[Federal Register Volume 59, Number 37 (Thursday, February 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4184]


[[Page Unknown]]

[Federal Register: February 24, 1994]


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RESOLUTION TRUST CORPORATION

12 CFR Part 1630

RIN 3205-AA21

 

Definition of Predominantly Minority Neighborhood

AGENCY: Resolution Trust Corporation.

ACTION: Interim rule; request for comments.

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SUMMARY: The Resolution Trust Corporation (RTC) is hereby adopting an 
interim rule which defines ``predominantly minority neighborhood'' as 
used in section 21A(s) of the Federal Home Loan Bank Act (FHLBA) and 
section 21A(w)(17) of the FHLBA, as amended by the Resolution Trust 
Corporation Completion Act. Section 21A(w)(17) of the FHLBA requires, 
among other things, that in considering offers to acquire any insured 
depository institution, or any branch of an insured depository 
institution, located in a predominantly minority neighborhood (as 
defined in regulations prescribed under section 21A(s) of the FHLBA), 
the Corporation shall give preference to an offer from any minority 
individual, minority-owned business, or a minority depository 
institution, over any other offer that results in the same cost to the 
Corporation, as determined under section 13(c)(4) of the Federal 
Deposit Insurance Act. Section 21A(s) of the FHLBA permits the RTC to 
lease to a minority acquiror, on a rent-free basis, subject to certain 
conditions, any branch of a failed institution which is located in a 
``predominantly minority neighborhood.'' Section 21A(w)(17) of the 
FHLBA also generally provides that the RTC may provide to such minority 
individual, minority-owned business, or minority depository institution 
additional preferences in the form of capital assistance and performing 
assets. The interim rule generally defines ``predominantly minority 
neighborhood'' as any U.S. Postal Zip Code geographical area in which 
50% or more of the persons residing therein are minorities based upon 
the most recent Census data, unless the RTC has determined, in its sole 
discretion, that other reasonably reliable, readily accessible data 
indicates different neighborhood boundaries. The RTC is also seeking 
comment on the interim rule.
    This interim rule is effective on February 24, 1994.

DATES: Comments must be submitted on or before March 28, 1994.

ADDRESSES: Written comments regarding the interim rule should be 
addressed to John M. Buckley, Jr., Secretary, Resolution Trust 
Corporation, 801 17th Street, NW., Washington, DC 20434-0001. Comments 
may be hand delivered to room 321 on business days between the hours of 
9 a.m. and 5 p.m. Comments may also be inspected in the Public Reading 
Room, 801 17th Street, NW., during the same business hours. Phone 
number: 202-416-6940; FAX number: 202-416-4753.

FOR FURTHER INFORMATION CONTACT:
Robert C. Fick, Counsel, TRC Legal Division, (202) 736-3069; Gregory B. 
Smith, Senior Counsel, RTC Legal Division, (202) 736-3013; Mark G. 
Flanigan, Senior Attorney, RTC Legal Division, (202) 736-3085; Edward 
Thomas, Resolutions Analyst, (202) 416-7179; Sherry Chen, Field 
Resolutions Specialist, (202) 416-7209. These are not toll-free 
numbers.

SUPPLEMENTARY INFORMATION:

