[Federal Register Volume 61, Number 152 (Tuesday, August 6, 1996)]
[Proposed Rules]
[Pages 40756-40758]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19810]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 357

RIN 3064-AB08


Determination of Economically Depressed Regions

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Proposed rule and withdrawal of proposed rule.

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SUMMARY: As part of the FDIC's systematic review of its regulations 
under section 303(a) of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (CDRI), the FDIC is amending its regulation on 
economically depressed regions to reflect changes in the marketplace, 
update and streamline the regulation, improve efficiency, and reduce 
unnecessary costs. The FDIC also is withdrawing a previous proposed 
amendment to the regulation which was published December 18, 1992.

[[Page 40757]]

    The FDIC is required by statute to consider proposals for direct 
financial assistance by Savings Association Insurance Fund (SAIF) 
members having offices located in an economically depressed region and 
meeting certain other specified criteria, before grounds exist for the 
appointment of a conservator or receiver for the institution. The FDIC 
is proposing to amend this regulation, which designates certain 
economically depressed regions, by adding guidance to enable applicants 
to evaluate their situations before formally applying for assistance. 
Rather than periodically designating specific regions in light of 
current economic conditions, the proposed rule provides the criteria 
that the FDIC will use to determine which regions are economically 
depressed.

DATES: Comments must be received by October 7, 1996.

ADDRESSES: Send comments to Jerry L. Langley, Executive Secretary, 
FDIC, 550 17th Street, N.W., Washington, DC 20429. Comments may be 
hand-delivered to room F-400, 1776 F Street, N.W., Washington, DC 
20429, on business days between 8:30 a.m. and 5:00 p.m.; or sent by 
facsimile: (202) 898-3838; or by Internet: [email protected]. Comments 
may be inspected and photocopied in the FDIC Public Information Center, 
room 100, 801 17th Street, N.W., Washington, DC 20429, between 9:00 
a.m. and 5:00 p.m. on business days.

FOR FURTHER INFORMATION CONTACT: James L. Freund, Chief, Economic 
Analysis Section, Division of Research and Statistics, (202) 898-3960, 
FDIC, 550 17th Street, N.W., Washington, DC 20429; Michael Phillips, 
Counsel, Legal Division, (202) 898-3581, FDIC, 550 17th Street, N.W., 
Washington, DC 20429; or Sandra Comenetz, Counsel, Legal Division, 
(202) 898-3582, FDIC, 550 17th Street, N.W., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The proposed rule does not require any collections of paperwork 
pursuant to section 3504(h) of the Paperwork Reduction Act (44 U.S.C. 
3501 et seq.). Accordingly, no information has been submitted to the 
Office of Management and Budget for review.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), it is certified that the proposed rule will not 
have a significant economic impact on a substantial number of small 
entities. The rule per se does not impose regulatory compliance 
requirements on depository institutions of any size beyond that imposed 
by the underlying statute. Moreover, no institutions have filed 
assistance proposals since 1990 when the rule was first promulgated.

Discussion

    The FDIC is conducting a systematic review of its regulations and 
written policies. Section 303(a) of the CDRI (12 U.S.C. 4803(a)) 
requires each federal banking agency to streamline and modify its 
regulations and written policies in order to improve efficiency, reduce 
unnecessary costs, and eliminate unwarranted constraints on credit 
availability. Section 303(a) also requires each federal banking agency 
to remove inconsistencies and outmoded and duplicative requirements 
from its regulations and written policies.
    As part of this review, the FDIC has determined that part 357 of 
its rules and regulations (12 CFR part 357) should be amended to 
minimize the cost of implementing the regulation, make it more flexible 
regarding market standards, and give institutions more opportunity to 
establish that they are located in an economically depressed region.
    The FDIC has authority under section 13(c) of the Federal Deposit 
Insurance Act (FDI Act) (12 U.S.C. 1823(c)) to provide financial 
assistance to prevent the default of an insured depository institution. 
Under section 13(k)(5) of the FDI Act (12 U.S.C. 1823(k)(5)), the FDIC 
must consider proposals for eligible SAIF member institutions to 
receive assistance pursuant to section 13(c) before grounds exist for 
the appointment of a conservator or receiver for the institution. 
Section 13(k)(5) establishes nine criteria for such eligibility. One of 
the criteria is that an institution's offices must be located in an 
economically depressed region. In addition, for purposes of assistance 
proposals under section 13(k)(5), SAIF member applicants must 
separately meet the criteria set by the FDIC for purposes of section 
13(c) assistance. However, assistance proposals with respect to SAIF 
member institutions under section 13(k)(5) that do not meet all nine of 
the criteria set forth in that section may nevertheless be submitted to 
the FDIC for consideration under section 13(c). Thus, institutions 
whose offices are not located in an economically depressed region under 
section 13(k)(5) are not precluded from proposing and receiving open 
institution assistance.
    The term ``economically depressed region'' is defined in section 
13(k)(5)(c) to mean any geographical region which the [FDIC] determines 
by regulation to be a region within which real estate values have 
suffered serious decline due to severe economic conditions, such as a 
decline in energy or agricultural values or prices.
    On September 17, 1990, the FDIC issued a final rule (55 FR 38043) 
codified at 12 CFR 357.1, which determined that certain geographical 
regions were economically depressed regions for purposes of section 
13(k)(5) of the FDI Act. In determining which regions were economically 
depressed, the FDIC considered the following factors: (1) The ratio of 
poor quality real estate assets to total assets in the portfolios of 
BIF members; (2) the ratio of poor quality real estate assets to total 
assets in the portfolios of SAIF members; and (3) unemployment figures. 
The statewide percentages of impaired real estate assets for BIF and 
SAIF members and unemployment rates were analyzed with reference to 
national levels. These factors are subject to periodic review and 
application by the FDIC in light of changing economic conditions.
    The FDIC's final rule designated eight individual states as 
economically depressed regions for purposes of section 13(k)(5) of the 
FDI Act. They were: Alaska, Arizona, Arkansas, Colorado, Louisiana, New 
Mexico, Oklahoma, and Texas.
    Two years later, having reexamined real estate and employment 
conditions based on the most recent information, the FDIC determined 
that the eight states previously designated as economically depressed 
regions should no longer receive that designation. The FDIC concluded 
that the following nine states and the District of Columbia should be 
classified as economically depressed regions: California, Connecticut, 
Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode 
Island, and Vermont. In December 1992, the FDIC published this list of 
states in a proposed rule (57 FR 60140, December 18, 1992). The FDIC 
had considered, as before, the ratio of poor quality real estate assets 
to total assets in the portfolios of BIF and SAIF members, and the 
labor market situation. The FDIC considered both the overall 
unemployment rate and non-farm employment growth trends.
    The December 1992 proposed rule was never adopted, and will be 
withdrawn pursuant to an FDIC policy statement which provides that any 
proposed rule that has not been the subject of final Board action 
within nine months generally should be withdrawn. Statement of Policy 
on Development

