessel operators of navigational restrictions. On scene Coast Guard and local law enforcement vessels will also provide actual notice to mariners.

For the same reasons, under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register. Any delay encountered in this regulation's effective date by waiting for the NPRM comment period to close would be impracticable and contrary to public interest since immediate action is needed to provide for the safety of life and property on navigable waters from the hazardous nature of fireworks including unexpected detonation and burning debris.

Recurring fireworks displays are frequently held on or adjacent to the navigable waters within the boundary of the Fifth Coast Guard District. For a description of the geographical area of each Coast Guard Sector or Captain of the Port Zone, please see 33 CFR 3.25.

The regulation listing annual fireworks displays within the Fifth Coast Guard District and safety zones locations is 33 CFR 165.506. The Table to § 165.506 identifies fireworks displays by COTP zone, with the COTP North Carolina zone listed in section “(d.)” of the Table.

The Battleship NORTH CAROLINA Commission sponsors an annual fireworks display held on July 4 over the waters of Cape Fear River at Wilmington, North Carolina. The Table to § 165.506, at section (d.) event Number “2”, describes the enforcement date and regulated location for this fireworks event.

The location listed in the Table has the fireworks display originating from a location, on land, on the north bank of the Cape Fear River at Wilmington, North Carolina. However, this event changes the fireworks launch location on July 4, 2013, to a position on the Cape Fear River at latitude 34°14′17″ N longitude 077°57′11″ W.

A fleet of spectator vessels is anticipated to gather nearby to view the fireworks display. Due to the need for vessel control during the fireworks display vessel traffic will be temporarily restricted to provide for the safety of participants, spectators and transiting vessels. Under provisions of 33 CFR 165.506, during the enforcement period, vessels may not enter the regulated area unless they receive permission from the Coast Guard Patrol Commander.

The Coast Guard will temporarily suspend the regulation listed in Table to § 165.506, section (d.) event Number 2, and insert this temporary regulation at Table to § 165.506, at section (d.) as event Number “15”, in order to reflect that the fireworks display will originate from a barge in the Cape Fear River and therefore the regulated area is changed. This change is needed to accommodate the sponsor's event plan. No other portion of the Table to § 165.506 or other provisions in § 165.506 shall be affected by this regulation.

The regulated area of this safety zone includes all water of the Cape Fear River within a 300 yards radius of latitude 34°14′17″ N longitude 077°57′11″ W.

This safety zone will restrict general navigation in the regulated area during the fireworks event. Except for persons or vessels authorized by the Coast Guard Patrol Commander, no person or vessel may enter or remain in the regulated area during the effective period. The regulated area is needed to control vessel traffic during the event for the safety of participants and transiting vessels.

In addition to notice in the Federal Register, the maritime community will be provided extensive advance notification via the Local Notice to Mariners, and marine information broadcasts so mariners can adjust their plans accordingly.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on these statutes and executive orders.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, Improving Regulation and Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of Executive Order 12866 or under section 1 of Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders. Although this regulation restricts access to a small segment of the Cape Fear River, the effect of this rule will not be significant because: (i) The safety zone will be in effect for a limited duration; (ii) the zone is of limited size; and (iii) the Coast Guard will make notifications via maritime advisories so mariners can adjust their plans accordingly. Additionally, this rulemaking changes the regulated area for the Cape Fear River fireworks demonstration for July 4, 2013 only and does not change the permanent regulated area that has been published in 33 CFR 165.506, Table to § 165.506 at portion “d” event Number “2”. In some cases vessel traffic may be able to transit the regulated area when the Coast Guard Patrol Commander deems it is safe to do so.

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This rule would affect the following entities, some of which might be small entities: The owners or operators of vessels intending to transit or anchor in the Cape Fear River where fireworks events are being held. This regulation will not have a significant impact on a substantial number of small entities because it will be enforced only during the fireworks display event that has been permitted by the Coast Guard Captain of the Port. The Captain of the Port will ensure that small entities are able to operate in the regulated area when it is safe to do so. In some cases, vessels will be able to safely transit around the regulated area at various times, and, with the permission of the Patrol Commander, vessels may transit through the regulated area. Before the enforcement period, the Coast Guard will issue maritime advisories so mariners can adjust their plans accordingly.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT, above.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and determined that this rule does not have implications for federalism.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

This action is not a “significant energy action” under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use.

This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves establishing a safety zone for a fireworks display launch site and fallout area and is expected to have no impact on the water or environment. This zone is designed to protect mariners and spectators from the hazards associated with aerial fireworks displays. This rule is categorically excluded from further review under paragraph 34(g) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated under ADDRESSES.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:

On May 1, 2013, the Coast Guard published an NPRM in the Federal Register (78 FR 25407) regarding two temporary safety zones for the National Cherry Festival fireworks display and air show. At the close of the comment period, no comments were received in response to the NPRM. Additionally, no public meeting was requested and none was held.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register. The final details for this event were not received by the Coast Guard with sufficient time for a delayed effective period to run before the start of the event. Thus, delaying this rule to wait for a delayed effective period to run would be impracticable and contrary to the public interest because it would inhibit the Coast Guard's ability to protect the public from the potential hazards associated with maritime fireworks displays.