Background

    In August 1989, Congress enacted section 501 of the Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989, (FIRREA), 
(codified as section 21A(b) of the FHLBA, 12 U.S.C. 1441a(b)), which 
established the Resolution Trust Corporation (RTC). Pursuant to FIRREA 
the RTC has the duty to manage and resolve failed depository 
institutions that come under its jurisdiction and to conduct the 
operations of the RTC in a manner which ``maximizes the * * * return 
from the sale of institutions or assets,'' ``makes efficient use of 
funds'' and ``minimizes * * * losses * * * in the resolution of [failed 
institutions]''. Section 21A(b)(3) of the FHLBA, as added by section 
501(a) of FIRREA. In addition, the RTC is required to resolve all 
failed institutions in the ``least costly * * * of all possible 
methods'' (collectively Cost Constraints). Section 13(c)(4)(A)(ii) of 
the Federal Deposit Insurance Act (FDIA), 12 U.S.C. 1823(c)(4)(A)(ii), 
as made applicable by section 21A(b)(4) of the FHLBA, 12 U.S.C. 
1441a(b)(4). The RTC is committed, wherever practicable and whenever 
consistent with those statutory Cost Constraints, to preserving the 
ownership characteristics of historically minority-owned depository 
institutions, and to increasing the total number of minority-owned 
depository institutions. See, Strategic Plan for the Resolution Trust 
Corporation, 54 FR 46574, November 3, 1989.
    Section 21A(s) of the FHLBA permits the RTC to make available to an 
acquiror which is either a minority depository institution or a women's 
depository institution, on a rent-free lease basis for not less than 5 
years, any branch of a failed institution which is located in a 
``predominantly minority neighborhood.''
    Section 21A(w)(17) of the FHLBA, which was added by section 3(a) of 
the Resolution Trust Corporation Completion Act, Pub. L. 103-204 (the 
Act), provides that in considering offers to acquire any insured 
depository institution, or any branch thereof, located in a 
``predominantly minority neighborhood'', (as defined in regulations 
prescribed under subsection (s)), the RTC shall give preference to an 
offer from a minority individual, minority-owned business, or a 
minority depository institution (Minority Acquiror), over any other 
offer that results in the same cost to the RTC as determined under 
section 13(c)(4)(A) of the FDIA.\1\
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    \1\This Act also provides, in connection with such an 
acquisition, the following additional preferences: (i) the Minority 
Acquiror shall be eligible for minority interim capital assistance 
under section 21A(u)(1) of the FHLBA, provided that such assistance 
is consistent with section 13(c)(4)(A) of the FDIA; (ii) the RTC may 
provide to the Minority Acquiror performing assets under the RTC's 
control, in addition to those of the depository institution or 
branch to be acquired, in an amount not greater than the amount of 
the net liabilities carried on the books of the depository 
institution or branch and acquired by the Minority Acquiror; and 
(iii) such disposition of the performing assets of the failed 
depository institution or branch to the Minority Acquiror shall have 
a first priority over a disposition by the RTC of such assets for 
any other purpose.
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    This interim rule defines ``predominantly minority neighborhood'' 
as used in sections 21A(s) and 21A(w)(17) of the FHLBA as a geographic 
area constituting a United States Postal Service 5-digit Zip Code (Zip 
Code) in which 50% or more of the persons residing therein are 
minorities, based upon the most recent census data, unless the RTC 
determines, in its sole discretion, that other reasonably reliable, 
readily accessible data indicates different neighborhood boundaries. 
The population data and the minority composition of these Zip Codes are 
determined using the most recent (currently 1990 data) Census of 
Population data (Census Data) collected and published by the U.S. 
Department of Commerce, Economics and Statistics Administration, Bureau 
of the Census (Census Bureau).
    If the institution or a branch thereof is located in a Zip Code 
area for which no significant Census Data is available (e.g., a 
business district or office building) the Zip Code of a nearby 
geographic area served by the institution or branch, for which such 
Census Data is available, will be used as its Zip Code for purposes of 
this rule. If the RTC determines, in its sole discretion, based upon 
other reasonably reliable and readily accessible data, and subject to 
RTC's Cost Constraints, that a different delineation would more 
accurately reflect the area served by the financial institution or 
branch to be marketed, the RTC will use such delineation as the 
boundaries for the relevant neighborhood.
    There is no legislative history which might provide clear guidance 
in developing a definition of ``predominantly minority neighborhood.'' 
Consequently, except for the word ``minority'' which is statutorily 
defined, the definition of ``predominantly minority neighborhood'' was, 
therefore, developed based upon the common or ordinary meanings of the 
individual words comprising the phrase, the statutory context in which 
they have been used, and based upon readily available data.
    One of the ordinary meanings of the word ``predominant'' is ``the 
most common.'' WEBSTER'S II NEW RIVERSIDE UNIVERSITY DICTIONARY 927 
(1988). Since in the context of this statutory framework a neighborhood 
can only be either a minority neighborhood or a non-minority 
neighborhood, the most common or prevalent of two categories means a 
majority or more than half. Moreover, consistent with the legislative 
purpose of preserving and promoting minority ownership and service, in 
the case of any exact 50% split between the two categories, minorities 
should be viewed as predominant. Therefore, if half or more of the 
residents of a neighborhood are minorities, that neighborhood is 
predominantly minority.
    The word ``minority'' is defined by statute to have the meaning 
given such term in section 1204(c)(3) of FIRREA. Sections 21A(s) & 
21A(w)(17) of the FHLBA. Section 1204(c)(3) of FIRREA defines 
``minority'' to mean ``any Black American, Native American, Hispanic 
American, or Asian American.'' This interim rule provides a definition 
of the word ``minority'' which incorporates the statutory definition 
but permits the use of equivalent classifications used by the Census 
Bureau in collecting the Census Data. Among other categories, the 
Census Bureau collects and publishes population Census Data by State, 
County, County subdivision, Place, Zip Code (available on CD-rom or 
tape) Census Tract or block numbering area, Block group, and Block. 
Each census of the U.S. population provides data on the minority 
composition of those areas in a manner which corresponds with the 
statutory definition of ``minority'' in FIRREA. The population 
classifications utilized in the Census Data for the 1990 census are: 
Hispanic origin and the following racial categories: White; Black; 
American Indian, Eskimo, or Aleut; Asian or Pacific Islander; and Other 
Race. Bureau of the Census, Economics and Statistics Administration, 
U.S. Department of Commerce, 1990 CENSUS OF POPULATION, GENERAL 
POPULATION CHARACTERISTICS (1992). Since Census Data is readily 
available, its use to determine the minority composition of a 
