[Federal Register Volume 60, Number 113 (Tuesday, June 13, 1995)]
[Rules and Regulations]
[Pages 31053-31054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14413]



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 Rules and Regulations
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  Federal Register / Vol. 60, No. 113 / Tuesday, June 13, 1995 / Rules 
and Regulations  

[[Page 31053]]

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: Final rule.

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SUMMARY: The Board is adopting an amendment to Regulation O to conform 
the definition of unimpaired capital and unimpaired surplus used in 
calculating a bank's Regulation O 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 final rule will reduce the regulatory burden for 
member banks monitoring lending to their insiders.

EFFECTIVE DATE: Effective July 1, 1995.

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 have been defined as 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 60 FR 8,533, 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).
    On April 20, 1995 (60 FR 19,689), the Board proposed to amend 
Regulation O to conform its definition of unimpaired capital and 
unimpaired surplus to the OCC's revised definition of capital and 
surplus. As stated in the notice of proposed rulemaking, the Board 
believes that in substantially all cases 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 confusion and 
duplication of effort caused by requiring banks to calculate capital 
two different ways for two regulations.
    The Board received 24 written comments, including comments from 11 
banks, 3 bank holding companies, 6 Federal Reserve Banks, and 4 trade 
associations. Twenty-three commenters supported the Board's amendment. 
All commenters in support felt that the amendment would make 
recordkeeping simpler and more consistent, and several also noted that 
the amendment would not significantly change their lending level. Two 
commenters noted that the amendment would both greatly reduce its 
recordkeeping burden and help its compliance.
    One commenter opposed the amendment and expressed concern that a 
bank's Tier 1 and Tier 2 capital did not include certain intangible 
assets, and that eliminating these assets could harm some community 
banks by effectively reducing their lending limits. One bank holding 
company supporting the amendment also noted that some of its affiliated 
banks would have their lending limits reduced because of the goodwill 
on their books. The Board believes, however, that few small community 
banks have a sufficient amount of intangible assets, such as goodwill 
or purchased mortgage servicing rights, on their books to cause a 
significant reduction of their insider lending limits from their 
current levels. Accordingly, after reviewing the public comments, the 
Board is adopting the amendment as proposed.

Determination of Effective Date

    Because the final rule adjusts a requirement on insured depository 
institutions, the final rule will become effective July 1, 1995, the 
first day of the calendar quarter after the date of the final rule's 
publication. See 12 U.S.C. 4802(b). For the foregoing reason, the final 
rule will become effective without regard for the 30-day period 
provided for in 5 U.S.C. 553(d). [[Page 31054]] 

Final Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires an 
agency to publish a final regulatory flexibility analysis when the 
agency publishes a final rule. Two of the requirements of an initial 
regulatory flexibility analysis (5 U.S.C. 604(b))--a succinct statement 
of the need for, and the objectives of, the rule, and a summary of the 
issues raised by the public comments received, the agency assessment 
thereof, and any changes made in response thereto--are contained in the 
supplementary information above. No significant alternatives to the 
final rule were considered by the agency.
    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 605(b)), the Board certifies that the amendment to Regulation O 
will not have a significant economic impact on a substantial number of 
small entities, and that any impact on those entities should be 
positive. The amendment will reduce the regulatory burden for most 
banks by simplifying the calculation of lending limits without 
significantly changing the amount of the limit, and will have no effect 
in other cases.
Paperwork Reduction Act

    In accordance with section 3507 of the Paperwork Reduction Act of 
1980 (44 U.S.C. 3507), the Board reviewed the information collection 
requirements of its amendment to Regulation O under authority delegated 
to the Board by the Office of Management and Budget (5 CFR Part 1320, 
Appendix A) after considering comments received during the public 
comment period.
    The recordkeeping requirements are authorized by 12 U.S.C. 375a(6) 
and (10), 375b(7), and 1972(2)(G). This information is required to 
prevent preferential lending by a member bank to its executive 
officers, directors, principal shareholders, and their related 
interests. The amendment is not estimated to change the annual burden 
of recordkeeping associated with Regulation O for state member banks, 
which is estimated to be 6,255 hours.

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 is amending 12 
CFR part 215 as follows:

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

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

    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) The 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 USC 1817(a)(3); and
    (2) The balance of the 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, June 7, 1995.
William W. Wiles,
Secretary of the Board.
[FR Doc. 95-14413 Filed 6-12-95; 8:45 am]
BILLING CODE 6210-01-P