From June 28 to 30, 2013, the National Cherry Festival in Traverse City, MI will host an air show over the West Arm of Grand Traverse Bay. At the conclusion of the National Cherry Festival on July 6, 2013, fireworks will be launched in Grand Traverse Bay. The Captain of the Port, Sault Sainte Marie has determined that the air show and fireworks display pose various potential hazards to the public, including premature detonations, dangerous projectiles, and falling or burning debris.

With these potential hazards in mind, the Captain of the Port Sault Sainte Marie will be establishing temporary safety zones pursuant to the authority granted in the Ports and Waterways Safety Act (33 U.S.C. § 1221 et seq.)

To safeguard against the dangers posed by the National Cherry Festival air show and fireworks display, the Captain of the Port, Sault Sainte Marie has determined that temporary safety zones are necessary. Thus, the Captain of the Port, Sault Sainte Marie will be establishing two safety zones for the air show and fireworks display over the West Arm of Grand Traverse Bay.

The safety zone for the air show will be established on June 28 through the 30, 2013, in a position over West Grand Traverse Bay bounded by a line drawn from 44°46′48″ N, 085°38′18″ W, then southeast to 44°46′30″ N, 085°35′30″ W, then southwest to 44°46′00″ N, 085°35′48″ W, then northwest to 44°46′18″ N, 085°38′18″ W, then back to the point of origin.

The air show safety zone will be effective and enforced daily from 12 p.m. until 3 p.m. on June 28-30, 2013.

A safety zone will be established on 6 July for the National Cherry Festival Fireworks display over West Grand Traverse Bay within the arc of a circle with a 1000-foot radius from the fireworks launch site located on a barge in position 44°46′12″ N, 085°37′06″ W.

The safety zone for the fireworks will be effective and enforced from 10 p.m. to 11:30 p.m. on July 6, 2013.

Entry into, transiting, or anchoring within the safety zones is prohibited unless authorized by the Captain of the Port, Sault Sainte Marie, or his on-scene representative. All persons and vessels authorized to enter the safety zones shall comply with the instructions of the Coast Guard Captain of the Port or the designated on-scene representative. The Captain of the Port or his on-scene representative may be contacted via VHF Channel 16.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on numerous statutes or executive orders.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS). We conclude that this rule is not a significant regulatory action because we anticipate that it will have minimal impact on the economy, will not interfere with other agencies, will not adversely alter the budget of any grant or loan recipients, and will not raise any novel legal or policy issues.

The safety zones established by this rule will be relatively small and enforced for a relatively short time. Also, the safety zones are designed to minimize their impacts on navigable waters in that vessels may still transit unrestricted portions of the waterways. Under certain conditions, moreover, vessels may still transit through the safety zones when permitted by the Captain of the Port, Sault Sainte Marie. On the whole, the Coast Guard expects minimal impact to mariners from the enforcement of this rule.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered the impact of this rule on small entities. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

This rule would affect the following entities, some of which may be small entities: The owners or operators of vessels intending to transit around West Grand Traverse Bay, Traverse City, Michigan, between 12:30 p.m. and 3 p.m. on June 28 to June 30, 2013, and from 10 p.m. to 11:30 p.m. on July 6, 2013.

These safety zones will not have a significant economic impact on a substantial number of small entities for the reasons discussed in the Regulatory Planning and Review section above.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section above.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and determined that this rule does not have implications for federalism.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

This action is not a “significant energy action” under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use.

This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves the establishment of a safety zone and, therefore it is categorically excluded from further review under paragraph 34(g) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket USCG-2013-0246 where indicated under ADDRESSES.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR parts 165 as follows:

The Coast Guard will enforce the safety zones listed in 33 CFR 165.160 on the specified dates and times as indicated in Table 1 below. This regulation was published in the Federal Register on November 9, 2011 (76 FR 69614).

Under the provisions of 33 CFR 165.160, a vessel may not enter the regulated area unless given express permission from the COTP or the designated representative. Spectator vessels may transit outside the regulated area but may not anchor, block, loiter in, or impede the transit of other vessels. The Coast Guard may be assisted by other Federal, State, or local law enforcement agencies in enforcing this regulation.

This notice is issued under authority of 33 CFR 165.160(a) and 5 U.S.C. 552 (a). In addition to this notice in the Federal Register, the Coast Guard will provide mariners with advanced notification of enforcement periods via the Local Notice to Mariners and marine information broadcasts. If the COTP determines that the regulated area need not be enforced for the full duration stated in this notice, a Broadcast Notice to Mariners may be used to grant general permission to enter the regulated area.

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4 (a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because to do so would be impracticable. The Coast Guard did not find out about the need for this safety zone with enough time to issue an NPRM. Delayed promulgation may result in injury or damage to persons and vessels in the lower Duwamish waterway from the hazards associated with the bridge construction.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register. Delaying the effective date until 30 days after publication would be impracticable and contrary to the public interest, as this delay would eliminate the safety zone's effectiveness and usefulness in protecting persons, property, and the safe navigation of maritime traffic during the 30-day period.

Kiewit Massman notified the Coast Guard of its intentions to set up a bridge leaf for the South Park Bridge construction project, beginning on July 29, 2013. This process requires the use of a crane mounted on a barge. The barge will fully block the Duwamish channel. The duration of the safety zone for this construction is necessary to provide construction crews the proper time needed to fully bolt and connect the leaf section of the bridge to the pier prior to removing the crane mounted barge.

The Coast Guard is establishing a safety zone encompassing all waters on the Lower Duwamish Waterway within 250 yards of the South Park Bridge, which is located by the following points: 47°31′45.4″ N, 122°18′51.2″ W.

