[Federal Register Volume 59, Number 157 (Tuesday, August 16, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19953]
[[Page Unknown]]
[Federal Register: August 16, 1994]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 337
RIN 3064-AB50
Unsafe and Unsound Banking Practices
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Board of Directors of the Federal Deposit Insurance
Corporation proposes to amend its regulations to except loans which are
fully secured by certain types of collateral from the general limit on
``other purpose'' loans to executive officers of insured nonmember
banks. The proposed amendment parallels recent changes by the Board of
Governors of the Federal Reserve System to that agency's regulations on
insider loans.
DATES: Written comments must be received on or before October 17, 1994.
ADDRESSES: All comments should be addressed to Robert E. Feldman,
Acting Executive Secretary, Federal Deposit Insurance Corporation, 550
17th Street, NW., Washington, DC 20429, or delivered to room F-400,
1776 F Street, NW., Washington, DC, between the hours of 8:30 a.m. and
5:00 p.m. on business days [FAX number (202) 898-3838]. Comments will
be available for inspection and photocopying in the FDIC's reading
room, room 7118, 550 17th Street, NW., Washington, DC 20429, between
9:00 a.m. and 4:30 p.m. on business days.
FOR FURTHER INFORMATION CONTACT: Mark Mellon, Senior Attorney,
Regulation and Legislation Section, Legal Division, (202) 898-3854, or
Michael D. Jenkins, Examination Specialist, Division of Supervision,
(202) 898-6896, Federal Deposit Insurance Corporation, 550 17th Street,
NW., Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
I. Background
Section 22(g) of the Federal Reserve Act (the FRA) (12 U.S.C. 375a)
prohibits member banks from making extensions of credit to their
executive officers except to the extent authorized by that section.
Section 22(h) of the FRA (12 U.S.C. 375b) prohibits member banks from
making extensions of credit to their executive officers, directors,
principal shareholders, or to a related interest (any company or
political or campaign committee that is controlled by an executive
officer, director, or principal shareholder), except to the extent
authorized by that section. Section 18(j)(2) of the Federal Deposit
Insurance Act (the FDI Act) (12 U.S.C. 1828(j)(2)) provides that both
sections 22(g) and 22(h) of the FRA are applicable to insured nonmember
banks in the same manner and to the same extent as though they were
member banks.
The FDIC regulation which implements sections 22(g) and 22(h) for
insured nonmember banks is 12 CFR 337.3. Section 337.3(a) currently
provides that insured nonmember banks are subject to the restrictions
contained in Subpart A of 12 CFR Part 215, Regulation O (Regulation O),
the regulations promulgated by the Board of Governors of the Federal
Reserve System (the FRS) to implement sections 22(g) and 22(h) for
member banks, to the same extent and to the same manner as though they
were member banks, with the exception of Secs. 215.5(b), 215.5(c)(3)
and 215.11.
Section 22(g)(2) of the FRA provides that a loan secured by a first
lien on a residence of an executive officer may be made in any amount.
Section 22(g)(3) of the FRA provides that loans to finance the
educations of executive officers' children may be made in any amount.
These requirements are implemented respectively by 12 CFR 215.5(c) (1)
and (2). Such loans do, however, count toward the general individual
and aggregate lending limits applicable to executive officers,
directors, principal shareholders, and their related interests under 12
CFR 215.4 of Regulation O. See 12 CFR 215.5(d)(2).
Section 22(g)(4) of the FRA provides that extensions of credit to
an executive officer not otherwise specifically authorized by section
22(g) may be made ``in an amount prescribed in a regulation of the
member bank's appropriate Federal banking agency''. Pursuant to its
authority under section 22(g)(4), the Board of Directors of the FDIC
has set the lending limit on extensions of credit by insured nonmember
banks to executive officers for any other purpose not specified in
Sec. 215.5(c)(1) and (2) of Regulation O at the higher of 2.5 percent
of the bank's capital and unimpaired surplus but in no event more than
$100,000. See 12 CFR 337.3(c)(2). The Board of Directors of the FDIC
now proposes to except loans which are fully collateralized by certain
categories of highly stable and liquid collateral from being counted
toward the ``other purpose'' general lending limit.