particular geographic area is not only reasonable and efficient, but 
also consistent with the RTC's statutory Cost Constraints.
    The ordinary dictionary meaning of the word ``neighborhood'' is a 
district or area with distinctive characteristics. WEBSTER'S II NEW 
RIVERSIDE UNIVERSITY DICTIONARY 789 (1988). Neighborhoods vary in size 
and can be contained within each other. Since the only reasonably 
reliable population data which is readily available on a nationwide 
basis is Census Data, it is both reasonable and cost-efficient to 
define ``neighborhood'' in terms of the geographic areas utilized by 
the Census Bureau. Census Data, including minority composition, is 
available for specific geographic areas, including among others, State, 
County, County subdivision, Place, Zip Code, Census Tract, Block and 
Block group. Census Tracts and Zip Codes appear to be the only such 
categories which might approximate the size and characteristics of a 
``neighborhood'' served by an ``institution, or any branch'' 
thereof.\2\
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    \2\The RTC has found no indication that an extensive, customized 
survey and analysis of the demographics and other characteristics of 
the geographic area surrounding each branch of a failed institution 
would yield results significantly different from those obtained by 
using Census Data and Zip Codes or Census Tracts. In addition, 
reliable population data for individually determined areas is not 
readily available on a consistent nationwide basis. The nature of 
the RTC's statutory Cost Constraints in marketing and selling a 
failed depository institution dictates that the identification of 
``predominantly minority neighborhoods'' be accomplished with 
relative speed and minimal expense. The failed institutions the RTC 
resolves suffer significant operating losses on a daily basis. An 
increase in those operating losses due to a delay in the resolution 
of the institution caused by the implementation of a definition of 
``predominately minority neighborhood'' which is difficult and time 
consuming to utilize is clearly inconsistent with the RTC's 
statutory duties.
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    The United States Postal Service has subdivided the United States 
and its territories into discrete geographic areas for purposes of the 
distribution of mail, and has designated each such area with a 5-digit 
numeric Zip Code. See, U.S. Postal Service, 1993 NATIONAL FIVE-DIGIT 
ZIP CODE & POST OFFICE DIRECTORY. The individual areas defined by the 
Zip Codes generally correspond to a district or area with distinctive 
characteristics. The Zip Code itself is one distinctive characteristic 
that ties the area and its residents together. Moreover, most Zip Code 
areas are further distinguished by the presence of a postal facility 
designed to service those neighborhoods. Accordingly, Zip Codes 
constitute an existing, comprehensive system for describing areas that 
generally approximate neighborhoods.
    Individual Census Tracts and Census Blocks, by their nature, do not 
appear to be reasonable alternatives to Zip Codes to utilize on a 
general basis. According to the Census Bureau, Census Blocks are small 
areas bounded on all sides by visible features such as streets, roads, 
streams, and railroad tracks, and by invisible boundaries such as city, 
town, township, and county limits, property lines, and short, imaginary 
extensions of streets and roads. Bureau of the Census, Economics and 
Statistics Administration, U.S. Department of Commerce, 1990 CENSUS OF 
HOUSING, GENERAL HOUSING CHARACTERISTICS (1992). Individual Census 
Blocks because of their size appear to be inappropriate for determining 
the boundaries of a neighborhood served by a financial institution, or 
a branch thereof on a general basis. Census Tracts,\3\ although larger 
than Census Blocks, are small, relatively permanent statistical 
subdivisions of a country which usually have between 2,500 and 8,000 
persons, and when first delineated, are designed to be homogeneous with 
respect to population characteristics, economic status, and living 
conditions. Bureau of the Census, Economics and Statistics 
Administration, U.S. Department of Commerce, 1990 CENSUS OF HOUSING, 
GENERAL HOUSING CHARACTERISTICS (1992).
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    \3\Starting with the 1990 Census those areas which are not 
covered by Census Tracts have been subdivided into ``Block Numbering 
Areas'' (BNA's). These BNA's are essentially the equivalent of 
Census Tracts, except that they have been delineated by a State 
agency instead of a local committee.
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    Individual Census Tracts or Census Blocks are generally impractical 
for use in defining the boundaries of a neighborhood served by a 
financial institution, or a branch thereof, on a generally uniform 
basis and are inconsistent with the spirit of the legislation. However, 
use of Census Tracts or Census Blocks on an individual or aggregate 
basis may be appropriate on an exception basis. The Act is intended to 
enhance opportunities for Minorities to acquire institutions and 
branches which primarily ``serve'' Minority residents. 139 Cong. Rec. 
H10899-900 (daily ed. November 22, 1993) (statement of Rep. Mfume). The 
people served by a depository institution or branch may be located over 
a relatively large geographic area, generally transcending Census Block 
boundaries and, most likely, Census Tract boundaries as well. Census 
Tracts and Census Blocks tend to be small areas, focused only on 
residences and are generally not focused on all residential 
neighborhoods served by a local financial institution, or a branch 
office thereof.
    The Zip Codes (and the boundaries thereof) of offices of a failed 
institution tend to be larger areas and are readily ascertainable both 
by RTC personnel and by potential bidders. Such is not the case for 
Census Tracts. The addresses of each of the offices of a failed 
institution already contain the Zip Code, and the boundaries of each 
Zip Code area are available at the local Post Office.
    Notwithstanding the obvious advantages of a definition based on 
fixed methodology, circumstances may arise where that approach fails to 
accurately reflect the reality of the relevant neighborhood. For 
example, if an institution or branch is physically located within Zip 
Code 00001, near the boundary with Zip Code 00002, a mechanical 
application of the Zip Code approach would indicate that the branch 
serves customers in the neighborhood defined by Zip Code 00001. Or for 
example, a rigid application of the Zip Code approach to the individual 
offices of an institution might preclude the designation of the whole 
institution as being located in a predominantly minority neighborhood, 
although other rational bases might exist for a determination that the 
institution as a whole is located in a predominantly minority 
neighborhood. Therefore, rather than rigidly applying the Zip Code 
approach, if the RTC determines, in its sole discretion and subject to 
its Cost Constraints, that other reasonably reliable information and 
data, that is readily accessible to it, indicates different boundaries 
which more accurately reflect the relevant neighborhood, the RTC may 
define the relevant neighborhood in terms of those different 
boundaries.