Vessels wishing to enter the zone must request permission for entry by contacting the Joint Harbor Operations Center at 206-217-6001, or the on-scene patrol craft via VHF-FM Ch 13. If permission for entry is able to be granted vessels must proceed at a minimum speed for safe navigation.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on these statutes and executive orders.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, Improving Regulation and Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of Executive Order 12866 or under section 1 of Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders. This rule is not a significant regulatory action as it is limited in size and duration.

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This safety zone will not have a significant economic impact on a substantial number of small entities because the zone established in this rule is limited in size and duration.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT, above.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and determined that this rule does not have implications for federalism.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

This action is not a “significant energy action” under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use.

This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA)(42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves the establishment of a temporary safety zone. This rule is categorically excluded from further review under paragraph 34(g) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated under ADDRESSES.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:

The Coast Guard is issuing this final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because an NPRM would have been impracticable. Logistical details surrounding this exercise were not finalized nor presented to the Coast Guard in time to draft and publish an NPRM as well as the sensitive nature of the cargo handled and security of a national high value unit and not alerting the public in greater detail to the exercise dates, times, and location.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register. An NPRM would be impracticable and contrary to the public interest because details of this exercise were not known in time and immediate action is needed to ensure public safety due to the nature of the operation.

The United States Navy will lead a naval exercise offshore of Silver Strand, Coronado at Naval Anchorage 172. This temporary security zone is necessary to ensure non-authorized vessels remain safely away from naval operations by keeping clear of the restricted area during the proposed 26-day exercise. The Naval Vessel Protection Zone provides for security of naval vessels, however an increased secure zone is necessary due to the nature of the operation. Should operations end before the final proposed exercise date, the temporary security will end also.

The Coast Guard is establishing this temporary security zone that would be enforced from 12:01 a.m. on June 8, 2013, through 11:59 p.m. on July 3, 2013. The limits of the security zone will encompass all waters within a 1000 yard exclusion zone and a 1500 yard minimum speed zone from the United States Naval vessels. This security zone is necessary to ensure non-authorized personnel and vessels remain safe by keeping clear of the hazardous area during the naval operations. Persons and vessels are prohibited from entering into, transiting through, or anchoring within this security zone unless authorized by the Captain of the Port, or his designated representative.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on these statutes and executive orders.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, Improving Regulation and Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of Executive Order 12866 or under section 1 of Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders. We expect the economic impact of this rule to be so minimal that a full Regulatory Evaluation is unnecessary.

This determination is based on the size and location of the security zone. Recreational vessels will not be allowed to transit through the designated security zone during the specified times, however ample space to maneuver and use the waterway around the anchorage zone exists. This portion of the waterway is administered by the U.S. Navy for anchorage use and naval exercises are historically common in the vicinity of shoreside Naval bases. The limited access area will only be enforced as long as the operation is ongoing. Should operations end before the final proposed exercise date, the temporary security will end also.

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. Vessel traffic can pass safely around the security zone.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT, above.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and determined that this rule does not have implications for federalism.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

This action is not a “significant energy action” under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use.

This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves the establishment of a temporary security zone to support the security of a naval vessel. This rule is categorically excluded from further review under paragraph 34(g) of Figure 2-1 of the Commandant Instruction. A Categorical Exclusion Determination and environmental checklist are available in the docket where indicated under ADDRESSES.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:

EPA is amending its regulations in 40 CFR parts 1, 2, 21, 35, 52, 59, 60, 61, 62, 63, 65, 82, 147, 282, 374, 707 and 763 to reflect a change in the address for EPA's Region 7 office. This technical amendment merely updates and corrects the address for EPA's Region 7 office. EPA has determined that today's rule falls under the “good cause” exemption in section 553(b)(3)(B) of the Administrative Procedures Act (APA) which, upon finding “good cause,” authorizes agencies to dispense with public participation and section 553(d)(3) which allows an agency to make a rule effective immediately (thereby avoiding the thirty day delayed effective date otherwise provided for in the APA). Under section 553 of the APA, an agency may find good cause where procedures are “impractical, unnecessary, or contrary to the public interest.” Public comment is “unnecessary” and “contrary to the public interest” since the address for Region 7 has changed and immediate notice in the CFR benefits the public by updating citations.

This final rule implements technical amendments to 40 CFR parts 1, 2, 21, 35, 52, 59, 60, 61, 62, 63, 65, 82, 147, 282, 374, 707 and 763 to reflect a change in the address for EPA's Region 7 office. It does not otherwise impose or amend any requirements. Consequently, under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. The rule would not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). Because this action is merely editorial in nature, the Administrator certifies that it would not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The rule does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).

This action does not have Federalism implications because it would not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). Additionally, it does not have Tribal implications because it would not have a substantial direct effect on one or more Indian Tribes, on the relationship between the Federal Government and Indian Tribes, or on the distribution of power and responsibilities between the Federal Government and Indian Tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).

This rule also is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), nor is it subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). It does not involve any technical standards that require the Agency's consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995, Public Law 104-113, section 12(d) (15 U.S.C. 272 note). Finally, it does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods under Executive Order 12898 (59 FR 7629, February 16, 1994).