II. The Proposal
The Board of Directors of the FDIC proposes to create an exception
to the lending limit for other purpose loans to executive officers for
those loans which are fully secured by:
(a) A perfected security interest in bonds, notes, certificates of
indebtedness, or Treasury bills of the United States or in other such
obligations fully guaranteed as to principal and interest by the United
States;
(b) Unconditional takeout commitments or guarantees of any
department, agency, bureau, board, commission or establishment of the
United States or any corporation wholly owned directly or indirectly by
the United States; or
(c) A perfected security interest in a segregated deposit account
in the lending bank.
If the proposed exception is adopted, a loan to an executive
officer of an insured nonmember bank which has been secured by any of
the types of collateral listed above may be made in any amount and will
not be subject to the limit for other purpose loans set forth in 12 CFR
337.3(c)(2). This exception will be in addition to the statutory
exceptions to the other purpose lending limit for home mortgage loans
and education loans.
It is the opinion of the Board of Directors of the FDIC that the
creation of such an exception to the general lending limit on loans to
executive officers of insured nonmember banks is consistent with safe
and sound banking practices. This is because the Board of Directors
believes that extensions of credit which have been collateralized in
the manner described above pose a minimal risk of loss to a bank. The
Board of Directors of the FDIC is also of the opinion that the proposed
exception would not lend itself to abuse because the collateralized
loans to executive directors would still continue to be subject to the
requirement that the loan not be on more favorable terms than those
afforded other borrowers (section 22(g)(1) of the FRA) and would still
be subject to the prohibitions against preferential lending in section
22(h) of the FRA.
The proposed changes parallel changes recently made by the Board of
Governors of the FRS to its regulations. See 59 FR 8831 (1994).1
The Board of Directors is proposing to adopt the same exception to the
limit for other purpose loans to executive officers that the Board of
Governors of the FRS promulgated for member banks in order to put
insured state nonmember banks on an equal footing with state member
banks, thus avoiding disparity of treatment among banks based upon
their membership, or lack of membership, in the Federal Reserve System.
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\1\Along with the new exception to the general lending limit on
loans to executive officers, the Board of Governors of the FRS made
a number of other substantive, technical and conforming changes to
12 CFR Part 215, Regulation O. These changes were effective on
February 18, 1994. See 59 FR at 8831. These changes became
applicable to insured nonmember banks on February 18, 1994, without
any need for action on the part of the FDIC because insured
nonmember banks are subject to the regulations of the FRS which
implement section 22(g) and 22(h) of the FRA, with the exception of
the provisions which implement section 22(g)(4). For a comprehensive
discussion of these changes, see 59 FR at 8831-8837.
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As noted before, it is the responsibility of each federal banking
agency under section 22(g)(4) to specify the limit on other purpose
loans to executive officers of the depository institutions which are
subject to a particular banking agency's supervision. The FDIC
specifies the limit on other purpose loans to executive officers of
insured nonmember banks in 12 CFR 337.3(c)(2). Prior to the most recent
amendments to Regulation O, Sec. 215.5(c)(3) specified the limit on
other purpose loans to executive officers by member banks. 12 CFR
215.5(c)(3) was amended by the Board of Governors of the FRS to provide
that a loan may be made by a member bank to one of its executive
officers in any amount if it has been secured by certain types of
collateral. The Board of Governors of the FRS concurrently redesignated
the provision which sets forth the limit for other purpose loans by
member banks to their executive officers as 12 CFR 215.5(c)(4). 59 FR
at 8840-8841. In light of these regulatory changes by the FRS, the
Board of Directors of the FDIC proposes to amend Sec. 337.3 to cross-
reference Sec. 215.5(c)(4), along with Sec. 215.5(c)(3), as one of the
provisions of Regulation O which are inapplicable to insured nonmember
banks.
