[Federal Register Volume 60, Number 76 (Thursday, April 20, 1995)]
[Proposed Rules]
[Pages 19688-19690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-9737]



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[[Page 19689]]

FEDERAL RESERVE SYSTEM

12 CFR Part 215

[Regulation O; Docket No. R-0875]


Loans to Executive Officers, Directors, and Principal 
Shareholders of Member Banks; Loans to Holding Companies and Affiliates

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is proposing an amendment to Regulation O to conform 
the definition of unimpaired capital and unimpaired surplus in the 
regulation's definition of lending limit to the definition of capital 
and surplus recently adopted by the Office of the Comptroller of the 
Currency in calculating the limit on loans by a national bank to a 
single borrower. The proposed rule would reduce the recordkeeping 
burden for member banks monitoring lending to their insiders and their 
related interests.

DATES: Comments should be submitted on or before May 22, 1995.

ADDRESSES: Comments should refer to Docket No. R-0875, and may be 
mailed to William W. Wiles, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW., 
Washington, DC 20551. Comments also may be delivered to Room B-2222 of 
the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the 
guard station in the Eccles Building courtyard on 20th Street NW. 
(between Constitution Avenue and C Street) at any time. Comments may be 
inspected in Room MP-500 of the Martin Building between 9 a.m. and 5 
p.m. weekdays, except as provided in 12 CFR 261.8 of the Board's rules 
regarding availability of information.

FOR FURTHER INFORMATION CONTACT: Gregory Baer, Managing Senior Counsel 
(202/452-3236), or Gordon Miller, Attorney (202/452-2534), Legal 
Division; or William G. Spaniel, Assistant to the Director (202/452-
3469), Division of Banking Supervision and Regulation, Board of 
Governors of the Federal Reserve System. For the hearing impaired only, 
Telecommunications Device for the Deaf (TDD), Dorothea Thompson (202/
452-3544).

SUPPLEMENTARY INFORMATION:

Background

    The Board's Regulation O (12 CFR Part 215) implements the insider 
lending prohibitions of section 22(h) of the Federal Reserve Act. 
Section 215.2(i) of the regulation (12 CFR 215.2(i)) defines the limit 
for loans to any insider of a member bank and insider of the bank's 
affiliates as an amount equal to the limit on loans to a single 
borrower established by the National Bank Act (12 U.S.C. 84). That 
amount is 15 percent of the bank's unimpaired capital and unimpaired 
surplus for loans that are not fully secured, and an additional 10 
percent of the bank's unimpaired capital and unimpaired surplus for 
loans that are fully secured by certain readily marketable 
collateral.1

    \1\The lending limit also includes any higher amounts that are 
permitted by the exceptions included in 12 U.S.C. 84. Where state 
law establishes a lower lending limit for a state member bank, that 
lower lending limit is the lending limit for the state member bank.
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    Although Regulation O adopts the percentage limits used in the 
National Bank Act, Regulation O provides its own definition of what 
constitutes unimpaired capital and unimpaired surplus. Unimpaired 
capital and unimpaired surplus are equal to the sum of (i) ``total 
equity capital'' as reported on the bank's most recent consolidated 
report of condition, (ii) any subordinated notes and debentures that 
comply with requirements of the bank's primary regulator for inclusion 
in the bank's capital structure and are reported on the bank's most 
recent consolidated report of condition, and (iii) any valuation 
reserves created by charges to the bank's income and reported on the 
bank's most recent consolidated report of condition. 12 CFR 215.2(i).
    The Office of the Comptroller of the Currency (OCC) has recently 
revised its regulatory definition of unimpaired capital and unimpaired 
surplus for purposes of implementing the single borrower limit of the 
National Bank Act. See 59 FR 8533, February 15, 1995. Under that 
revised definition, a national bank's ``capital and surplus'' are equal 
to Tier 1 and Tier 2 capital included in the calculation of the bank's 
risk-based capital together with the amount of the bank's allowance for 
loan and lease losses not included in this calculation. 12 CFR 32.2(b).
    The Board is proposing to amend Regulation O to conform its 
definition of unimpaired capital and unimpaired surplus to the OCC's 
revised definition of capital and surplus. In substantially all cases, 
the Board believes that calculating the insider lending limits of 
Regulation O using the revised definition would not significantly 
increase or decrease a bank's insider lending limit. The elimination of 
the separate definition of unimpaired capital and unimpaired surplus in 
Regulation O therefore is expected to create minimal disruption in 
lending by member banks to their insiders and to insiders of their 
affiliates, while eliminating duplication in the calculation of lending 
limits for national banks and for state member banks with state lending 
limits identical to national bank lending limits.

Initial Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires an 
agency to publish an initial regulatory flexibility analysis with any 
notice of proposed rulemaking. Two of the requirements of an initial 
regulatory flexibility analysis (5 U.S.C. 603(b))--a description of the 
reasons why the action by the agency is being considered and a 
statement of the objectives of, and legal basis for, the proposed 
rule--are contained in the supplementary information above.
    Another requirement for the initial regulatory flexibility analysis 
is a description of, and where feasible, an estimate of the number of 
small entities to which the proposed rule will apply. The proposed rule 
would apply to all member banks, regardless of size. The Board has 
determined that its proposed rule would impose no additional reporting 
or recordkeeping requirements, and that there are no relevant federal 
rules that duplicate, overlap, or conflict with the proposed rule. In 
addition, the proposed rule is not expected to have a negative economic 
impact on small institutions. Instead, the proposed rule is expected to 
relieve the regulatory burden on a large majority of member banks.

Paperwork Reduction Act

    In accordance with section 3507 of the Paperwork Reduction Act of 
1980 (44 U.S.C. 3507; 5 CFR 1320.13), the Board will review its 
proposed amendment to Regulation O under authority delegated to the 
Board by the Office of Management and Budget after considering comments 
received during the public comment period.

List of Subjects in 12 CFR Part 215

    Credit, Federal Reserve System, Penalties, Reporting and 
recordkeeping requirements.

    For the reasons set forth in the preamble, the Board proposes to 
amend 12 CFR part 215 as set forth below:

PART 215--LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL 
SHAREHOLDERS OF MEMBER BANKS (REGULATION O)

    1. The authority citation for part 215 continues to read as 
follows:

    [[Page 19690]] Authority: 12 U.S.C. 248(i), 375a(10), 375b (9) 
and (10), 1817(k)(3) and 1972(2)(G)(ii); Pub. L. 102-242, 105 Stat. 
2236.

    2. Section 215.2 is amended as follows:
    a. The last sentence of paragraph (i) introductory text is revised;
    b. Paragraphs (i)(1) and (i)(2) are revised; and
    c. Paragraph (i)(3) is removed.
    The revisions read as follows:


Sec. 215.2  Definitions.

* * * * *
    (i) * * * A member bank's unimpaired capital and unimpaired surplus 
equals:
    (1) A bank's Tier 1 and Tier 2 capital included in the bank's risk-
based capital under the capital guidelines of the appropriate Federal 
banking agency, based on the bank's most recent consolidated report of 
condition filed under 12 U.S.C. 1817(a)(3); and
    (2) The balance of a bank's allowance for loan and lease losses not 
included in the bank's Tier 2 capital for purposes of the calculation 
of risk-based capital by the appropriate Federal banking agency, based 
on the bank's most recent consolidated report of condition filed under 
12 U.S.C. 1817(a)(3).
* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, April 14, 1995.
William W. Wiles,
Secretary of the Board.
[FR Doc. 95-9737 Filed 4-19-95; 8:45 am]
BILLING CODE 6210-01-P