The Congressional Review Act (CRA), 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. Section 808 of the CRA allows the issuing agency to make a rule effective sooner than otherwise provided by the CRA, if the agency makes a good cause finding that notice and public procedure is impracticable, unnecessary, or contrary to the public interest. This determination must be supported by a brief statement (5 U.S.C. 808(2)). As stated earlier, EPA has made such a good cause finding, including the reasons therefore, and established an effective date of August 11, 2011. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. A major rule cannot take effect until 60 days after it is published in the Federal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

40 CFR parts 1, 2, 21, 35, 52, 59, 60, 61, 62, 63, 65, 82, 147, 282, 374, 707, and 763 are amended as follows:

The NFIP enables property owners to purchase Federal flood insurance that is not otherwise generally available from private insurers. In return, communities agree to adopt and administer local floodplain management measures aimed at protecting lives and new construction from future flooding. Section 1315 of the National Flood Insurance Act of 1968, as amended, 42 U.S.C. 4022, prohibits the sale of NFIP flood insurance unless an appropriate public body adopts adequate floodplain management measures with effective enforcement measures. The communities listed in this document no longer meet that statutory requirement for compliance with program regulations, 44 CFR Part 59. Accordingly, the communities will be suspended on the effective date in the third column. As of that date, flood insurance will no longer be available in the community. We recognize that some of these communities may adopt and submit the required documentation of legally enforceable floodplain management measures after this rule is published but prior to the actual suspension date. These communities will not be suspended and will continue to be eligible for the sale of NFIP flood insurance. A notice withdrawing the suspension of such communities will be published in the Federal Register.

In addition, FEMA publishes a Flood Insurance Rate Map (FIRM) that identifies the Special Flood Hazard Areas (SFHAs) in these communities. The date of the FIRM, if one has been published, is indicated in the fourth column of the table. No direct Federal financial assistance (except assistance pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act not in connection with a flood) may be provided for construction or acquisition of buildings in identified SFHAs for communities not participating in the NFIP and identified for more than a year on FEMA's initial FIRM for the community as having flood-prone areas (section 202(a) of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4106(a), as amended). This prohibition against certain types of Federal assistance becomes effective for the communities listed on the date shown in the last column. The Administrator finds that notice and public comment procedures under 5 U.S.C. 553(b), are impracticable and unnecessary because communities listed in this final rule have been adequately notified.

Each community receives 6-month, 90-day, and 30-day notification letters addressed to the Chief Executive Officer stating that the community will be suspended unless the required floodplain management measures are met prior to the effective suspension date. Since these notifications were made, this final rule may take effect within less than 30 days.

National Environmental Policy Act. This rule is categorically excluded from the requirements of 44 CFR Part 10, Environmental Considerations. No environmental impact assessment has been prepared.

Regulatory Flexibility Act. The Administrator has determined that this rule is exempt from the requirements of the Regulatory Flexibility Act because the National Flood Insurance Act of 1968, as amended, Section 1315, 42 U.S.C. 4022, prohibits flood insurance coverage unless an appropriate public body adopts adequate floodplain management measures with effective enforcement measures. The communities listed no longer comply with the statutory requirements, and after the effective date, flood insurance will no longer be available in the communities unless remedial action takes place.

Regulatory Classification. This final rule is not a significant regulatory action under the criteria of section 3(f) of Executive Order 12866 of September 30, 1993, Regulatory Planning and Review, 58 FR 51735.

Executive Order 13132, Federalism. This rule involves no policies that have federalism implications under Executive Order 13132.

Executive Order 12988, Civil Justice Reform. This rule meets the applicable standards of Executive Order 12988.

Paperwork Reduction Act. This rule does not involve any collection of information for purposes of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.

Accordingly, 44 CFR Part 64 is amended as follows:

DoD published a proposed rule at 77 FR 20601 on April 5, 2012, revising the Defense Federal Acquisition Regulation Supplement (DFARS) to support the use of automated contract writing systems. The clause at DFARS 252.212-7001 requires the contracting officer to “check a box” to identify the clauses that are applicable to each commercial item acquisition. This requirement is not compatible with most automated contract writing systems. Section 8002 of the Federal Acquisition Streamlining Act of 1994 (Pub. L. 103-355) requires that the regulations shall contain a list of contract clauses to be included in contracts for the acquisition of commercial end items. Each time a clause or clause alternate is added, DoD must consider whether the clause or clause alternate will be applicable to commercial items. The law does not require that this list be in the form of a clause, requiring clause dates for each applicable clause, which requires revision every time a clause on the list is modified.

Furthermore, clause flowdown to commercial subcontracts is controlled by paragraph (c) of the clause 252.212-7001 for commercial contracts under FAR part 12 and clause 252.244-7000 for contracts for noncommercial items. These lists of clauses that require flowdown to commercial subcontracts likewise require update every time a clause on the list is modified.

Four respondents submitted comments on the proposed rule. The following is a discussion of the comments and the changes made to the rule as a result of those comments.

DoD has amended the final rule by adding a statement after the prescriptions for the provisions covered under DFARS 252.204-7007, Alternate A, Annual Representations and Certifications, that the individual provisions therein should not be included separately if the clause at FAR 52.204-7 is included in the solicitation (see section II.B.3. of this preamble). DoD did not make any other significant changes from the proposed rule.

a. General

Several respondents commented on the consolidation at DFARS 212.301 of provisions and clauses required for the acquisition of commercial items.

Comment: One respondent applauded the revised DFARS 212.301 listing of 58 provisions and clauses for the acquisition of commercial items at the prime contract level.