Conclusion

    The RTC's definition of ``predominantly minority neighborhood'' is 
based on readily available, established and accepted information: Zip 
Codes and Census Data. A ``predominantly minority neighborhood'' can, 
therefore, be identified using existing, objective standards: (1) A Zip 
Code to define the geographic area which generally constitutes the 
neighborhood and (2) Census Data to determine the minority composition 
of that neighborhood. In the event that the RTC, in its sole 
discretion, determines that other reasonably reliable information and 
data, that is readily accessible to it, indicates more accurate 
boundaries for such neighborhood, the RTC will define such neighborhood 
using those more accurate boundaries. The proposed definition permits 
the RTC to quickly identify ``predominantly minority neighborhoods'' 
without delaying the resolution of an institution consistent with the 
RTC's statutory Cost Constraints. The methodology adopted by this 
interim rule constitutes a reasonable basis upon which to define 
``predominantly minority neighborhood'' consistent with the purposes of 
sections 21A(s) and (w)(17) of the FHLBA and consistent with the RTC's 
duties in resolving failed institutions.

Administrative Procedure Act

    The RTC is adopting this rule as an interim rule. It will be 
effective immediately upon publication in the Federal Register without 
the usual notice and comment period or delayed effective date as 
provided for in the Administrative Procedure Act, 5 U.S.C. 553. These 
requirements may be waived for ``good cause.'' The definition provided 
by the interim rule implements the Act. Promulgation of the rule on an 
expedited basis is necessary to permit the immediate implementation of 
the new statute in order to avoid the additional losses that would 
otherwise be incurred due to the delay in the resolution of failed 
institutions pending the usual delayed effective date. Thus, the RTC 
finds that the benefits to the public in adopting the interim rule 
outweigh any possible harm resulting from not seeking comment on the 
proposed rule in advance of its effective date. The RTC actively 
solicits comment on this interim rule and will consider those comments 
in the adoption of the rule as final.