III. Requests for Comment
The Board of Directors specifically requests comment from all
interested parties as to whether it is appropriate for the FDIC to
establish an exception to the limit on other purpose loans to executive
officers of insured nonmember banks for loans that have been
collateralized in the manner described above.
The Board of Directors also specifically requests comment from all
interested parties as to whether the amendments which the FDIC proposes
are the most appropriate means to create an exception to the limit on
other purpose loans to executive officers of insured nonmember banks.
If a commenter should feel that there is a better alternative to the
proposed amendments, the Board of Directors of the FDIC requests that
the alternative be specifically described.
IV. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act, 5
U.S.C. 605(b), the FDIC hereby certifies that the proposed rule will
not have a significant economic impact on a substantial number of small
entities. If adopted, the rule will not impose burdens on depository
institutions of any size and will not have the type of economic impact
addressed by the Regulatory Flexibility Act.
The FDIC has reached this conclusion because the effect of the
rule, if it is ultimately promulgated in its current form, will be to
reduce the regulatory requirements that are imposed upon small
depository institutions rather than to increase them. Small depository
institutions will have greater freedom of action to extend credit to
executive officers as a result of the proposed rule rather than less.
V. Paperwork Reduction Act
No collections of information pursuant to section 3504(h) of the
Paperwork Reduction Act (44 U.S.C. 3501 et seq.) are contained in the
proposed rule. Consequently, no information has been submitted to the
Office of Management and Budget for review.
List of Subjects in 12 CFR Part 337
Banks, banking, Reporting and recordkeeping requirements,
Securities.
In consideration of the foregoing, the Board of Directors proposes
to amend part 337 of chapter III of title 12 of the Code of Federal
Regulations as follows:
PART 337--[AMENDED]
1. The authority citation for Part 337 continues to read as
follows:
Authority: 12 U.S.C. 375a(4), 375b, 1816, 1818(a), 1818(b),
1819, 1821(f), 1828(j)(2), 1831f, 1831f-1.
2. Section 337.3 is amended by revising paragraphs (a) and (c)(2)
to read as follows:
Sec. 337.3 Limits on extensions of credit to executive officers,
directors, and principal shareholders of insured nonmember banks.
(a) With the exception of 12 CFR 215.5(b), 215.5(c)(3),
215.5(c)(4), and 215.11, insured nonmember banks are subject to the
restrictions contained in subpart A of Federal Reserve Board Regulation
O (12 CFR part 215, subpart A) to the same extent and to the same
manner as though they were member banks.
* * * * *
(c) * * *
(2) An insured nonmember bank is authorized to extend credit to any
executive officer of the bank for any other purpose not specified in
Sec. 215.5(c) (1) and (2) of Federal Reserve Board Regulation O (12 CFR
215.5(c) (1) and (2)) if the aggregate amount of such other extensions
of credit does not exceed at any one time the higher of 2.5 percent of
the bank's capital and unimpaired surplus or $25,000 but in no event
more than $100,000, provided, however, that no such extension of credit
shall be subject to this limit if the extension of credit is secured
by:
(i) A perfected security interest in bonds, notes, certificates of
indebtedness, or Treasury bills of the United States or in other such
obligations fully guaranteed as to principal and interest by the United
States;
(ii) Unconditional takeout commitments or guarantees of any
department, agency, bureau, board, commission or establishment of the
United States or any corporation wholly owned directly or indirectly by
the United States; or
(iii) A perfected security interest in a segregated deposit account
in the lending bank.
* * * * *
By order of the Board of Directors.
Dated at Washington, DC, this 9th day of August, 1994.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Acting Executive Secretary.
[FR Doc. 94-19953 Filed 8-15-94; 8:45 am]
BILLING CODE 6714-01-P