Response: Noted.

Comment: One respondent wanted to know if DFARS 252.212-7001 is deleted, how does DoD plan to legally incorporate the requirements of the provisional DFARS 212.301(f) in a solicitation or contract without it being a DFARS Part 252 clause? Similarly, another respondent asked how offerors and contractors will know what clauses the contracting officer considers to be relevant to a particular solicitation/contract, without the current structure of the contracting officer marking the applicable clauses?

Response: All commercial item clauses authorized for use will be listed at DFARS 212.301(f), and will be individually included in the solicitation and contract only when applicable to that particular acquisition. These clauses are added either in full text or incorporated by reference to legally incorporate their requirements into the solicitation and resultant contract. This is currently done in the same way for the other provisions and clauses listed in DFARS 212.301(f).

Section 8002 of the Federal Acquisition Streamlining Act of 1994 (Public Law 103-355) requires that the regulations contain a list of contract clauses applicable to commercial acquisitions. The list is currently split into the following three locations: DFARS provision 252.212-7000; DFARS clause 252.212-7001; and DFARS 212.301(f).

With the issuance of this final rule under DFARS rule 2011-D056, the list of clauses applicable to commercial item acquisitions is now wholly contained in DFARS 212.301(f).

The approach in this final rule makes clause listings more closely mirror the way clauses are listed for non-commercial contracts. Offerors only need to read the clause number and title in a list outside of 252.212-7001 as opposed to within paragraph (a) or (b) of 252.212-7001 to review the clauses that are being legally incorporated into the solicitation.

Comment: According to one respondent, by eliminating DFARS 252.212-7001 to save time and money on the part of the automated contract writing systems, DoD has now created a myriad of issues that can only be addressed by spending countless additional time on the part of the USG and contractor to differentiate the applicability of each clause to any particular solicitation/contract.

Response: This approach should not cause any additional time for either the Government or the offerors/contractors. As already stated, commercial item clauses authorized for use will be listed at DFARS 212.301(f) and, when applicable to a particular solicitation and contract, they will be individually included in the solicitation and contract. Offerors/contractors will only need to read and review the clause numbers and titles that are incorporated in the solicitation/contract. This proposed approach should only save time on the part of the U.S. Government in selecting clauses, because now the contracting officer has to manually check boxes, and if using an automated system, the system can help the contracintg officer determine which clauses are applicable and then automatically include them in the solicitation/contract. The applicability of any clause in a commercial acquisition will be clear, and distinguished by whether or not it is listed individually within that solicitation/contract.

Comment: One respondent asserted that revising DFARS 212.301(f) to incorporate a clause currently included under 252.212-7001, would take away a contracting officer's discretion to add and subtract clauses as necessary.

Response: As in the proposed rule, the final rule states “as prescribed” in each paragraph at DFARS 212.301(f) to indicate to the contracting officer whether or not to insert a provision or clause in the solicitation. The contract writing system does not automatically incorporate all clauses listed at 212.301(f) into all prime commercial item contracts.

Comment: One respondent stated that DFARS Clause 252.227-7013, Rights in Technical Data-Noncommercial Items, by its nature and title does not belong in a commercial item contract. The respondent asserted that the two scenarios in the guidelines at 227.7103-6(a) for the insertion of 252.227-7013 will never materialize, i.e., the successful offeror(s) on a commercial item contract will never be required to deliver to the Government technical data pertaining to—

• Noncommercial items; or

• Commercial items for which the Government will have paid for any portion of the development costs.

Response: DoD does occasionally procure altered commercial items, or articles embodying commercial items, that are based on a commercial design. On those occasions, the otherwise commercial item design needs to be adapted for some additional Government-specific characteristics. Since these changes will be paid for at Government expense, it means that both the 252.227-7015 clause, for wholly privately-funded parts, and the 252.227-7013 clause, for parts funded in part by the Government, would be inserted.

Comment: One respondent asserted that there was no justification for the inclusion of several additional provisions/clauses into 212.301(f) because they do not meet the statutory criteria of being a “provision of law or Executive Order” or “standard commercial practice.” The respondent also questioned clauses that were already listed in 212.301(f).

Response: The rule consolidates provisions and clauses into one list at 212.301(f) that were previously scattered throughout the DFARS. Each one of the provisions/clauses newly incorporated is required by statute or Executive Order, as indicated in the list at 212.301(f). All clauses listed within DFARS 212.301(f) have been approved for inclusion by the Director of DPAP in accordance with FAR 12.301(f) and have been cleared by OIRA. Questioning previously incorporated clauses is outside the scope of this case.

Comment: One respondent suggested revising DFARS 252.244-7000 to delete all prime contractor discretionary provision/clause flowdown authority due to excessive practice by the primes to flowdown any and all clauses to satisfy its contractual obligations.

Response: DoD has retained in the final rule the language at 252.244-7000(b), which is the same as FAR 52.244-6(c)(2), in order to allow the prime contractor the necessary discretion to flow down to subcontracts for commercial items a minimal number of additional clauses necessary to satisfy its contractual obligations.

Comment: One respondent commented that if the automated contract writing system “automatically” inserts clause 252.227-7013, then the prime contractor will be forced to flowdown -7013 into any commercial item subcontract.