Initial Regulatory Flexibility Analysis

    As required by the Regulatory Flexibility Act, 5 U.S.C. 601, et 
seq., the following initial regulatory flexibility analysis is 
provided:
    1. Reasons, objectives, and legal bases underlying the interim 
rule. These elements have been discussed above in the Supplementary 
Information section.
    2. Small entities to which the rule would apply. This rule applies 
equally to acquiring institutions of all sizes inasmuch as the RTC has 
been given no discretion in this matter by Congress.
    3. Impact of the interim rule on small businesses. There is no 
burden imposed on small businesses by this rule which merely defines, 
pursuant to Congressional direction, a term utilized in the statute.
    4. Overlapping or conflicting federal rules. There are no known 
federal rules that overlap, duplicate, or conflict with the interim 
rule.
    5. Alternatives to the interim rule. The RTC has not identified 
alternatives that would be less burdensome to small businesses and yet 
effectively accomplish the objectives of the rule because there is no 
burden imposed on small business.

Request for Public Comment

    The RTC is issuing this interim rule in response to statutory 
direction to define ``predominantly minority neighborhood.'' The RTC 
is, however, hereby requesting comment during a 30-day comment period 
on all aspects of the interim rule.

List of Subjects in 12 CFR Part 1630

    Savings associations.
    For the reasons set out in the preamble, the RTC hereby adds part 
1630 to title 12, chapter XVI of the Code of Federal Regulations, to 
read as follows:

PART 1630--DEFINITION OF PREDOMINANTLY MINORITY NEIGHBORHOOD

Sec.
1630.1  Purpose and scope.
1630.2  Definitions.
1630.3  Predominantly minority neighborhood.

    Authority: 12 U.S.C. 1441a(b)(11), (s) and (w)(17).


Sec. 1630.1  Purpose and scope.

    The provisions of this part define ``predominantly minority 
neighborhood'' for the marketing, sale and resolution of depository 
institutions, and branches thereof, by the Resolution Trust Corporation 
(RTC) under the rent-free lease provisions of section 21A(s) of the 
Federal Home Loan Bank Act (FHLBA) and the minority preference 
provisions of section 21A(w)(17) of the FHLBA.


Sec. 1630.2  Definitions.

    (a) Branch means a domestic branch as defined in section 3(o) of 
the Federal Deposit Insurance Act, as amended, 12 U.S.C. 1813(o).
    (b) Census Bureau means the U.S. Department of Commerce, Economics 
and Statistics Administration, Bureau of the Census.
    (c) Census Data means the population data, including without 
limitation the composition by Race and Hispanic origin of each U.S. 
Postal Service Zip Code area, provided by the Census Bureau for the 
most recent Census of Population.
    (d) Minority means, any Black American, Native American, Hispanic 
American, or Asian American, as specified in section 1204(c)(3) of the 
Financial Institutions Reform, Recovery and Enforcement Act of 1989 as 
utilized in sections 21A(s) and (w)(17) of the Federal Home Loan Bank 
Act (12 U.S.C. 1441a) or such other equivalent classifications, as 
determined by the Resolution Trust Corporation, including, without 
limitation, those used by the Census Bureau for the most recent Census 
Data.
    (e) Race means a racial classification used by the Census Bureau 
pursuant to the guidelines in Federal Statistical Directive No. 15 
issued by the Office of Management and Budget, which provides standards 
on ethnic and racial categories for statistical reporting to be used by 
all Federal agencies. The OMB directive is available from Office of 
Administration, EOP Publications, 725 17th Street, NW., room 2200, New 
EOB, Washington, DC 20503.
    (f) RTC means the Resolution Trust Corporation, in its corporate, 
conservatorship or receivership capacities, as applicable.
    (g) U.S. Postal Service Zip Code means a five-digit numeric code 
that identifies a specific geographic area within the United States and 
its territories which is used by the U.S. Postal Service for the 
distribution of mail.


Sec. 1630.3  Predominantly minority neighborhood.

    The phrase ``predominantly minority neighborhood'' as used in 
sections 21A(s), (w)(17) of the Federal Home Loan Bank Act, means an 
area delineated by the geographical boundaries of a U.S. Postal Service 
Zip Code, in which, according to the most recent Census Data, 50% or 
more of the residential population is Minority; unless a different 
geographic area has been determined by the RTC, in its sole discretion, 
based on readily accessible and reasonably reliable information and 
data, to more accurately represent an area having distinctive or shared 
characteristics, that is served by the institution, or Branch thereof, 
being marketed by the RTC, in which 50% or more of the population is 
Minority.

    By order of the Chief Executive Officer.

    Dated at Washington, DC, this 18th day of February 1994.

Resolution Trust Corporation.
John M. Buckley, Jr.,
Secretary.
[FR Doc. 94-4184 Filed 2-22-94; 11:32 am]
BILLING CODE 6714-01-M