[[Page 40758]]

and Review of FDIC Rules and Regulations, 49 FR 7288 (Feb. 28, 1984).
    Rather than periodically revisiting the criteria used to identify 
regions for designation as economically depressed regions, and listing 
regions so designated, the FDIC is proposing to revise part 357 to 
provide guidance to enable applicants to evaluate their situations 
before formally applying for assistance. The proposed rule provides the 
criteria the FDIC will use to determine which regions are economically 
depressed. Adoption of the rule would mean that the FDIC will no longer 
periodically designate specific regions in light of current economic 
conditions.
    Under the proposed rule, for the purpose of determining 
economically depressed areas, the FDIC generally will consider states 
as the defined geographical unit. The FDIC will determine whether an 
institution qualifies as being located in an economically depressed 
region on a case-by-case basis. That determination will be based on 
four criteria: (1) high unemployment rates; (2) declines in non-farm 
employment; (3) high levels of problem real estate assets at insured 
depository institutions; and (4) where a sufficient number of 
observations are reported, evidence indicating declining real estate 
values from the FDIC's Survey of Real Estate Trends. All data used will 
be from statistical sources available to the public. A list of these 
data sources is provided in the attached Appendix. Because there are 
significant industrial and labor market structural differences across 
areas of the United States, national or state benchmarks are not 
provided with respect to each of the aforementioned four criteria. This 
enables the FDIC to more accurately determine whether a region is 
depressed based on specific criteria relevant to an institution's 
market area at any time. For example, the FDIC will consider relevant 
information provided by institutions on local real estate prices and on 
the institution's market area, whether limited to a part of a state or 
covering more than one state.
    In consideration of the foregoing, the FDIC hereby withdraws the 
proposed rule published at 57 FR 60140, December, 18, 1992.

List of Subjects in 12 CFR Part 357

    Bank deposit insurance, Grant programs--housing and community 
development, Savings associations.

    For the reasons set forth in the preamble, part 357 of chapter III 
of title 12 of the Code of Federal Regulations is proposed to be 
amended as follows:

PART 357--DETERMINATION OF ECONOMICALLY DEPRESSED REGIONS

    1. The authority citation for part 357 is revised to read as 
follows:

    Authority: 12 U.S.C. 1819, 1823(k)(5).

    2. Section 357.1 is amended by revising paragraph (b) to read as 
follows:


Sec. 357.1  Economically depressed regions.

* * * * *
    (b) Economically depressed regions. (1) For the purpose of 
determining economically depressed areas, the FDIC in general shall 
consider states as the defined geographical unit. The FDIC shall 
determine whether an institution qualifies as being located in an 
economically depressed area on a case-by-case basis. That determination 
will be based on four criteria:
    (i) High unemployment rates;
    (ii) Significant declines in non-farm employment;
    (iii) High delinquency rates of real estate assets at insured 
depository institutions; and
    (iv) Where a sufficient number of observations are reported, 
evidence indicating declining real estate values from the FDIC's Survey 
of Real Estate Trends.
    (2) All data sources used are in the public record. The appendix to 
this part contains a list of such data sources. In addition, the FDIC 
will consider relevant information provided by institutions on local 
real estate prices and on the institution's market area, whether 
limited to a part of a state or covering more than one state.
    3. Appendix A to part 357 is added to read as follows:

Appendix A to Part 357--Data Sources Used by the FDIC To Determine 
``Economically Depressed Regions''

    1. Non-farm employment and unemployment rates. U.S. Department 
of Labor, Bureau of Labor Statistics, ``Employment and Earnings,'' 
Table B.7, Employees on Non-Farm Payrolls by State and Major 
Industry; ``Labor Force Status by State,'' Table C.2. Washington, DC 
(monthly).
    2. Problem real estate assets (noncurrent real estate loans and 
leases plus other real estate owned). Federal Financial Institutions 
Examination Council, ``FFIEC Call Report.'' Washington, DC 
(quarterly).
    3. Regional real estate values. Federal Deposit Insurance 
Corporation, ``Survey of Real Estate Trends.'' Washington, DC 
(quarterly).

    By order of the Board of Directors.

    Dated at Washington, DC, this 16th day of July 1996.

Federal Deposit Insurance Corporation.
Jerry L. Langley,
Executive Secretary.
[FR Doc. 96-19810 Filed 8-5-96; 8:45 am]
BILLING CODE 6714-01-P