Response: Flowdown applicability of the clause is spelled out in 252.227-7013(k)(2), which stipulates to flowdown the clause only when a commercial item is developed in any part at Government expense . . . ”

Comment: One respondent asserts that by enacting the Federal Acquisition Streamlining Act (FASA) of 1994, Congress established a high bar for clauses that that may be applicable to subcontracts for commercial items. According to the respondent, there is no justification for flowdown of such clauses as DFARS 252.236-7013, Requirement for Competition Opportunity for American Steel Producers, Fabricators, and Manufacturers.

Response: This clause is prescribed for use in construction contracts (which cannot be acquired using part 12 procedures). The statute requires flowdown to subcontracts that involve the acquisition of steel as a construction material (generally a commercial item). This clause is not imposing a burden on the commercial subcontractors. Rather, it is requiring that American steel producers, fabricators, and manufacturers be allowed an opportunity to compete. This requirement is not new and is currently contained in the present 252.244-7000 clause.

Justification of pre-existing flowdown requirements is outside the scope of this case, but each such requirement was approved by DPAP and cleared by OIRA to implement statute, Executive order, or DoD policy.

Comment: One respondent stated that some provision prescriptions conflict with DFARS 204.1202(2), which says not to include the provisions listed therein in solicitations that include the provision 52.204-8, Annual Representations and Certifications.

Response: In order to remedy the conflict, DoD has inserted the following statement inserted after each of the affected provision prescriptions:

“If the solicitation includes the clause at FAR 52.204-7, do not separately list the provision 252.2XX-70XX in the solicitation.”

Several respondents had editorial comments as to the language within the rule.

Comment: One respondent recommended that 232.908, Contract clauses, should have the reference to 52.212-4 removed from the text, which requires use, in certain acquisitions, of the clause 252.232-7011 “in addition to either the approved clause prescribed in FAR 32.908 or FAR 52.212-4(i)(2) . . .” According to the respondent, FAR 32.908(c) already cites FAR 52.212-4.

Response: FAR 52.212-4 is not prescribed in FAR 32.908(c). FAR 32.908(c) reads as follows: “Insert the clause at 52.232-25, Prompt Payment, in all other solicitations and contracts, except when the clause at 52.212-4 . . . applies . . . ” Although FAR 52.212-4 is used in part of the prescription for 52.232-25, it is prescribed in FAR 12.301(b)(3), not in FAR 32.908. However, this paragraph has been slightly revised in order to improve clarity.

Comment: One respondent questioned why the date change was proposed for 252.203-7000, because no change proposed.

Response: There is only a change to the clause preface, so the date has not been changed.

Comment: One respondent asserted that there is a conflict as to the flowdown applicability of DFARS 252.247-7023, Transportation of Supplies by Sea. It was noted that the Federal Register, Background Section II, states “Further, 10 U.S.C. 2631 is not listed in DFARS 212.503(a) as a law not applicable to commercial items.” On that basis, a number of provisions and clauses implementing 10 U.S.C. 2631 are included in 212.301. The respondent further noted that 10 U.S.C.2631 is listed in FAR 12.504 (a)(1) as a law “. . . not applicable to subcontracts at any tier for the acquisition of commercial items or commercial components at any tier.”

Response: No conflict exists because FAR 12.504(a)(1) provides an exception to the nonapplicability to subcontracts for the acquisition of commercial items for the types of subcontracts listed at 47.504(d).

Comment: One respondent noted lack of uniformity of word placement in the clause prescriptions that include applicability to solicitations and contracts using part 12 procedures for the acquisition of commercial items.

Response: The clause prescriptions have been revised as necessary to ensure uniformity in placement of the wording “including solicitations (and contracts) using FAR part 12 procedures for the acquisition of commercial items.”

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.

DoD does not expect this rule to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because the rule aims to only change the appearance of how commercial provisions and clauses are presented within commercial acquisitions and there are no substantive changes. However, a final regulatory flexibility analysis has been performed and is summarized as follows:

The purpose of this case is to support the use of automated contract writing systems. Rather than requiring the contracting officers to “check the applicable clauses,” this final rule will allow automated contract writing systems to automatically select the applicable clauses, saving DoD time and scarce resources. Potential offerors, including small businesses, may be affected by this rule by seeing an unfamiliar format for clauses in commercial item acquisitions issued by any DoD contracting activities that do not already currently deviate from the current DFARS requirement to “check a box.”

There were 273,042 new contracts, agreements, and purchase orders awarded in Fiscal Year 2011 using FAR part 12 procedures for the acquisition of commercial items, and 71,950 of these actions (26.35%) were awarded to small businesses. However, nothing substantive will change in commercial acquisitions for potential offerors, and only the appearance of how applicable clauses are presented will be changed. This rule may result in potential offerors, including small businesses, expending more time to become familiar with and to understand the new clause format issued by any DoD contracting activities not presently operating under the existing deviation. The burden caused by this rule is expected to be minimal and will not be any greater on small businesses than it is on large businesses.

There are no new reporting requirements or recordkeeping requirements associated with this rule. Finally, there are no significant alternatives that could further minimize the already minimal impact on businesses, small or large.

This final rule does not contain any new information collection requirements that require the approval of the Office of Management and Budget (OMB) under the Paperwork Reduction Act (44 U.S.C. chapter 35). The commercial clauses currently approved for use in commercial contracts, which may impose any information collection burden on contractors or any subcontractors, are already covered by an existing approved OMB clearance. The burdens for all existing commercial clauses are not changed in any way by this rule. Two DFARS provisions, with an associated information collection burden, are newly identified by this rule as being applicable to acquisitions of commercial items: 252.225-7022, Trade Agreements Certificate—Inclusion of Iraqi End Products; and 252.225-7023, Preference for Products or Services from Iraq of Afghanistan. The information collection burdens associated with these two DFARS provisions are already fully covered and cleared under OMB Control Number 0704-0229 entitled Foreign Acquisitions. These two provisions are variants of the other existing foreign acquisition provisions with reporting burdens already in use and covered for commercial acquisitions (excluding commercial information technology).

Therefore, DoD amends 48 CFR parts 203, 204, 205, 209, 211, 212, 215, 216, 219, 223, 225, 226, 227, 229, 232, 237, 243, 244, 246, 247, and 252 as follows:

I. Background

FTA is publishing this rule without a prior proposal because it merely incorporates recent statutory changes to FTA's drug and alcohol testing program and makes other minor technical amendments. Specifically, this rule amends 49 CFR part 655 to implement 49 U.S.C. 5331(g)(2), as amended by § 20022 of the Moving Ahead for Progress in the 21st Century Act, Public Law 112-141 (2012) (MAP-21). The new legislation provides the Secretary of the Department of Transportation (DOT) with the option of barring a recipient from receiving Federal public transportation funds, in an amount the Secretary considers appropriate, for non-compliance with FTA's D&A regulations which are codified at 49 CFR part 655. This authority is delegated to the FTA Administrator pursuant to 49 CFR 1.91.

With this rule, FTA is amending part 655 to implement this discretionary statutory enforcement remedy available to the Administrator. Additionally, this rule makes several technical corrections to part 655 that include: (1) Removing reference to 23 U.S.C. 103(e)(4) from 49 CFR part 655 as it relates to recipients of the Federal Highway Administration's Interstate Substitute Program which has been repealed; (2) replacing the terms “mass transportation” and “mass transit” with the term “public transportation” as defined in 49 U.S.C. 5331(a)(3); and (3) revising Subpart I to more clearly explain the statutory requirement to establish a compliant D&A testing program as a condition for receiving Federal transit funds and the associated compliance and certification requirements for recipients.

This rule simply adopts the statute without agency interpretation and includes ministerial technical corrections; therefore, pursuant to 5 U.S.C. 553(b)(3)(A), FTA finds good cause to publish this as a final rule without public comment because prior notice and comment would be unnecessary under the circumstances. Further, for these reasons, FTA also finds good cause pursuant to 5 U.S.C. 553(d)(2), to make the rule effective upon publication in the Federal Register.

In order to implement 49 U.S.C. 5331(g)(2), as amended by section 20222 of MAP-21, this rule amends 49 CFR part 655 to effect the FTA Administrator's discretionary authority to bar a recipient from receiving Federal transit funds, in an amount deemed appropriate, should the recipient fail to comply with the requirements of 49 CFR part 655. FTA is also using this rule to make technical corrections to Part 655 to reflect updates that have occurred since its initial publication.

The Federal Highway Administration's Interstate Substitute Program authorized the Secretary to incur obligations for public transit projects, in those instances when certain interstate route projects were procedurally withdrawn, and properly authorized to be substituted with a public transportation project. To ensure that recipients of these substituted funds were subject to FTA's D&A requirements, Congress enacted section 342 of the National Highway System Designation Act, Public Law 104-59 (1995). The legislation amended 49 U.S.C. 5331(b) to specifically make recipients of 23 U.S.C. 103(e)(4) funding subject to FTA's D&A regulations.

In 2001, FTA issued 49 CFR part 655 to implement the drug and alcohol testing requirements of 49 U.S.C. 5331(b). Although at the time, the Interstate Substitute Program had been repealed, 49 U.S.C. 5331(b) continued to statutorily apply to recipients of 23 U.S.C. 103(e)(4) funds. In 2005, enacted a technical correction with section 3030(b) of SAFETEA-LU which amended 49 U.S.C. 5331(b) by removing its applicability to recipients of 23 U.S.C. 103(e)(4) program funds. FTA is now correcting Part 655 by removing reference to 23 U.S.C. 103(e)(4) recipients as follows: (1) § 655.3(1)(ii) and § 655.3(2)(ii); (2) the definition of recipient in § 655.4, § 655.81; and (3) § 655.82 (a) and (c).

FTA is revising §§ 655.4 and 655.44 by replacing the terms “mass transportation” and “mass transit.” with the term “public transportation.” This technical correction is warranted because statutory references to modes of public conveyance have changed since the initial publication of FTA's D&A regulation. To that end, FTA is updating Part 655 to reflect the statutory meaning of public transportation as defined by 49 U.S.C. 5331(a)(3). Specifically, the terms will be replaced in the definitions of accident, employer, and vehicle in § 655.4 and in the text of § 655.44(a)(1) and (2).

FTA is amending the text of § 655.82 (a) to more accurately reflect as mandatory, the statutory requirement of 49 U.S.C. 5331(g)(1). As with the current text of paragraph (a), the revised text explains that recipients receiving Federal funding under 49 U.S.C. 5307, 5309, or 5311 are required to establish a D&A testing program, in accordance with 49 CFR part 655, as a condition for receiving Federal financial assistance. However, the revised text provides clarity by indicating that a recipient “shall not” instead of “may not” be eligible for Federal transit assistance for failing to establish and implement a compliant D&A program. This correction more clearly reflects the existing statutory requirement of establishing a compliant D&A program as a condition for receiving Federal financial assistance.

FTA is revising paragraph (b) to implement the additional discretionary remedy authorized by 49 U.S.C. 5331(g)(2) as amended by MAP-21. The revised text indicates that the Administrator now has discretion to bar a recipient's current or future Federal transit financial assistance in appropriate amounts for failure to comply with the requirements of 49 CFR part 655. Paragraph (c) is also revised to reflect the requirements in the current § 655.82(b) because the criminal fraud provision of 18 U.S.C. 1001 remains in effect.

This rule also redesignates the current requirement of § 655.83(d) as a new § 655.82(d) to better align with the compliance requirements of section § 655.82. Specifically, the amended § 655.82(d) continues to indicate the consequences for non-compliance for recipients who are also subject to the U.S. Coast Guard drug and alcohol testing requirements. Pursuant to § 655.3(c), ferryboat operators will continue to have administrative relief by only having to observe applicable Coast Guard D&A testing requirements. However, as recipients of Federal transit funds, they remain subject to FTA noncompliance remedies if they fail to comply with the Coast Guard's D&A regulations.

This rule revises paragraphs (a) and (c) of this section and redesignates § 655.83(d) as a new § 655.82(d) as noted above. The revised paragraph (a) more fully explains the consequence for failing to appropriately certify compliance. In addition, the revised paragraph (c) clarifies the certifying requirements for recipients that administer pass-through funding to subrecipients and contractors. Similar to the current § 655.82(c), the revised paragraph (c) notes the certification requirements for States that administer pass-through Federal transit funding; however, the revision clarifies the existing certification requirements for other recipients who also administer pass-through Federal financial assistance under 49 U.S.C. 5307, 5309, or 5311. Specifically, any recipient who administers pass-through Federal funding is required to certify that its subrecipients and contractors are in compliance with the requirements of part 655. The revised § 655.83(c) also continues to reflect the authority noted in the current § 655.82(c), which permits a recipient who administers pass-through Federal funding to suspend the funding of a subrecipient or contractor for failure to comply with part 655.

Executive Order 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule implement changes made by MAP-21 to FTA's D&A regulation and are administrative in nature. FTA has determined that this action is not a significant regulatory action under section 3(f) of Executive Order 12866, nor is it significant within the meaning of Department of Transportation regulatory policies and procedures.

This rule provides technical corrections to FTA's alcohol misuse and controlled substance testing regulatory requirements and implements an additional administrative remedy for potential violations of those regulatory requirements. The only entities affected by this proposed rule are those public transportation providers currently subject to FTA's alcohol misuse and controlled substance testing regimen. This rule does not require any additional costs associated with compliance. It is anticipated that the economic impact of this rulemaking would be minimal. Accordingly, it has not been reviewed by the Office of Management and Budget.

This rule is not expected to impose any new compliance costs, and would not adversely affect, in any material way, any sector of the economy. There are no significant changes to the existing program with the publication of this rulemaking. Additionally, this rule does not interfere with any action planned by another agency and does not materially alter the budgetary impact of any entitlements, grants, user fees, or loan programs. Consequently, a full regulatory evaluation is not required.

The requirements of the Regulatory Flexibility Act (RFA) do not apply when an agency finds good cause pursuant to 5 U.S.C. 553 to adopt a rule without prior notice and comment. Because this rule promulgates discretionary authority enacted by Congress under MAP-21, FTA has determined that it has good cause to adopt the rule without notice and comment; therefore, RFA analysis is not required. Additionally, this administrative action will result in no significant economic impact nor impose any additional cost to small entities that are subject to alcohol misuse and controlled substance testing requirements of 49 CFR part 655.

This rule does not contain a collection of information that is subject to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). Under the provisions of the Paperwork Reduction Act, FTA may not conduct or sponsor, and a person is not required to respond to or may not be penalized for failing to comply with, a collection of information unless it displays a currently valid OMB control number.

Executive Order 13132 sets forth principles and criteria that agencies must adhere to in formulating and implementing policies that have Federalism implications. That is, regulations that have substantial direct effects on the States, or on the distribution of power and responsibilities among the various levels of government. Federal agencies must closely examine the statutory authority supporting any action that would limit the policymaking discretion of the States, and to the extent practicable, must consult with State and local officials before implementing any such action.

FTA has reviewed this rule under the threshold criteria of Executive Order 13132 on Federalism and certifies that the rule would not have Federalism implications as defined by the Executive Order. The rule would not significantly affect the rights, roles, and responsibilities of States, and would not involve preemption of State law, nor would it limit State policymaking discretion.

This rule is not an unfunded Federal mandate within the meaning of the Unfunded Mandates Reform Act of 1995, 2 USC 1501 et seq., and any enforceable duties that FTA would impose are a condition of Federal assistance or a duty arising from participation in a voluntary Federal program. This rule will not result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $148.1 million or more in any one year (2 U.S.C. 1532).

FTA has analyzed this action under Executive Order 13175, and believes that it would not have substantial direct effects on one or more Indian tribes; would not impose substantial direct compliance costs on Indian tribal governments; and would not preempt tribal law. Therefore, a tribal summary impact statement is not required.

This action meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce regulatory burden.

Accordingly, for reasons discussed in the preamble, FTA amends 49 CFR part 655 as follows: