The Gramm-Leach-Bliley Act, Pub. L. No. 106-102, 133 Stat. 1338 (November 12, 1999) (GLB Act), amended the Federal Home Loan Bank Act (Bank Act) to change, among other things, the capital structure of the Banks from a “subscription” structure to one that includes both risk-based and minimum leverage requirements. The GLB Act also required the Finance Board to prescribe uniform capital standards for the Banks and required each Bank to adopt and implement a capital plan consistent with provisions of the GLB Act and Finance Board regulations.

On March 2, 2001, the Finance Board approved an ANPR to help identify issues or uncertainties that had not been contemplated by, or fully addressed in, the final capital rule or that had arisen only after the Banks had begun to develop their capital plans. See 66 FR 14093 (Mar. 9, 2001). On August 8, 2001, the Finance Board published for notice and comment a notice of proposed rulemaking (proposed rule) addressing a small number of modifications to the capital and related regulations. See 66 FR 41462 (Aug. 8, 2001). Many of the changes proposed were identified in response to the ANPR. In addition to proposing certain conforming amendments, the Finance Board proposed to: clarify that the Banks may pay dividends on Class A stock from retained earnings; provide Banks with discretion to prohibit members from transferring Bank stock; define the phrase “charges against the capital of the Bank;” clarify the off-balance sheet conversion factor for commitments to make advances and commitments to acquire loans; change the provision governing the membership termination date for members seeking to withdraw voluntarily from the Bank System; and add a requirement that a Bank make certain disclosures to its members before its capital plan can be implemented. The proposed rule also addressed other issues arising under the capital rule that, based on the ANPR comments, appeared to require additional explanation, even though no amendment to the regulation with respect to these issues was proposed.

After considering the comments on the proposed rule, the Finance Board is adopting many of the changes as proposed, and is substantially modifying a number of others. The Finance Board is also adopting a few changes after commenters prompted the Finance Board to reconsider issues that, when proposing the rule amendments, the Finance Board had indicated such issues would not require rule changes. The final rule being adopted herein will become effective 30 days from its date of publication in the Federal Register , in accordance with the Administrative Procedure Act. See 5 U.S.C. 553(d). Banks, however, may immediately rely on the changes adopted herein in developing their capital plans. Further, because some Banks have already submitted their respective capital plans to the Finance Board for approval or others may not have sufficient time to alter a capital plan already approved by the their boards of directors before October 29, 2001 (when final plans are to be submitted to the Finance Board), the Finance Board emphasizes that Banks' boards of directors may amend their capital plan submissions at any time up until the time the Finance Board considers the capital plan for approval.

The Finance Board received seven comment letters related to the proposed rule. One comment, from a Bank, was sent on behalf of all twelve Banks. Four Banks submitted separate comments. Comment letters were also submitted by two trade associations. On August 20, 2001, Finance Board staff met with representatives of three Banks, along with a law firm representing the Banks, to discuss disclosure requirements in the proposed rule. A summary of this meeting was designated as a comment. After considering these comments the Finance Board has made a number of changes to the proposed regulations. In other cases, the Finance Board believes that no change to the proposed rule is warranted or that the Finance Board could address the comment by clarifying the meaning of regulatory text or a statutory provision. The Finance Board discusses below those comments that referenced provisions in the proposed rule amendments or that raised issues that the Finance Board has not previously fully or clearly addressed.

Voluntary withdrawal from membership. In the proposed rule, the Finance Board proposed amending § 925.26(b) to address a membership termination issue raised by a scenario described in comments to the ANPR. See 66 FR at 41463, 41473. Under that scenario, a member was required to hold Class B shares to support outstanding borrowing from a Bank and to hold Class A shares as a condition of membership. As adopted in December 2000, § 925.26(b) set the effective date of a member's termination as of the date on which the last of the applicable stock redemption periods ended for the member's stock, whether the stock in question was held as membership stock, as activity-based stock, or as excess stock. Thus, this provision prevented the Bank from redeeming Class A stock at the end of the six-month redemption period because that stock would have been required to be held as a condition of continued membership in the Bank until the membership terminated at the end of the five-year redemption period applicable to the member's outstanding Class B stock.

Because the rule appeared effectively to extend the redemption notice period for Class A stock in the situation described above by linking the membership termination to activity-based stock purchase requirements, thereby burdening members unnecessarily, the Finance Board proposed to change it. Under the proposed change, the membership of an institution that had submitted a notice of withdrawal would have terminated as of the date on which the last of the applicable stock redemption periods ended for the stock held as a condition of membership, as that requirement was set out in the Bank's capital plan, unless the institution decided not to withdraw and cancelled its notice of withdrawal prior to that date. This proposed change would have, in situations like those described above, enabled the Bank to redeem the Class A shares that were held as a condition of membership at the end of six months, unless a Bank also required a member to hold Class B stock as a condition of membership. In most cases, however, the Finance Board believed that the rule change would have helped assure that the redemption date for the Class A stock held as a condition of membership would have corresponded to the date on which the member's withdrawal became effective.

No commenter objected to the proposed change. One commenter, however, raised a question about how the effective date of a member's voluntary withdrawal would be affected by the member's purchase, after it had submitted its notice of withdrawal, of additional stock to satisfy an increase in its membership stock requirement. Under 925.26(b) as proposed, if a Bank's capital plan required a member to hold Class B stock as a condition of membership, voluntary termination of membership would ordinarily occur five years from the date the member submitted its notice to withdraw. However, if two years into the five-year redemption period, the membership requirement increased and the member purchased additional Class B stock to satisfy the increase, the language in § 925.26(b), as proposed, could be read to suggest that the effective date of the member's voluntary withdrawal would become five years after the purchase of the additional stock, or in effect, seven years after the member first submitted its notice of voluntary withdrawal. Such an outcome was not intended by the Finance Board. Therefore, the Finance Board, in adopting this provision, has altered the proposed language to make clear that the effective date of termination for a member that voluntarily withdraws from membership is the date on which the last of the applicable stock redemption periods ends for membership stock that the member held on the date it submitted its withdrawal notice.

An example illustrates how a member's voluntary termination would operate under the amendment to section 925.26(b). At the time it submits its notice of voluntary withdrawal, a member holds 100 shares of Class B stock to satisfy its membership stock requirement. Two years into its five-year redemption period, the member purchases 20 shares of Class B stock to satisfy an increase in its membership stock requirement. The effective date of the member's voluntary withdrawal would be unchanged by the purchase of additional stock, and on that date, the membership stock held as of the date the member filed the notice to withdraw would become subject to redemption while, as explained below, the additional 20 shares purchased to satisfy the increase in the membership stock requirement would become excess.

Stock purchased by withdrawing member. In response to the proposed rule, a commenter raised two concerns regarding stock purchased by a withdrawing member. First, the commenter raised the scenario of a member that, after filing its withdrawal notice, purchased additional stock, either to satisfy its membership stock purchase requirement, or to support additional business activity. Assuming such stock were Class B stock, unless the redemption period for such stock were deemed to have begun on the date of the member's withdrawal notice, the commenter argued, the redemption period for such stock could extend well after the termination of the institution's membership.

The Finance Board believes that, with respect to stock purchased by a withdrawing member to support additional business activity, such a scenario does not require a regulatory change. It is true that in this scenario, if the stock purchased to support additional activity is Class B stock, the redemption period would extend beyond the effective date of the member's voluntary withdrawal. However, once the activity related to the stock was liquidated, the stock would become excess and subject to repurchase at the Bank's discretion.

For example, assume that two years into its five-year redemption period, a withdrawing member takes down a four-year advance, supporting it by purchasing additional Class B stock on which it immediately files a notice of redemption. When the membership expires in year five, there would still be one year left on the member's advance. When the advance is paid off one year later, the stock supporting that activity would become excess, subject to repurchase at the Bank's discretion, even though one year still remains to run on that stock's five-year redemption period.

Similarly, with respect to Class B stock that a withdrawing member purchases to satisfy an increase in its membership stock requirement, such stock would not be subject to redemption until some time after the effective date of the member's voluntary termination. However, as explained more fully below, this stock would be considered excess stock as of the effective date of the member's voluntary termination. As excess, such stock could be repurchased at the Bank's discretion under the terms of the capital plan.

The example used previously also illustrates how a member's voluntary termination would operate under the amendment to § 925.26(b). At the time it submits its notice of voluntary withdrawal, a member holds 100 shares of Class B stock to satisfy its membership stock requirement. Two years into its five year redemption period, the member purchases 20 shares of Class B stock to satisfy an increase in its membership stock requirement. The effective date of the member's voluntary withdrawal would be unchanged by the purchase of additional stock, and would remain five years from the date it submitted its notice to withdraw from the Bank. 1 Further, assuming the member filed a redemption notice for the additional 20 shares at the time they were purchased, such shares could be redeemed three years after the member's voluntary termination was effective. Such shares could be repurchased by the Bank under the terms of its capital plan, however, at any time after the effective date of voluntary termination because after such date, such shares would be considered excess.

With regard to this latter point, some question may arise as to whether membership stock held after membership has been voluntarily terminated may be considered excess because of a provision in section 6(e)(2) of the Bank Act which provides:

The Finance Board, however, believes that section 6(e)(2) of the Bank Act does not preclude membership stock becoming excess upon the termination of membership pursuant to a member's voluntary withdrawal. Instead, the Finance Board interprets section 6(e)(2) as preventing a Bank from deeming excess the membership stock of a member that voluntarily withdraws from membership merely because the member has filed a notice of withdrawal. Nothing precludes a Bank, however, from considering stock as excess when membership actually terminates pursuant to a voluntary withdrawal because, under the statute, the stock is no longer required as a condition of membership. The Finance Board believes this interpretation is also consistent with the statutory provision governing voluntary termination of membership which sets forth that the applicable stock redemption notice period begins when the member files its notice to withdraw and that stock may be redeemed at the end of that period. See 12 U.S.C. 1426(d)(1).

Furthermore, the Finance Board believes that use of the phrase “termination * * * in any other manner” means that the second restriction in Section 6(e)(2) of the Bank Act applies to termination of membership by a process other than the filing of a voluntary notice of withdrawal, in other words as applying to members that are involuntarily terminated, or terminated through merger or consolidation with a nonmember or member of another Bank. Thus, section 6(e)(2) of the Bank Act prevents a Bank from deeming stock as excess because a member is involuntarily terminated or its membership terminates because of a merger or consolidation. This interpretation is consistent with the clear legislative intent, expressed in section 6(d)(2)(B)(i) of the Bank Act, 12 U.S.C. 1426(d)(2)(B)(i), that a Bank pay a member whose membership was terminated involuntarily “* * * in cash the par value of [its] stock, upon the expiration of the applicable notice period * * * (emphasis added).” Id. See also , 12 U.S.C. 1426(d)(2)(C) (automatically commencing redemption period for stock upon involuntary termination of membership). The wording concerning excess stock in section 6(e)(2) of the Bank Act in conjunction with the termination provisions of section 6(d) of the Bank Act, therefore, effectively establishes different points at which stock may be deemed excess during the membership termination process for institutions that withdraw from membership voluntarily and for institutions whose membership is terminated through other means.

It should also be noted that, unlike with voluntary terminations, when a membership is terminated involuntarily or because of a merger or consolidation, termination is effective immediately. Thus a Bank would never face the scenario where increases in the Bank's membership stock requirement would result in an involuntarily terminated member purchasing additional stock while it awaited redemption of its stock.

The commenter also expressed a second concern about dividends received as Bank stock (stock dividends) during the period after a member had filed a withdrawal notice. The commenter believed that unless the redemption period for such stock dividends were deemed to have begun on the date of the notice of withdrawal, a member would never be able to redeem all its stock because it would continue to receive stock dividends, and stock dividends on the stock dividends, ad infinitum.

The Finance Board does not believe that the above scenario requires an amendment to the capital rule because a Bank could address this issue in its capital plan. For example, a capital plan could provide that withdrawing members would receive cash dividends instead of stock dividends or that such dividends be paid in Class A stock, which would allow redemption after six months. More importantly, to the extent that shares received as stock dividends exceed the amount a member is required to hold under a capital plan's minimum investment provisions, the stock would be excess, subject to repurchase under the terms of a Bank's capital plan.

Merger and excess stock calculation. One commenter expressed concern about statements in the proposed rule regarding whether stock held by a member of one Bank may be considered to be excess stock, which would be eligible for repurchase by the Bank, whenever that institution merges into a member of another Bank or into a non-member. See 66 FR at 41471. The Finance Board indicated that, under the Bank Act such a merger could not, in and of itself, cause the disappearing member's stock to be deemed excess stock. The Finance Board also stated, however, that as a practical matter, some or all of the stock owned by that member could become excess stock as a result of the Bank's next calculation of each member's minimum stock purchase requirement, depending on the terms of a Bank's membership requirements. 2 Id. The commenter indicated that at a Bank where Class B stock was used to satisfy the membership stock requirement, the membership stock of a disappearing member should remain at the same level during the stock's five-year redemption period, and should not be subject to being deemed excess stock.

The Finance Board does not believe that the comment requires any regulatory change. Even if the Bank stock of a withdrawing member were deemed excess stock, it would remain part of the Bank's capital for the duration of the redemption period, unless the Bank exercised its discretion to repurchase it. Thus, whether such stock ceases to be part of the Bank's capital before the end of the redemption period is a decision that is at the complete discretion of the Bank.

Rolling redemption. In the proposed rule, the Finance Board responded to a concern raised by a Bank that § 931.7(a) could permit a member to file a redemption notice against all of its stock, even while such stock was needed to support membership or activity requirements, allowing what the commenter described as a “rolling redemption.” The Finance Board concluded that members would not have had a great deal of incentive to engage in rolling redemptions, especially if the Bank intended to aggressively manage its excess stock position. Further, the Finance Board pointed out that § 931.7(a) permitted a Bank to impose a fee, to be specified in its capital plan, on a member that canceled a pending notice of redemption, and that fee could have also reduced the incentive to engage in rolling redemptions. Thus, the Finance Board did not propose any changes to its rules in response to the concern about rolling redemptions. See 66 FR at 41471.

The Finance Board received one comment on this issue. The commenter disagreed with the Finance Board's conclusion that the redemption notice cancellation fee would deter a member from maintaining standing notices to redeem all their stock and provided examples of how the fee could be evaded. The commenter recommended amending the capital rule to permit the Banks to require a member to cancel a redemption notice associated with stock when the member seeks to use such stock to support a business activity that extends beyond, or matures after, the original redemption period.

The Finance Board has reconsidered its previous reasoning and finds merit in the arguments put forth by the commenter. To address the commenter's concerns, the Finance Board is adopting an amendment to § 931.7(a) of its rules to provide that a member's redemption request will be automatically cancelled if the Bank is unable to redeem the member's stock within five business days after the completion of the statutory redemption period. For example, under this change, if Class B stock specified for redemption were being used to support an activity at the completion of the five-year redemption period, the redemption notice would be cancelled if the activity were not liquidated within five business days and a new notice would have to be filed, starting anew the waiting period, if the member still wished to redeem the stock. This cancellation would still be subject to applicable fees specified in the Bank's capital plan. The five-day business period which a Bank must wait before canceling the redemption notice is intended to allow a member the option of liquidating the activity which is supported by the stock, if such early liquidation of the transaction is allowed under agreements with the Bank.

The automatic cancellation of a redemption request, of course, would also be applied to stock if the stock were required to be held as a condition of membership at the time the applicable redemption period ended. The Finance Board notes, however, that this provision only applies if the stock cannot be redeemed because it must be held by the member to fulfill one of its minimum investment requirements. Thus, the provision would not apply where the Bank could not redeem stock because the Bank would be below its regulatory capital requirements after the redemption or for a reason set forth in § 931.8 of the Finance Board rules, as that rule is being amended today, 12 CFR 931.8.

Discretionary redemption of stock. In response to the ANPR, a few commenters noted that Finance Board rules appeared to require a Bank to redeem a member's excess stock at the end of the statutory redemption period, unless certain statutory or regulatory restrictions applied. These commenters stated their belief that this approach was contrary to the Bank Act. See 66 FR at 41470-71. The Finance Board disagreed with this assessment and noted the discretion maintained by the Banks to repurchase stock and reiterated its position that it was not apparent from the GLB Act that a Bank could deny a redemption request if certain statutory or regulatory limitations on redemption did not apply. Id.

One commenter urged the Finance Board again to reconsider its position on this issue, citing concerns that the redemption rules, as written, may affect tax treatment of stock dividends and accounting treatment of Bank stock. In response to this comment, the Finance Board has carefully reconsidered its position on discretionary redemption. The Finance Board, however, continues to believe its earlier statements on this issue are correct. Id. at 41470. Further, the Finance Board's view is based in part on the fact that Congress in considering the GLB Act specifically rejected a class of non-redeemable stock. See H.R. Conf. Rep. No. 106-434 (discussing section 608 of the GLB Act). Interpreting the statute to allow the Banks sole discretion to redeem excess stock would effectively give the Banks the right to create a class of non-redeemable stock.

The Finance Board also believes that the Bank Act provides a large degree of discretion to a Bank to affect the amount of stock that it must redeem. In this respect, a Bank may adjust minimum investment provisions in its capital plan to require members to hold additional stock, effectively rendering such stock ineligible for redemption. This is especially true in light the amendments to § 931.7(a) being adopted herein, and discussed above. Further, the Finance Board has interpreted its rules to allow a Bank to provide minimum investment ranges in its capital plan so a Bank may adjust its minimum investment requirement within such range quickly. In cases where a Bank must amend its capital plan to change the minimum investment requirements, the Bank would need to seek Finance Board approval of the amendment, but the Finance Board intends to consider such requests expeditiously.

Authority for Banks to suspend redemption of stock. In considering the issue of a Bank's discretion to redeem stock, the Finance Board carefully reviewed its current regulations and weighed whether its current regulations were sufficiently flexible to allow a Bank to address an unforeseen or quickly arising situation in which the cash out-flow associated with redemptions would affect the Bank's ability to continue operating in a safe and sound manner or would weaken its capital position. In this respect, Finance Board regulations clearly prohibit the redemption of stock in situations where a Bank would be below its regulatory capital requirements after such redemption or where a Bank has experienced losses or projects future losses that would impair capital. See 12 CFR 931.7(c) and 931.8. The Finance Board also retains the right for reasons of safety and soundness to require the Banks to hold capital above the minimum total capital or risk-based capital requirements. See 12 CFR 932.2(b) and 932.3(b). By exercising such right, the Finance Board would effectively reduce the amount of stock that the Bank could redeem.

However, it is less clear whether the rules give a Bank clear authority to suspend redemption if it believes that its capital requirement may be rising in the future or if it believes that the capital requirements do not fully reflect the risk on the Bank's balance sheet. For example, the risk of certain newly-developed financial instruments may not become apparent until certain market conditions evolve, and a Bank may feel that such newly-apparent risks are not fully captured in the Finance Board credit or market-risk rules, or will result in a steady rise in a Bank's regulatory capital requirements over a period of time. While the Finance Board has authority to address such situations by raising capital requirements or changing its rules, it may be more prudent for the Banks to act immediately to stop redemptions in particularly volatile situations and let the Finance Board adjust its regulatory requirements in a more deliberate fashion.

The Bank Act also clearly provides certain statutory prohibitions on the redemption or repurchase of Bank stock so that the redemption or repurchase of such stock does not endanger a Bank's capital position. See 12 U.S.C. 1426(f). The Finance Board interprets this goal as applying both to immediate situations in which redemption or repurchase would bring a Bank below regulatory capital requirements and to situations in which a Bank has a reasonable belief that current redemption or repurchase of stock would cause the Bank to fail to maintain adequate capital in the near-term. It is less clear, however, that the Finance Board regulations address this latter situation.

In addition, the Bank Act imposes various obligations on the Banks and on the Finance Board. Among the duties imposed on the Finance Board are the requirements that it ensures that the Banks operate in a financially safe and sound manner, that the Banks remain adequately capitalized, and that the Banks carry out their housing finance mission. See 12 U.S.C. 1422a(a)(3). The Finance Board recognizes that cash out-flow associated with redemption of stock could affect the Banks' ability to carry out other obligations or otherwise operate in a safe and sound manner. The Finance Board believes that, given its statutory duties and obligations, it maintains full authority to restrict the redemption or repurchase of stock on safety and soundness grounds. Again, however, the Finance Board is concerned that its rules do not clearly give a Bank flexibility to exercise their judgment in situations that are fast evolving and moving in directions that cannot be readily ascertained.

To assure that its regulations address these situations, the Finance Board is, pursuant to authority in 12 U.S.C. 1422a, 1422b and 1426(a), adopting § 931.8(b). This regulation provides a Bank's board of directors, or a subcommittee of the board, with authority and discretion to suspend the redemption of stock if the continued redemption of stock would cause (at some future date) the Bank to fail to meet its regulatory capital requirements, would prevent the Bank from maintaining adequate capital against a risk or potential risk not fully captured in the Finance Board's regulations, or would otherwise prevent the Bank from operating in a safe and sound manner. Moreover, as safety and soundness regulator, the Finance Board believes that it would need to be informed of any condition that caused a Bank to invoke the authority granted by this provision. Thus, the provision requires a Bank to inform the Finance Board in writing within two business days that it has invoked the authority granted it under § 931.8(b). In addition, the Bank must provide the Finance Board with its reasons for suspending stock redemptions, including a description of the conditions that led to the suspension, and describe the Bank's strategies and time frame for addressing those conditions. The regulation also makes clear that in granting the Banks this discretion, the Finance Board retains authority to require the Banks to re-institute redemptions subject to whatever terms and conditions the Finance Board may set. The rule also prohibits a Bank from exercising its discretion to repurchase excess stock without the Finance Board's written permission during such time as a suspension of redemption under § 931.8(b) is in effect.

The Finance Board believes that the rule is needed for contingency purposes. In addition, the Finance Board emphasizes that the condition related to the failure to meet a minimum capital requirement in § 931.8(b) differs from the limitation set forth in § 931.7(c) in that it is forward looking and is intended to address a situation in which the Bank projects that continued redemptions over the near term will leave the Bank without sufficient capital to meet its regulatory requirements in the future. Thus, if current redemptions would cause a Bank to fall below regulatory capital requirements, the limitations in § 931.7(c) would apply and the Bank would not need to comply with the conditions of § 931.8(b).

Opt-out provision. In their joint comment letter, the twelve Banks urged the Finance Board to address the question of members who would be in the process of withdrawing on the effective date of the capital plan. The issue arose in part because of the proposed requirement in the disclosure rule that a Bank provide the required disclosure at least 20 days before the effective date of its capital plan. The Banks pointed out that they had wanted to put in their capital plans a firm opt-out date by which a member must submit its notice to withdraw if the member did not want to have its existing capital stock converted into Class A or Class B stock. If a capital plan contained such an opt-out date, the Banks stated, disclosure should be made before that date.

Some Banks, in their individual comment letters, also pointed out that Finance Board staff's position concerning draft capital plans was that the Banks could not use an opt-out provision to restrict the members' rights to withdraw from the System upon six-months prior notice. Thus, Finance Board staff believed a member could withdraw from the System and, in effect, opt out of the conversion process up until the effective date of the capital plan. Further, the staff believed that if the withdrawal notice were submitted before the effective date of a capital plan, the member's right to withdraw on six-months notice would have been reserved and should have been applied to any Class A or Class B stock received by the member upon conversion. One Bank's comment letter expressed concern about the operational problems related to conversion procedures and capital stock programming requirements if members were allowed to opt out of conversion up to the effective date. The Banks in their joint comment letter also questioned whether there would be statutory authority to allow Banks to redeem Class B stock on less than five years notice, as the Finance Board staff suggested.

The Banks reviewed various options for addressing the opt-out issue, but they believed some of these approaches raised legal or operational issues. They pointed out, however, that the Finance Board previously determined that it had authority to waive the six-month notice period for withdrawal and urged the Finance Board to use this authority to address the unique circumstances associated with the transition to the new capital structure. Specifically, the Banks wished to be able to adopt a flexible opt-out deadline and allow all members who withdrew from a Bank before this deadline to terminate membership and have their old stock redeemed on or before the effective date of a Bank's capital plan. The Banks also suggested that the Finance Board adopt a rule requiring members that did not file a notice of withdrawal before the opt-out date to have their existing stock converted into Class A or Class B stock as required under a capital plan and to be subject to the new, applicable notice periods associated with those classes of stock. One Bank also urged the Finance Board explicitly to allow the Banks to convert to cash the stock of institutions whose membership would be terminated as of the effective date, but nevertheless had outstanding advances, and to hold that cash as collateral against the outstanding advances. 3 The Bank also urged the Finance Board to deem receipt by a Bank of a notice to withdraw as receipt by the Finance Board of that notice.

The Finance Board has carefully considered the Banks' comments and finds many of the Banks arguments persuasive. As a starting point, the Finance Board recognizes that the Bank Act does not explicitly address how a Bank is to handle a member that, as of the effective date of a capital plan, has submitted a notice to withdraw from the Bank but for which the statutory six-month notice period has not yet been completed. See 12 U.S.C. 1426(e)(1994). Nor has the Finance Board previously addressed how this withdrawal issue should be addressed by the Banks in light of the statutory silence on this issue. The Finance Board does believe, however, that the preliminary position voiced by its staff that the statute allows a member to withdraw from the System on six-months notice up until the effective date of the capital plan raises questions from both an operational and a legal perspective, and, therefore, declines to adopt that position.

The GLB Act holds that a Bank shall apply the stock purchase and retention requirements that were in effect immediately prior to its enactment until the capital plan of that Bank is implemented. Under the regulatory structure adopted by the Finance Board, a Bank's capital plan is considered implemented on its effective date when the stock purchase and retention requirements ( i.e., the minimum investment requirements) for members adopted in the capital plan and the capital requirements (and transition provisions) adopted by the Finance Board under the authority set forth in the GLB Act would be applied. See 12 CFR 931.9. See also 66 FR 8262, 8279-80 (Jan. 30, 2001)(discussing 12 CFR 931.9). Thus, while the six month notice period for withdrawal from membership are applied up until the effective date of a Bank's capital plan, the withdrawal provisions set forth in the GLB Act amendments to the Bank Act should be applied after the capital plan's effective date. See 12 U.S.C. 1426(d).

The Finance Board believes that this view is also the most consistent with other provisions of the GLB Act. The GLB Act provides that the Finance Board may permit Banks to issue only those classes of stock authorized thereunder, and sets forth specific redemption periods for both Class A and Class B stock. See 12 U.S.C. 1426(a)(4). Deeming the six-month notice period for withdrawal to apply to Class B stock issued on the effective date of the capital plan would raise questions whether the Finance Board were allowing an unauthorized class of “old” stock to be issued, or alternatively, allowing a redemption period that differs from the statutory requirement. Thus, the approach that requires the pre-GLB Act withdrawal provision to apply up to the effective date but that applies the withdrawal provision set forth in the GLB Act to membership termination and the accompanying redemption of stock after such date appears to be the most consistent with the Bank Act, as amended.

The Finance Board also has, on at least one occasion, waived the statutory six-month notice period for withdrawal. See Fin. Bd. Res. No. 97-89 (Dec. 30, 1997). In that case, the Finance Board noted that it acted pursuant to an opinion of the Office of General Counsel that the Finance Board had authority as a matter of law, to waive the statutory six-month notice period provided that the waiver did not: (1) endanger the financial stability of the Bank from which the member was withdrawing; (2) endanger the safety and soundness of the Bank System as a whole, or (3) frustrate the purposes of the statutory provision. Id. In this regard, the Finance Board recognizes that some Banks may wish to allow members to opt out of the conversion process on less than six-months notice, either to speed up the transition process or to allow members to make their decision closer to the effective date. Thus, as a general matter, the Finance Board recognizes that applying its waiver authority to allow the Banks some flexibility in managing the unique issues related to the transition from the old subscription-based capital to the new risk-based capital system may strengthen the transition process and advance the overall statutory goals of the Bank Act as amended by the GLB Act.

To codify its view of the withdrawal provisions discussed above and in response to the concerns raised in comments on the proposed rule, the Finance Board has decided to adopt § 933.2(e) as part of this final rulemaking to require each Bank to establish in its capital plan an opt-out date by which a member that does not wish to convert to the new Class A or Class B stock must file its notice to withdraw with the Finance Board. This opt-out date can be no more than six months prior to the effective date of the capital plan, assuring that a Bank does not extend the withdrawal notice period beyond the six months currently required under the Bank Act.

The rule, however, in reliance on the Finance Board's waiver authority discussed above, will allow a Bank to set its opt-out date less than six months prior to the effective date of the capital plan. The Finance Board, by approving a capital plan that has an opt-out date that is less than six months before the effective date of the capital plan, will be simultaneously waiving the six-month notice period for withdrawal contained in § 6(e) of the Bank Act prior to its amendment by the GLB Act. When considering a capital plan with such an opt-out date, the Finance Board, therefore, will have to be satisfied that the opt-date will not endanger the safety and soundness of the Bank in question or the Bank System more generally nor be contrary to the withdrawal provision in the statute. Among the factors the Finance Board will consider in this regard are whether the opt-out date provides the Bank with sufficient time to adjust to unexpected withdrawals prior to the effective date and whether the Bank expects or is reasonably certain that member withdrawal will not negatively affect its conversion plans. The Finance Board also wishes to emphasize that it expects the opt-out date to be a specific date keyed to the effective date (e.g., four months before the effective date) and will not consider a range of dates.

Section 933.2(e), as adopted, also requires each Bank's capital plan to provide that a member that does not file its notice to withdraw from the Bank on or before the opt-out date will be subject to the withdrawal requirements set forth in the Bank's capital plan. For a member of a Bank that requires an institution to hold Class B stock as a condition of membership, this would mean that the member would become subject to the five-year redemption period associated with Class B stock upon the conversion of its existing stock to Class B stock, even though the member may have filed its notice to withdraw prior to the effective date of the capital plan. In this regard, the Finance Board will consider using its waiver authority to allow members that missed an opt-out date filing to terminate their membership on the effective date of the capital plan, upon a request of the Bank. In considering such a waiver, the Finance Board will review the effects of letting the member leave the System on its Bank's capital position, as well as review other safety and soundness implications of the request.

Section 933.2(e), as adopted, also makes clear that a Bank shall consider the period of time after the member files its notice to withdraw but before the effective date of the capital plan in calculating the applicable stock redemption periods for the Class A or Class B stock that are converted from existing stock on the effective date of the capital plan. The voluntary withdrawal provisions in the Bank Act both before and after its amendment by the GLB Act required the withdrawal notice period to commence upon the member's filing of its notice to withdraw. Cf. 12 U.S.C. 1426(e)(1994) and 12 U.S.C. 1426(d)(1). The Finance Board, therefore, believes that it is consistent with the GLB Act provisions to allow the date that the member's notice of withdrawal was first filed with the Finance Board to carry over when existing stock is converted into Class A or Class B stock. This approach also results in the applicable stock redemption periods remaining five years from the date the notice was filed for Class B stock and six months from the date the notice was filed for Class A stock, as required by the GLB Act. Section 933.2(e), as adopted, does not alter current procedures which require that a notice to withdraw be filed with the Finance Board to become effective. This long standing practice is required by the Bank Act and has not generally resulted in delays in member filings. Of course, on the effective date of a Bank's capital plan, voluntary withdrawal from that Bank would be governed by § 925.26 of the Finance Board's rules, 12 CFR 925.26, which requires that members provide their notices of withdrawal to the Bank.

This final provision being adopted by the Finance Board also does not alter the current practices for calculating the effective date of termination of membership. Under these procedures, a member whose notice of withdrawal is received by the Finance Board on February 1 would be given a membership termination date of August 1 (i.e., the count is six months not 180 days). Thus, by the same token, a Bank that wished to have an effective date of August 1, 2003, could set its opt-out date no earlier than February 1, 2003.

In adopting § 933.2(e), the Finance Board is requiring all Banks to set an opt-out date in their capital plans. The Finance Board fully expects this change may require some Banks to amend the plans that they initially submitted and has no objection to a Bank's altering its capital plan after the submission date.

The Finance Board also agrees with the Banks' comments that the disclosure requirement should be tied to the opt-out date to assure that members have information that would aid in their decisions whether to convert existing stock to the new Class A and/or Class B stock. Therefore, the Finance Board is adopting in the final disclosure rule (more fully discussed below) a requirement that all information required to be provided to members by § 933.5 be transmitted, sent, or given to members between forty-five and sixty days before the opt-out date established in a Bank's capital plan. The Finance Board believes that this deadline will provide members sufficient time to review the information provided by the Bank and to make follow-up inquiries if necessary while still being sufficiently close to the opt-out date.

Furthermore, to assure that members fully understand the ramifications of the opt-out provision, § 933.5(c)(4)(iv) of the final disclosure rule requires a Bank to provide the opt-out date in the disclosure materials. Because a Bank will know the intended effective date of its capital plan by the time the disclosure document is provided, the Finance Board expects that Bank to provide the calendar date for the opt-out deadline. Along with disclosing this opt-out date, the Bank also must explain the consequences to members of not filing the withdrawal notice on or before the opt-out date.

Disclosure to members. In proposing § 933.5, the Finance Board intended to provide a baseline for a Bank's disclosure about its financial condition, its capital plan, and the capital conversion process. The Finance Board decided to propose this rule after the Banks requested further clarification of Finance Board staff guidance that had outlined the types of communications with members that staff believed would help the Banks demonstrate the feasibility of implementation of their capital plans, as is required by § 933.2(g) of the Finance Board's rules, 12 CFR 933.2(g). The Finance Board noted that because use of disclosure documents could play an important role in member outreach and that the quality of a Bank's disclosure on a number of issues would play an important role in the Finance Board's review of the Banks' capital plans, there was merit in responding to the requests for additional guidance by adopting a rule in this area. See 66 FR at 41467-68.

Proposed § 933.5 would have required a Bank to provide a member with certain specified information at least 20 days before the effective date of the capital plan. In developing this proposed requirement, the Finance Board looked to disclosure standards established by the Securities and Exchange Commission (SEC), and specifically, the rule would have required the Banks to provide disclosure meeting the requirements of Item 11(a) through (d) and Item 12(a) and (e) of Schedule 14A of the SEC's proxy rules (17 CFR 240.14a-101, Items 11 and 12). The Finance Board noted that Items 11 and 12 are “usually thought of as mutually exclusive provisions,” but given the unique nature of the Banks and the conversion process, the Finance Board believed that appropriate disclosures from both Items should be provided to members. Id. The proposed rule would also have required the Banks to provide certain specific financial information to the members that was in scope, form, and content consistent with SEC's regulations S-X and S-K (17 CFR parts 210 and 229), as well as to provide pro forma balance sheet and income statements. The proposal would have allowed the Banks to incorporate by reference any of the financial information that had been incorporated in any Bank or Bank System report or that had been filed along with the capital plan with the Finance Board. Under proposed § 933.5, the Banks would also have had to provide members with a brief statement as to the anticipated accounting treatment and the federal income tax consequences of the transaction and with other information.

The Finance Board received four comment letters on various aspects of the disclosure requirements. One of the letters was on behalf of all twelve Banks. Three Banks also commented separately on specific aspects of the proposed disclosure rule. To the extent that the commenters addressed the same issues, the comment letters were generally consistent in their requests for changing the proposed rule.

In their joint comment letter, the twelve Banks stated that it was important for the Finance Board to clarify the premise under, which it was adopting the disclosure regulation. They noted that the Finance Board had explained that the proposed disclosure regulations were intended to help the Banks satisfy the disclosure criteria suggested by Finance Board staff in the Capital Plan Feasibility Guidance that had been provided by letter to the Bank presidents in May 2001. The Banks, however, viewed the staff guidance as applicable only to the outreach process which should be completed before the Banks filed their capital plans on October 29, 2001, while the disclosure required under the proposed rule would not occur until after approval of the capital plan.

The Finance Board agrees that clarification on this point is necessary. The criteria contained in the staff's guidance concerning the Banks' communications with their members indicated that a Bank was expected to disclose information about specific requirements in its capital plan. Because the Finance Board expects that the review process of a capital plan is likely to result in changes to the capital plan as originally submitted, information about specific provisions cannot be disclosed with certainty until after the Finance Board actually approves the plan. 4 This fact creates a timing problem under the staff guidance in that a Bank cannot submit complete information about its outreach effort until after a capital plan is approved, but at the same time, the guidance suggested that a capital plan could not be approved until after such information was submitted. Section 933.5(a), as adopted, addresses this timing problem by stating that a capital plan cannot become effective until the disclosure required under the rule is provided to the members. In this respect, the disclosure rule is intended to replace the staff guidance concerning a Bank's communication with its membership.

The Finance Board notes, however, that a Bank may wish to provide a narrative as supplemental information supporting the approval of the capital plan which describes member reaction to the version of the capital plan that it submits for approval and describes any issues that members saw as key to their acceptance of the capital plan. The Finance Board also emphasizes that § 933.5 as adopted only sets forth the minimum disclosure requirements, and does not prevent the Banks from undertaking additional outreach or disclosing additional information at any time.

The Banks in their joint comment letter also raised concerns about the approach to disclosure proposed in § 933.5 and about some of the specific information that the Finance Board was proposing be disclosed under the rule. Most importantly, the Banks emphasized that the wholesale incorporation of the SEC's rules was problematic for several reasons. First, the Banks stated that the specific proxy disclosure items from the SEC rules cited by the Finance Board were in some cases mutually exclusive and in other cases overlapping. This fact, the Banks believed, made it difficult to determine what information had to be disclosed and could lead to different Banks applying different standards. Moreover, the Banks believed that the SEC regulations were not designed to address either the unique capital structure of the Banks or the unique circumstances surrounding the re-capitalization which created additional difficulties in discerning what disclosure would be required. The Banks also questioned whether SEC precedent would be applied to its disclosure and cited the expense and difficulties for the Banks, which have not been subject to the SEC requirements, to develop the expertise in this area necessary to prepare their disclosure documents.

The Banks also objected to the provisions in proposed § 933.5(b)(1)(ii) which would have required the Banks to provide members with quarterly pro forma balance sheet and income statements. The Banks believed that this information would be so highly speculative and be based on such a detailed set of assumptions so as to be of little use to members. The Banks also voiced concern about the liability associated with requiring disclosure of such highly speculative financial information. As an alternative to the disclosure of the pro forma financial information, the Banks suggested that they be required to provide members with a pro forma capitalization table that would reflect the new capital structure of a Bank and with a narrative discussion of known material trends that could affect the liquidity, capital resources or continuing operations of the Bank. Two Banks also submitted separate comment letters emphasizing these points with one of the Banks suggesting that the narrative discussion may also include a statement of management's plans and objectives for future operations.

In developing the proposed disclosure rule, the Finance Board had turned to the SEC proxy rules (and related precedent) because it believed these rules provide a valuable model and a degree of certainty for the Banks as to the disclosure requirements. The Finance Board continues to believe that the SEC rules provide the best model for disclosure requirements but also understands the Banks' concerns that their unique capital structure makes the wholesale adoption of these rules confusing. The Finance Board has also reconsidered the proposed requirement that the Banks provide specific pro forma financial information to their members in light of the Banks' comments. As a result, the Finance Board has restructured the final disclosure rule to address the Banks' concerns and to more closely relate the SEC disclosure requirements to the capital plans of the Banks and is adopting § 933.5 as discussed below.

First, the Finance Board has deleted the specific references in its rules to the SEC proxy requirements. Instead, the Finance Board now describes in § 933.5(b) of the final rule the specific information that a Bank must disclose about the Class A and/or Class B stock that the Bank intends to issue on the effective date of its plan. (Thus, to the extent that a Bank's capital plan does not call for the issuance of Class A stock, the Bank's disclosure document would not be required to address Class A stock.) Specifically, § 933.5(b), as adopted, requires a Bank to briefly outline with regard to the Class A and/or Class B stock that it intends to issue: dividend rights, the terms of the conversion, the terms and conditions of a member's rights to have the Class A and/or Class B stock redeemed or repurchased, voting rights and preferences associated with the stock, liquidation rights, and a member's liability to further calls or to assessments by the Banks. The final disclosure provision also requires the Banks to describe any differences with regard to these rights between existing Bank stock and the new Class A and Class B stock. The Banks will also be required to discuss briefly the reasons for the conversion, the general effect of the conversion on a member's rights, and outline any other material features concerning the conversion.

Further, to assure that each Bank adequately discloses how provisions in its capital plan may affect a member's rights, the Finance Board has adopted § 933.5(c)(4) to require a Bank to disclose certain additional information related to its capital plan to the extent that the information was not provided to fulfill the requirements of § 933.5(b). Specifically, § 933.5(c)(4) requires each Bank to describe the minimum stock investment requirements set forth in the capital plan, to review the procedures for the Bank to amend the capital plan, to describe any restrictions (not disclosed elsewhere) on a member's right to redeem or to have its stock repurchased or to make use of its stock to fulfill its minimum stock investment requirement, and to describe a member's rights to have its stock redeemed or repurchased upon the member's voluntary or involuntary termination of membership.

As already discussed above, § 933.5(c)(4), as adopted, also requires a Bank to disclose the last date by which a member's written notice to withdraw from membership must be received by the Finance Board for the member not to have its existing stock converted to Class A and/or Class B stock and to explain the ramifications of not filing a notice to withdraw on or before that date. As also discussed more fully above, the date by which a Bank must make the disclosure required by § 933.5 is tied to the opt-out date set in a Bank's capital plan, and under § 933.5(a), as adopted, a Bank must transmit the required disclosure to members between forty-five and sixty days before the opt-out date.

The Finance Board has also modified § 933.5 with regard to the proposed disclosure of pro forma financial information, and, as requested by the Banks, § 933.5, as adopted, no longer requires the Banks to provide members with quarterly pro forma balance sheets and income statements. Instead, § 933.5(c)(1)(ii) requires each Bank to provide a pro forma capitalization table that reflects the expected new capital structure of the Bank, an estimate of the Bank's risk-based capital requirement under § 932.3 of the Finance Board rules, and an estimate of the Bank's total capital-to-asset ratio (where total capital would be regulatory total capital as defined in part 930 of the Finance Board's rules, 12 CFR part 930). This information should be based on actual financial data as of the date of the latest balance sheet required to be provided by § 933.5(c)(1)(i) of the disclosure regulation. Thus, the rule requires a Bank to show an estimate of what its capitalization, risk-based capital requirement, and total capital-to-asset ratio would have been, if the conversion process had occurred as of the applicable year-end date. The Banks are also required to disclose any material assumptions, and the basis for these assumptions, underlying the pro forma capitalization table, the estimated risk-based capital requirement, and the total capital-to-asset ratio.

Furthermore, § 933.5(c)(2) has been added to the final rule to require the Banks to provide members with a narrative discussing anticipated developments that could materially affect the liquidity, capital, earnings or continuing operations of a Bank, including those developments that could affect dividends, product volumes, investment volumes, new business lines, and risk profile. Because this narrative is viewed as a replacement for the proposed disclosure of the pro forma financial information, the Finance Board expects that the narrative will be forward looking. At the same time, however, the Finance Board used the term “anticipated developments” to indicate that it expects the Banks to discuss in its narrative those developments that, in the Bank's opinion, may be likely to unfold, given important trends, the Bank's business strategies, and the general economic conditions existing at the time the disclosure is made. The Finance Board also expects that the narrative will provide members with sufficient information to understand the underlying reasons for a Bank's views.

The Banks also requested that the Finance Board make some additional changes to the proposed rule to clarify some of the disclosure requirements. With regard to the requirement in proposed § 933.5(b)(1)(i) that the audited balance sheets and statements of income and cash flows be consistent in scope, form, and content with Regulation S-X and S-K, the Banks commented in their joint letter that this standard may be viewed as different from the current standard required of the Banks. In this respect, they pointed out that § 989.4 of the Finance Board rules, 12 CFR 989.4, stated that quarterly or annual statements issued by an individual Bank should be consistent in both form and content with the financial statements presented in the combined Bank System annual or quarterly financial reports. Two Banks reiterated this point in their individual letters. The Finance Board did not intend that the financial disclosure required under § 933.5 be different in form or content from what is currently required for an individual Bank's or the Bank System's financial reports. Thus, § 933.5(c)(1)(i), as adopted, requires that the audited balance sheets and statements of income and cash flow meet the requirements of § 989.4 of the Finance Board rules in form and content. As did the proposed rule, the final disclosure regulation still requires the Banks to provide members with audited balance sheets as of the end of the two most recent fiscal years, audited statements of income and cash flows for each of the three fiscal years preceding the date of the most recent audited balance sheet being presented, and unaudited interim financial statements as of and for appropriate interim dates.

The disclosure rule, as adopted, also allows the Banks to incorporate by reference any of the financial information required to be disclosed under § 933.5(c)(1), if that information was contained in an annual or quarterly Bank report, so long as that report conformed with the requirements of § 989.4 of the Finance Board rules, or an annual or quarterly Bank System report. See § 933.5(c)(1)(iii). To incorporate this information by reference, the final rule, as proposed, requires a Bank only to identify the incorporated information in the disclosure to members, and no other steps need be taken by a Bank. The final rule, as adopted, however, did not carry over from the proposed rule the right to incorporate by reference information that would have been filed with the Finance Board along with the Bank's capital plan. This provision had been proposed mainly to facilitate the incorporation by reference of the pro forma financial information that the proposed rule would have required Banks to provide to members. Because the pro forma financial information no longer must be disclosed to members and because filing information with the Finance Board would not necessarily mean the information is readily available to Bank members, the Finance Board has deleted this provision from the final rule.

The Banks in their joint comment letter also expressed concern with the wording of proposed § 933.5(b)(4), which would have required the Banks to provide members with a brief statement as to the anticipated accounting treatment and the federal income tax consequences of the conversion transaction. The Banks felt that the use of the phrase “federal income tax consequences” raised the issue of whether the Finance Board intended the Banks to provide tax advice to their members. The Banks suggested that the rule be rewritten to require the Banks to provide a statement of the federal income tax considerations that may be relevant to members as a result of the transaction. The Finance Board notes that it is common practice in disclosure documents to provide information on the potential tax implications of a transaction and such disclosure does not generally raise concerns that the disclosing party is acting as a tax advisor. The Finance Board, however, also did not intend to imply that the Banks were to act, or would in any way be acting, as tax advisors to the members with regard to the conversion transaction. Thus, in adopting the final disclosure rule, the wording of this requirement, now set forth at § 933.5(c)(6), has been changed to state that a Bank shall provide its members with a statement as to the anticipated accounting treatment for the conversion transaction and the federal income tax implications of the transaction that members should consider in consultation with their own accounting and tax advisors.

A number of disclosure requirements have also been adopted as proposed, although the requirements appear in a different section of the final rule. Thus, a Bank is required to provide members, if applicable, with a description of any amendments that it anticipates making to its by-laws or other governance documents as a result of the implementation of its capital plan. See § 933.5(c)(3).The Bank must also state in its disclosure document a name, address and telephone number for members to direct a written or oral request to obtain, free of charge, a copy of the capital plan and any other instrument or document that defines the member's rights. See § 933.5(c)(5). The final disclosure rule also makes clear (in § 933.5(d)) that nothing in § 933.5 shall create or shall be deemed to create any rights in any third party. As the Finance Board explained when proposing this provision, the disclosure rule is meant to add consistency, clarity, and precision to the disclosure process, and it is not the Finance Board's intention to impose liability under the federal securities laws on the Banks, or to create any private right of action in any third party. See 66 FR at 41468.

The Finance Board also notes that it is not prescribing a form to be used by Banks in providing the disclosure, which provides a great deal of flexibility to the Banks in this respect. However, the Finance Board expects that no matter what form is chosen, the disclosure documents will provide the required information to members in clear narratives and will not merely incorporate language taken directly from a capital plan or the Finance Board rules. The disclosure should also be referenced to the specific rights or obligations set forth in the Bank's capital plan. For example, a Bank that requires that only Class A stock be held as a condition of membership would be expected to discuss its withdrawal provisions in terms of the six month applicable notice period related to that class of stock while Banks that require Class B stock be held as a condition of membership would discuss withdrawal as requiring a five-year notice period.

The Finance Board did not receive any comments or received only favorable comments on a number of the rule changes that it proposed in August 2001. As discussed below, these provisions are being adopted in substance, as proposed.

Charges against capital . In comments to the ANPR, seven Banks stated that the phrase “charges against the capital of the Bank” as used in § 931.8 of the Finance Board rules was ambiguous. The main concern was that the phrase could be read to require the Banks to seek written permission of the Finance Board to redeem or repurchase stock anytime a Bank expected to incur, or actually had incurred, even a small loss. See 66 FR at 41465-66. As the Finance Board pointed out, the phrase itself was used in the Bank Act. See 12 U.S.C. 1426(f). After applying rules of statutory construction and considering the goals of and other relevant provisions in the Bank Act, the Finance Board concluded that the phrase was not meant to trigger the requirements of § 931.8 whenever a Bank projected or experienced loss. See 66 FR at 41465-66. The Finance Board therefore proposed to define in § 930.1 the phrase “charges against the capital of the Bank” as meaning an other than temporary decline in the Bank's total equity that causes the value of total equity to fall below the Bank's aggregate capital stock amount. This definition would effectively trigger the requirements of § 931.8 (which given other changes adopted as part of this final rulemaking are now found at § 931.8(a)) only when a Bank experiences a charge against its capital stock.

The Finance Board received one comment on this matter in response to the proposed rule, and that comment supported adoption of the definition as proposed. Therefore, for the reasons set forth in the SUPPLEMENTARY INFORMATION section of the preamble of the proposing release for this rule, the Finance Board is adopting in § 930.1 the definition of “charges against the capital of the Bank,” as proposed.

Dividends on Class A stock . In the proposed rule, the Finance Board proposed to amend § 931.4 to state expressly that a Bank may pay dividends on both Class A and Class B stock from either of the sources specified in 12 U.S.C. 1436(a), i.e., retained earnings and current net earnings. See 66 FR at 41464, 41473. This change was proposed to address concern that because section 6(h) of the Bank Act, 12 U.S.C. 1426(h), granted Class B stockholders an ownership interest in their Bank's retained earnings, the Bank's authority to pay dividends on Class A stock from retained earnings could be called into question.

In the proposed rule, the Finance Board concluded that, given the intent of Congress to allow an individual Bank, subject to Finance Board regulation, to determine the dividend rights for any class of stock that it issues, it appeared unlikely that the Congress also intended to preclude a Bank from paying any dividends on the Class A stock. The Finance Board further indicated that if the Congress had intended that result, it was more likely that the Congress would have done so expressly, rather than indirectly by enacting a new provision that was somewhat at odds with a long-standing provision of the Bank Act regarding the available sources of dividends for Bank stock. Moreover, the Finance Board continued, construing these provisions of the Bank Act in a manner that would effectively have precluded the payment of dividends on the Class A stock could have made it difficult, if not impossible, for a Bank to sell Class A stock to its members. That would have been an absurd result, in light of the clear intent of the Congress to create a new capital structure for the Banks and ultimately, the Finance Board determined that it should construe these provisions to allow the payment of dividends on Class A stock from retained earnings, as those amounts may be calculated under GAAP. See 66 FR at 41464.

The Finance Board received no comments objecting to the proposed change to § 931.4, and adopts it as proposed for the reasons set forth in the preamble of the proposing release.

Transfer of capital stock . In the proposed rule, the Finance Board proposed amending § 931.6 to allow a Bank the option of generally prohibiting its members from transferring Bank stock. If a Bank chose to allow transfers, the transfers clearly would have been subject to the Bank's approval. See 66 FR at 41465, 41473. A conforming change regarding transfer of stock was also proposed to §§ 933.2(e)(3) and (4). Id . at 41465, 41474.

This proposal arose out of a comment received in response to the ANPR. Upon consideration of this comment, the Finance Board stated that it would have been consistent with the discretion afforded a Bank in the GLB Act “to establish standards, criteria, and requirements for the * * * transfer * * * of stock issued by that bank,” id . at 12 U.S.C. 1426(c)(5)(B), to allow a Bank, as part of its capital plan, either to prohibit any transfers of its stock among its members or to permit these transfers subject to the conditions currently set forth in § 931.6.

Under the proposed change, each Bank would have been required to state in its capital plan whether a member may transfer capital stock of the Bank, and, if such transfers were allowed, to specify the procedures that a member must follow to effect the transfer, and to specify that any transfer may only have been undertaken in the limited circumstances set forth in § 931.6. The proposed amendment also expressly provided that a Bank, in its capital plan, may have required a member to obtain the Bank's approval to effect the transfer of stock.

The Finance Board received no comment opposing the amendment to § 931.6, and is adopting it as proposed. The Finance Board also adopted in substance the conforming changes proposed to §§ 933.2(e)(3) and (4), although, because of other amendments adopted in this final rule, these amended paragraphs have been redesignated and adopted as §§ 933.2(f)(3) and (f)(4).

Off-balance sheet credit conversion factors . In the proposed rule, the Finance Board proposed amending Table 2 of § 932.4(f) so that the 100 percent credit conversion factor for off-balance sheet items would have applied only to commitments to make advances with certain drawdowns and commitments to acquire loans subject to certain drawdown. Further, the Finance Board proposed to define certain drawdown in § 930.1 to mean a legally binding agreement that committed the Bank to make an advance or to acquire a loan, at or by a specified date in the future. See 66 FR at 41466-67.

These changes were proposed in response to concerns that the 100 percent credit conversion factor for commitments to make advances and to acquire loans as adopted in Table 2 in December 2000 were broader than the requirements of other federal bank regulators. For instance, Table 2 as adopted appeared to require a 100 percent conversion factor for “master commitments” to acquire loans under Acquired Member Asset (AMA) programs even though such commitments were not an accurate indicator of future acquisition. It was pointed out that other federal bank regulators would have applied a 100 percent conversion factor only to commitments subject to certain drawdown, (i.e., commitments that an institution is legally obligated to honor at a specified future date no matter what change may have occurred in the counterparty's financial situation.) Because it was generally the intent of the Finance Board to conform to the extent possible its credit risk charges to the Basle Accord as currently incorporated by the federal bank regulatory agencies, the Finance Board proposed to revise the credit conversion factors of Table 2 so that the 100 percent credit conversion factor applies only to commitments subject to certain drawdown and to provide a definition of certain drawdown to assure this result.

The Finance Board received one comment from a Bank supporting the proposed changes to §§ 930.1 and 932.4(f) and, therefore, adopts them as proposed.

Conforming changes . No comments were received on the conforming changes as described in the SUPPLEMENTARY INFORMATION section of the proposed rule. See 66 FR at 41468. These conforming changes are being adopted by the Finance Board as proposed.

The final rule applies only to the Banks, which do not come within the meaning of small entities as defined in the Regulatory Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance with section 605(b) of the RFA, 5 U.S.C. 605(b), the Finance Board hereby certifies that this final rule will not have a significant economic effect on a substantial number of small entities.

The final rule does not contain any collections of information pursuant to the Paperwork Reduction Act of 1995. See 44 U.S.C. 3501 et seq. Therefore, the Finance Board has not submitted any information to the Office of Management and Budget for review.

On June 6, 2001, the Federal Aviation Administration (FAA) issued AD 2001-12-08, amendment 39-12263 (66 FR 32531, June 15, 2001), which applies to certain Boeing Model 767 series airplanes. That AD requires removing the two existing escape ropes in the flight compartment; installing new escape ropes, bags, and placards; and replacing the nylon straps with new straps; as applicable. That action was necessary to ensure that flight crew members safely reach the ground from a flight compartment window in the event of an emergency evacuation. That action is intended to address the identified unsafe condition.

Information obtained recently by the FAA indicates that the applicability of AD 2001-12-08 and the applicability of paragraph (a)(2) of that AD need to be clarified and corrected.

As published, the applicability of the AD references Boeing Alert Service Bulletin 767-25A0265, dated May 27, 1999, as the appropriate source of service information for determining the affected Model 767 series airplanes. The service bulletin references Service Bulletin Index Document D624T001, Part 3, for airplane variable number, line number, and serial number data. Because some operators may not readily have access to this secondary source of service information, the FAA has determined that the applicability of the AD should specify the affected airplane line numbers (i.e., line numbers 1 through 334, excluding line numbers 265, 281, 284, 286, 288, 293, and 298), which were identified in the Summary of Boeing Alert Service Bulletin 767-25A0265.

Paragraph (a)(2) of AD 2001-12-08 affects airplanes having “serial numbers 1 through 107 inclusive.” However, the reference to “serial numbers” is incorrect. The FAA's intent was to list “line numbers 1 through 107 inclusive,” as indicated in the referenced Boeing Alert Service Bulletin 767-25A0265, dated May 27, 1999.

The FAA has determined that a correction to AD 2001-12-08 is necessary. The correction will clarify and correct the affected airplane line numbers.

This document corrects and clarifies the errors of AD 2001-12-08 and correctly adds the AD as an amendment to section 39.13 of the Federal Aviation Regulations (14 CFR 39.13).

The AD is reprinted in its entirety for the convenience of affected operators. The effective date of the AD remains July 20, 2001.

Since this action only clarifies and corrects a current requirement, it has no adverse economic impact and imposes no additional burden on any person. Therefore, the FAA has determined that notice and public procedures are unnecessary.

A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an airworthiness directive (AD) that is applicable to all Boeing Model B-17E, F, and G airplanes was published in the Federal Register on March 16, 1995 (60 FR 14233). That action proposed to require inspections to detect cracking and corrosion of the wing spar chords, bolts and bolt holes of the spar chords, and wing terminals; and correction of any discrepancy found during these inspections.

Of the approximately 12,600 Boeing Model B-17E, B-17F, and B-17G bombers produced during World War II, only about a dozen remain in operation. Since the last B-17 was completed in April 1945, each is now at least 56 years old. Those remaining are flown primarily in various forms of airshow displays.

Interested persons have been afforded an opportunity to participate in the making of this amendment. Due consideration has been given to the comments received.

Many commenters contend that the proposed AD is unjustified and that it should be withdrawn accordingly. The commenters present various reasons for this request.

Several commenters assert that cracking in the spar chord is not a safety issue because no wing or structural failures, incidents, or accidents have resulted from the cracking addressed by the proposed AD. One commenter states that the documented support for the necessity of the proposed AD (as described in the proposal) is flawed and without technical or event-based merit. Another states that no proper basis or need for the issuance of an AD has been established.

Several commenters also refer to B-17s flying with known cracks without incident, some of which are subject to an unspecified type of inspection. One commenter notes that cracks were present in some B-17s during World War II, and limits on the degree of cracking that was acceptable were described in the Structural Repair Manual. The same commenter notes that battle damage was corrected with strap or angle reinforcements. Another commenter reports finding corroded or cracked spars on several airplanes under major restoration, and on one that ran off a runway into a ravine, consequently requiring major repairs. The commenter indicates that, despite the extreme conditions that this latter airplane encountered, and the implied severity of the spar cracks, no components failed. One commenter reports inspecting the cracks on a particular B-17 and noticing surface corrosion in the cracked area of one B-17. The commenter concludes that since corrosion takes a period of time (sometimes years) to form, the cracks must have been there for several years. Another commenter reports that a hairline crack was observed in the left wing of an airplane in 1979, and that there has been no change or increase in the size of the crack during years of subsequent flying. (The commenter did not specify which structural member contained the crack.) The commenter indicates that a B-17 engineer indicates that there is no safety problem with hairline cracks.

The FAA acknowledges that no accidents are known to have occurred as a result of the conditions addressed by the proposed AD. Nevertheless, the FAA, as well as the operators, are aware of cracks in the wing spar chords of certain B-17 airplanes. To date five of the B-17s either flying or capable of being restored to flight status are known to have cracks in their wing spar chords. The FAA has determined that there is no design feature to prevent the crack propagation from becoming transverse and severing the spar chord. The integrity of this structure is, therefore, essential for continued safe flight and landing.

Several commenters point to the service history of the B-17 as evidence that the proposed actions are not necessary. A few commenters state that, in proposing this rule, the FAA failed to take into account the ruggedness of the B-17, and they reference occurrences during World War II in which some B-17s returned with all four spars broken as a result of combat damage. One commenter states that the reason for the airplanes being able to return safely in spite of the degree of damage is that 90 percent of the wing strength is in the skin and ribs of the airplane.

Several commenters justify their requests to withdraw the proposal based on the fact that the current usage of the airplane is far less demanding—in terms of weights, altitudes, and environments—than the conditions encountered during wartime operations. Several commenters note that none of the subject airplanes fly at gross weight, with most of them, according to one commenter, flying at 10,000 to 15,000 pounds under gross. One commenter states that the airplanes subject to the proposed AD are flown only 50 to 250 hours per year. Additionally, the commenters assert that the current pilots of these airplanes are more schooled and proficient than those flying them 50 years ago.

Several commenters also cite the excellent maintenance record on the B-17s as a reason that the proposal should be withdrawn. They point out that the subject airplanes are under “constant surveillance,” and are well maintained. The commenters also suggest that the remaining B-17s are better maintained now than when they were new, with many of them having been completely restored and many of them being hangared during the airshow off-season.

The FAA concurs with the commenters' assertions that the subject airplanes are operating in environments much more favorable than those encountered during World War II. In addition, the FAA recognizes that, for the most part, these airplanes are meticulously maintained. However, the FAA does not concur with the request to withdraw the proposal based on the conditions in which B-17s operate today, because such conditions are only partially relevant. Of much greater significance are the conditions to which any particular airplane has been exposed over its life-span. While most B-17s may be hangared and well-maintained now, most, if not all, of the affected airplanes have been exposed to years of grueling operations such as fire-fighting, aerial application, etc. Furthermore, even if the airplanes had been hangared continuously since World War II, moisture could accumulate from condensation. In fact, most of the subject airplanes have spent much of their life-span in open storage with no particular protection from the elements.

One commenter indicates that applicable military technical orders (the basis to which these aircraft are maintained) allow flights with known cracks in the spar chord if the cracks meet specified criteria. The commenter reports that this allowance has been validated by combat operations, current usage of the airplanes, and the type certificate.

Contrary to the commenters' assertions, continued flight with known structural defects, such as those addressed by the proposed AD, is considered a violation of section 91.7 of the Federal Aviation Regulations (14 CFR 91.7), which requires the pilot in command to discontinue a flight when an unairworthy structural condition occurs. The FAA finds that a military technical order written almost 60 years ago during wartime conditions (when emphasis was placed on short-term airworthiness risks as opposed to long-term risks such as fatigue and corrosion) is not an appropriate basis for allowing continued flight with cracks of this nature. The FAA also is not aware of any specific FAA approval, either directly or by reference, of a military technical order that allowed continued flight operations for B-17s with unrepaired cracked spar chords. In any event, this AD would supersede such an approval.

One commenter justifies its objection to the proposed rule on the fact that B-17s are not operated for hire. (The Limited Category type certification basis prohibits using B-17 airplanes for carriage of passengers or cargo for compensation or hire.) The FAA infers that the commenter is implying that a lesser safety standard is therefore acceptable. The FAA does not concur with the commenter's justification. The corrective action specified in this AD is needed to ensure the safety of not only the crew members and any other persons on board, but also of the many spectators that are in proximity to the affected airplanes as they participate in airshows.

Several commenters report that removal of the wings requires significant disassembly and express concern that such removal could reduce the structural integrity of the spar chord-to-terminal fitting joints. Two commenters state that it has not been determined that these cracks reduce the structural integrity of the wing assembly. One commenter states that replacement of used aircraft hardware with new hardware will affect the aircraft's “preset” and “harmonics,” and may establish a stress concentration, which would reduce the integrity of the aircraft.

The FAA does not concur. The wings have already been removed and repaired on at least three B-17 airplanes. The FAA has received no comments indicating the removal and subsequent reinstallation of the wings reduced the structural integrity of those airplanes. Nevertheless, wing removal is not required in all instances, as discussed below. No change to the final rule in this regard is necessary.

Certain commenters request clarification and correction of language that appears in the Discussion section of the preamble to the notice of proposed rulemaking (NPRM). One commenter presents an analysis of the Discussion section, which includes a number of questions and suggestions for editorial changes. The commenters specifically request that the FAA correct certain language related to the description of the wing spar chord to wing terminal fitting joint. One commenter asks for clarification regarding the description of the wing spar chord to wing terminal fitting through bolts being “seized” in the joint. Additionally, the commenters request correction of the discussion of spar loading that appeared in the NPRM. Additionally, the commenters pose various questions, such as:

The FAA finds that clarification of these issues is necessary. The commenters note correctly that spar chords mate with the cylindrical, tapering inner wing attach fitting inserts. Each of the eight joints is held together by eight close-tolerance bolts. The FAA was informed of the cracking of the wing spar chord and corrosion of these bolts on April 26, 1994. One B-17 had been inspected at that time, and approximately one-third of the 64 bolts in the eight joints were replaced due to corrosion. At least two bolts had lost almost half of the cross-sectional area. Some of the eight spar chords were cracked, and one chord end was broken into pieces. Since receiving that report, the FAA has learned that cracks have been discovered in the wing spar chord-to-wing terminal fittings of five of the 12 airplanes either flying or capable of being restored to flight status.

The FAA notes that cracks have propagated to observed lengths greater than seven inches. As the cracks propagate outboard into the region of increasing longitudinal tensile and compressive stresses, there is no design feature to prevent the crack propagation from becoming transverse and severing the spar chord. Because this area is subject to high axial loads and this structure is necessary for the continued safe flight of the airplane, cracking in this area is critical.

Evidence that the bolt corrosion and spar chord cracking were due to moisture entrapment came from several sources. The first operator to report this condition found corrosion of the joint bolts and the spar chords. By design, the spar chord tubes are open at the outboard end, and the presence of the wing terminal fittings inside the spar chords traps water at the inboard ends. Cracks known to date run longitudinally along the spars, which indicates that circumferential loads are cracking the spars. Pressure from corrosion products between the spar chord-to-terminal joints would create such circumferential loads.

Commenters correctly note that the bolts in these fittings are not seized. Rather, moisture trapped in the inner wing spars has caused some of the bolts to corrode, which makes removal difficult.

Since the Discussion section of the preamble of an NPRM is not restated in a final rule, no change to this final rule is necessary in this regard.

One commenter asserts that all B-17 aircraft with large, visible cracks were built by Douglas, and all had history of damage or severe use. The commenter states that Vega- and Boeing-built B-17s do not have a problem with cracking.

The FAA infers from these remarks that the commenter requests that Vega- and Boeing-built airplanes be excluded from the applicability of this AD. The FAA does not concur. The FAA notes that, of the approximately 12,600 Model B-17E, B-17F, and B-17G airplanes produced, nearly 3,000 were manufactured under license by Douglas, and approximately 2,750 were manufactured under license by Vega, a subsidiary of Lockheed.

The dozen or so airplanes still in operation—only about one of every 1,000 produced—comprise a statistically insignificant sample; therefore, no conclusions can be drawn statistically from the origin of the particular airplanes in which cracks have been discovered. Additionally, the commenter fails to present any evidence, such as differences in design or production methods, that would suggest airplanes manufactured by Boeing or Vega are less likely to experience the unsafe condition addressed by this AD. Further, the FAA is not aware of any such differences. No change to the applicability of this final rule is necessary.

Another commenter requests that the applicability of the proposed AD exclude certain airplanes that have already undergone wing removal, removal of terminals, replacement of close tolerance bolts, and repair of spar tubes.

The FAA does not concur that a general exclusion should be made for those airplanes since the previous actions accomplished on those airplanes may not provide the necessary level of safety. Operators have not submitted formal documentation to the FAA describing such previous actions, and so cannot establish that any actions accomplished previously on these airplanes definitively meet the criteria of this AD. In addition, it appears likely that there may be repairs accomplished previously, such as stop-drilling of cracks found in the spar chords, that do not adequately address the unsafe condition.

However, paragraph (d) of this final rule provides operators with the opportunity to present the FAA with data to justify approval of an inspection or repair accomplished previously as an alternative method of compliance. This provision enables the FAA to review such inspections and repairs and determine whether further action is necessary. Also, NOTE 2 of this AD states specifically that operators of airplanes on which the terminal fitting-to-spar chord joint was separated prior to the effective date of this AD, and on which inspection(s) of and/or repair(s) to the wing terminals-to-spar chords were accomplished prior to the effective date of this AD, should submit requests for approval of alternative methods of compliance to the FAA.

Several commenters question whether the cracks have been caused by corrosion. The commenters state there is no documented proof that corrosion between the steel wing terminal fitting and the aluminum spar chord is the cause of the cracking. Several commenters state that the cracks are due to operational abuses ( e.g., heavy landings, operating above gross weights). Another commenter states that the cracks known to be present on B-17s have not been attributed to any single cause. That commenter states that environmental stresses (i.e., temperature changes between the aluminum spar and the steel trunnion) contributed to the cracking. One commenter states that moisture accumulation and consequent corrosion cannot be the cause of the cracking addressed by this AD because most B-17 owners store their airplanes indoors where moisture cannot accumulate on the spars. Other commenters suggest that observed cracking is due to a reported manufacturing procedure in which the terminal fittings, as well as the spar chord-to-terminal fitting bolts, were driven into place with hammers.

The FAA clarifies that cracking that has been discovered is not consistent with the damage that would result from overstresses such as those suggested by the commenters. However, on the other hand, the cracking is consistent with the pressure that would result from products of corrosion in the joints. The FAA finds that the longitudinal nature of the cracks discovered so far is indicative of expansion due to corrosion products in the spar chord to terminal fitting joints. It should be noted that the wing terminal fittings are steel, while the spar chords are constructed of aluminum. Because steel and aluminum are dissimilar metals, aluminum will tend to galvanically corrode if in direct contact with steel, as it is in the B-17 design. The faying surfaces of these joints have not been the subject of routine maintenance inspections because of the age of the subject airplanes.

Several commenters indicate that separation of the wing spar chord-to-wing terminal joint is unnecessary, and that the proposed requirement to remove all 64 bolts in the eight wing spar chord-to-wing terminal joints is likewise unnecessary. These commenters offer various proposals with regard to alternative inspection and repair procedures and compliance times, which are discussed in the following paragraphs.

Several commenters request that the FAA change the requirements to remove the most inboard bolt in each wing spar chord joint and to remove all 64 bolts, as specified in proposed paragraphs (a)(2) and (b)(2)(i), respectively, so that the three most inboard fasteners in each joint would not have to be removed. One commenter states that the most inboard bolt in each of the eight wing spar chord-to-wing terminal joints should not be removed due to interference with other wing structure and the fact that the bolt is only 5/8 inch from the end of the spar. Some commenters state that the three most inboard bolts should not be removed for the reason mentioned previously (for the most inboard bolt), and because removal of the next two most inboard bolts would necessitate disassembly of a wing rib to access those bolts.

The FAA finds that some commenters were apparently misled by the preamble of the proposed AD as to whether the inspections specified in paragraph (b) of the AD could be accomplished without actually separating the wing spar-to-wing terminal joint.

The FAA acknowledges that significant disassembly would be required to remove the three most inboard bolts on the front and rear spars. The FAA clarifies that the intent of paragraph (b)(2) of the proposed rule (designated as paragraph (b)(2)(i) of this final rule) is that the use of equivalent inspections that do not involve separating the terminal fitting from the spar chord to detect cracking and corrosion may be acceptable. The FAA has determined that an acceptable level of safety can be achieved without removing the three most inboard bolts of a joint provided: (1) The dye penetrant inspection of the spar-chord tube-end reveals no cracks; (2) the other five bolts are removed and an eddy current inspection verifies that the holes are free of cracks; and (3) a borescope inspection using 10-power magnification reveals that the first, second, and third most inboard bolts are free of corrosion. These inspections must be performed on a repetitive basis at 36-month intervals. Paragraph (b) of this final rule has been reformatted, and this new alternative procedure is specified in paragraph (b)(2)(ii) of this AD.

Further, the FAA has made editorial changes to paragraphs (b)(2)(ii), (b)(2)(ii)(B), and (b)(2)(ii)(C) of the final rule to more clearly specify which bolts are being referred to in those paragraphs.

In addition, the FAA has determined that the requirement to perform the high frequency eddy current inspection in accordance with paragraph (a)(2) of the proposed AD (which included removing the most inboard bolt during the initial inspection) can be omitted from this AD without unduly affecting aviation safety, since this inspection is adequately addressed by paragraph (b) of this AD. Therefore, paragraph (a) of this AD has been re-structured and re-numbered accordingly.

One commenter that has accomplished extensive repairs on a Model B-17 airplane in the area that is the subject of this AD states that separating the terminal fitting from the spar chord is the only method that will adequately address the unsafe condition (corrosion and cracking of the wing spar, which could result in reduced structural integrity of the wing of the airplane). The FAA infers that this commenter is requesting that the FAA revise paragraph (b)(2) of the proposed AD to eliminate reference to alternative inspection procedures that may not include separating the terminal fitting from the spar chord.

The FAA partially concurs with the commenter's request. The FAA concurs that inspections that involve separating the terminal fitting from the spar chord are required for all airplanes with cracks that are unacceptable for repair. The FAA points out that it also has not approved any alternative inspection procedures for airplanes that have no cracks or repairable cracks. The FAA also points out that this AD does not grant blanket approval for alternative inspection procedures. All inspections in accordance with this AD are required to be accomplished in accordance with a method approved by the FAA.

However, the FAA does not concur that inspections must include separation of the terminal fitting from the spar chord. The FAA finds that it may be possible, depending on the degree of cracking detected, for alternative inspection procedures to provide an acceptable level of safety, even if such procedures do not involve separating the terminal fitting from the spar chord. Paragraph (b)(2)(i) of this AD specifies that alternative inspection procedures must meet certain minimum requirements, which are specified in paragraphs (b)(2)(i)(A), (b)(2)(i)(B), and (b)(2)(i)(C) of this AD. However, the FAA does not have the resources to develop these procedures for operators. No change to the final rule is necessary in this regard.

One commenter requests that the proposed 18-month compliance time specified in paragraph (b) of the AD be changed to allow the inspections and any needed repairs to be performed during the winter months away from the airshow season.

The FAA does not concur that the compliance time should be revised. An 18-month compliance time, as proposed, does allow compliance during the winter months; therefore, no change to paragraph (b) is necessary in that regard.

However, in light of the concern raised by the commenter, the FAA has determined that the compliance time for the initial inspections specified in paragraph (a) of this AD can be changed to 180 days without a significant adverse effect on aviation safety. Paragraph (a) of this AD has been revised accordingly.

One commenter suggests that each spar chord should be treated with corrosion inhibitor after bolt removal, replacement, or remedial action. The FAA infers that the commenter is requesting that a requirement for application of corrosion inhibitor be added to applicable paragraphs in the final rule.

The FAA concurs with the commenter's suggestion that each spar chord should be treated with corrosion inhibitor. Therefore, paragraph (a)(2) of the final rule (formerly paragraph (a)(3) in the NPRM) has been revised to include a requirement for application of a corrosion inhibitor as suggested. The FAA has determined that such a requirement will increase the long-term corrosion resistance characteristics of the affected structure without imposing a significant burden on the operators of the affected airplanes.

One commenter requests that the FAA require that repairs be performed in accordance with published repair manuals for the B-17. For those repairs not covered by a published repair manual, the commenter believes that repairs should be accomplished with the aid of FAA Designated Engineering Representatives (DER) or other recognized experts.

The FAA does not concur. All repairs required by this AD must be approved by the Manager of the Seattle Aircraft Certification Office, FAA, regardless of whether those repairs are addressed in a published B-17 repair manual. Although a World War II-era repair manual may be of some assistance in that regard, it must be recognized that the value of such a manual is very limited. The primary concern was short-term airworthiness; that is, that an airplane was to be repaired sufficiently to safely complete further combat missions. Long-term considerations, such as fatigue and corrosion, were secondary.

The FAA also recognizes that there have been considerable advances in repair and corrosion-prevention practices over the last half-century. As suggested by the commenter, the FAA encourages review of any needed repair by an appropriately qualified DER since that would undoubtedly hasten FAA approval of the repair. (Because the repair would be related to compliance with an airworthiness directive, a DER would be authorized only to recommend its approval.) However, no change to this final rule is necessary in this regard.

One commenter requests that the final rule be revised to require replacement of bolts only “as needed,” rather than requiring replacement of any corroded bolt. The commenter states that it has accomplished a repair that involved removal of the wings and the terminal attach fittings. In the course of the repair, approximately one-third of the wing terminal-to-spar bolts were found to be corroded to the point where replacement was required. However, the commenter points out that there was no corrosion of the shear plane of any bolt. Based on the commenter's statements, the FAA infers that the commenter is requesting that the final rule be revised to require replacement of bolts only if corrosion is found at the shear plane area.

The FAA does not concur with the commenter's request. The FAA finds that it would be inappropriate to allow a bolt found to be corroded to remain installed on an airplane. The FAA has determined that bolts in wing spar chord-to-wing terminal joints are critical to the safety of flight; therefore, those bolts must be free of discrepancies, including corrosion. In addition to the criticality of the bolts to flight safety, the bolts must be removed to be inspected fully, and the FAA has determined that it is more cost effective for operators to replace corroded bolts with new bolts, rather than to perform frequent repetitive inspections of corroded, or corrosion-reworked, bolts. No change to the final rule is necessary in this regard.

In lieu of repairing any cracks found, one commenter requests that the FAA allow operators to attach 4130 steel straps to the outside of the wing using existing rivet holes. The FAA does not concur that this would be an acceptable alternative because steel straps fastened to the outside of the wings would not provide adequate load paths for the spar-chord loads. No change to the final rule is necessary in this regard.

Some commenters question the cost impact information presented in the preamble of the NPRM. These commenters take offense to assumptions made in that section that “no operator has yet accomplished any of the proposed requirements” and that “no operator would accomplish those actions if this AD were not adopted.” One commenter states that all owners/operators have already voluntarily undertaken inspections and repairs as a community. The commenter adds that results of those inspections revealed that virtually all cracks have been discovered using detailed visual inspection and non-destructive test (NDT) inspection methods that did not involve de-mating of the spar/wing terminal. Other commenters also submit information concerning previously accomplished inspections and corrective actions.

The FAA finds that clarification of language presented in the cost impact information of this AD is necessary. The FAA and other federal agencies are required to propose or adopt a regulation only upon reasoned determination that the benefits of the intended regulation justify its costs. The two assumptions mentioned above merely represent a degree of conservatism taken by the FAA in determining that this AD will, in fact, be cost effective. They are in no way intended to be judgmental of what a particular operator would or would not do in the absence of this AD.

Nevertheless, the FAA has not been provided with specific data indicating that any of the previously accomplished repairs and inspections provide the level of safety intended by this AD to adequately address the identified unsafe condition. It also must be recognized that, in the absence of an AD, operators of B-17s would not be required to perform the needed inspections and repairs. If there is no binding requirement to do so, the statutory responsibility of the FAA to ensure the safety of the occupants of those airplanes and persons on the ground watching the airplanes during airshows would not be fulfilled.

Another commenter states that the statement in the proposal that indicates the proposed AD “would not have a significant economic impact on a substantial number of small entities” is inconsistent with the estimated cost of $90,000 per airplane.

The FAA notes that the phrase referenced by the commenter refers to a statutory requirement imposed by the Regulatory Flexibility Act. That act is intended to protect small businesses and organizations from federal rulemaking by requiring agencies to develop and analyze information concerning the effect of rules on small entities. When the effects of a rule are likely to be “significant” on a “substantial number of small entities,” the agency is expected to take steps that will reduce the burden. Regarding regulatory flexibility findings in conjunction with the requirements of ADs, very few ADs will ever reach the level of having a “significant economic impact, positive or negative, on a substantial number of small entities,” since either most aircraft operators do not meet the agency's criteria for small entities, or because the cost of an individual AD usually does not exceed the agency limit for significant impact (which is $100 million per year). A statement concerning the impact, or lack of it (as in the case of this AD), is required to be included in the certification statement of each AD.

Some commenters state that they cannot afford to separate the wing spar chord-to-terminal joints to perform the inspection. The commenters state that the AD, as proposed, would create severe economic hardship, result in grounding of airplanes, and force the sale of non-flying airplanes at a financial loss. One commenter acknowledges that the cost estimates fall within federal guidelines for a rule that is “not a significant impact;” however, the commenter contends that, for the most part, these airplanes are owned by non-profit organizations that do not have $90,000 in discretionary funds. Another commenter states that, under the circumstances, issuance of a precautionary manufacturer's service bulletin or an FAA Advisory Circular would be more than adequate.

The FAA recognizes the economic impact of the proposed rule. However, the FAA notes that an unsafe condition exists in regard to the integrity of the affected joints, which are essential for safe flight. The FAA also points out that, as explained previously, paragraph (b)(2) of the AD provides operators the option of performing an alternative inspection without separating the joints. The FAA expects that costs for accomplishment of the alternative inspection will likely be lower than $90,000 per airplane.

Some commenters believe that the cost of compliance will be much greater than the estimated $90,000 per airplane. One commenter states that a consensus of affected owners/operators is that the wing spar/terminal de-mate would require 2,250 to 2,500 work hours. The commenter notes that this requirement entails removal and reinstallation of four engines, and complete de-rigging of the control, electrical wiring, engine control, and fuel systems. Therefore, the commenter estimates that costs would be from $125,000 to $150,000 per airplane and a four-to six-month cessation in aircraft financial support activities.

However, one commenter that has actually performed the alternative inspections outlined in paragraph (b) of the proposed AD states that the cost impact was much lower than the estimated amount.

The FAA finds that no change to the cost impact information, below, is necessary. The FAA based the cost impact information presented in this AD on the best data available to date for airplanes on which the wing spar chord-to-wing terminal fitting separation has been accomplished. Although the costs may vary somewhat, the actual cost for a particular airplane is not expected to differ greatly from the estimated cost of $90,000 per airplane.

One commenter proposes an alternative to the inspection requirements of paragraph (a) of the proposed AD. The commenter suggests that within 90 days, and annually thereafter, a dye penetrant check be accomplished on the inboard butt of each of the eight spar tubes. The commenter adds that within 12 months, and tri-annually thereafter, the interior of all eight spar tubes should be treated with a moisture and corrosion inhibitor.

The commenter also proposes that within 12 months, and thereafter at 10-year or 1,000-flight-hour intervals, a detailed inspection designed to detect cracking in the wing spar tubes or terminal bolt holes should be accomplished. This inspection would include removal and inspection of the terminal attach bolts at the fifth and seventh most inboard locations. The commenter also suggests that operators should inspect annually and report on the status, migration (or lack thereof), and condition of any cracks determined to be within acceptable tolerance criteria.

The FAA does not concur with this request. Since corrosion is believed to be the cause of the cracking, the FAA finds that the proposed inspection program at the intervals suggested by the commenter would not ensure such timely detection of cracking. In addition, an inspection interval based on flight hours is inappropriate because damage resulting from corrosion is related to calendar time, not flight time.

Two commenters indicate that no bolts should be removed during the inspections required by this proposed AD unless there is obvious damage to the bolt.

One of these commenters states that no bolts should be removed “without due cause,” because the bolts have been in the holes of the joint for more than 50 years, and molecular transfer will have taken place between the mating surfaces. The commenter asserts that replacement of the bolts is likely to cause reduced structural integrity of the wing terminal-to-spar joints.

Another commenter states that replacement of hardware or parts from an airplane with new parts or hardware changes the harmonics of the airplane's vibration frequency and establishes a stress point at the location of the replacement. This commenter states that the engineers and master mechanics consulted did not recommend replacement of hardware unless major damage is detected during a visual inspection, because the stress created by removal could cause significant damage.

The FAA infers that these commenters are requesting that paragraph (b) of the proposed rule be revised to eliminate the requirement to remove the bolts that join the wing terminals to the spar chords.

The FAA does not concur with the request to eliminate the requirement to remove the bolts. The FAA has determined that performing inspections of the bolts and bolt holes without removing the bolts does not ensure that corrosion or cracking would be detected. The FAA finds that, to ensure the continued safety of the fleet of airplanes, it is necessary to require at least a one-time removal of five of the bolts in each joint to inspect the shear planes of the bolts for corrosion and to inspect the bolt holes for cracks. However, as discussed previously, the FAA has revised this final rule to allow for the three inboard fasteners in each joint to remain in place, provided that certain conditions are met.

One commenter inquires as to what eddy current inspection methods are approved. The FAA is unaware of any military or industry standards for eddy current inspections. As stated in paragraph (b)(1) of this AD, eddy current inspections must be approved by the Manager of the Seattle Aircraft Certification Office, FAA. The manufacturer, The Boeing Company, has agreed to allow its specifications to be used for the eddy current inspections. The FAA has added a new NOTE 9 to this final rule to indicate that this information is available to operators as needed.

One commenter requests that the FAA develop criteria containing acceptance/rejection standards of cracks characterized (by the commenter) as insignificant, monitorable, and unacceptable. The commenter believes that “blanket condemnation of any cracking is unwarranted.”

The FAA does not concur that continued flight with any cracking is acceptable. As specified in paragraph (c) of this final rule, any cracking discovered as a result of the required inspections must be repaired prior to further flight. Such repairs may or may not require separating the wing spar chord-to-wing terminal joint, depending upon the severity of the cracking. However, if cracking is found and repaired without separating the wing spar chord-to-wing terminal joint, repetitive inspections would be required. The FAA expects that the operator would propose its inspection program as part of the documentation needed to secure approval of the proposed repair, in accordance with paragraph (c) of this AD. Continued crack growth following repair requires separation of the wing spar chord-to-wing terminal joint in order to positively address continued cracking problems. No change to the final rule is required in this regard.

Two commenters question the reference to “acceptance/rejection criteria contained in sensitivity level Group IV, MIL-I-25135” which is contained in paragraph (a)(1) of the proposed rule. One commenter notes that the referenced military specification does not contain acceptance/rejection criteria pertaining to cracks, nor was the specification intended to do so.

The FAA finds that clarification is necessary. The commenter correctly notes that the military specification cited in the proposed rule does not contain acceptance/rejection criteria on cracking. The FAA clarifies that the intent of paragraph (a)(1) is that the dye penetrant inspection be performed in accordance with MIL-STD-6866, using a fluorescent Type 1 penetrant, Method C, Sensitivity Level 3, inspection. Any cracking that is detected must be repaired in accordance with a method approved by the Manager of the Seattle Aircraft Certification Office, FAA, prior to further flight. To eliminate any confusion in this regard, the wording of paragraph (a)(1) of this final rule has been revised accordingly.

In addition, the FAA recognizes that a variety of dye penetrant inspection procedures may be acceptable. Therefore, the FAA has added Note 4 to the final rule to clarify that operators wanting to use an alternative procedure may request approval from the Seattle Aircraft Certification Office per the provision of paragraph (d) of this AD.

The FAA has revised the final rule to clarify that the type of visual inspection required by paragraphs (a)(2), (b)(1), and (b)(2)(i)(C) is a “detailed visual inspection.” Further, the definition of this inspection has been included in a new Note 8 of the final rule.

The FAA has also revised the final rule to include new Notes 1 and 11:

As a result of communications with the Air Transport Association (ATA) of America, the FAA has learned that, in general, some operators may misunderstand the legal effect of ADs on airplanes that are identified in the applicability provision of the AD, but that have been altered or repaired in the area addressed by the AD. The FAA points out that all airplanes identified in the applicability provision of an AD are legally subject to the AD. If an airplane has been altered or repaired in the affected area in such a way as to affect compliance with the AD, the owner or operator is required to obtain FAA approval for an alternative method of compliance with the AD, in accordance with the paragraph of each AD that provides for such approvals. Therefore, a new Note 1 has been added to this final rule to clarify this long-standing requirement.

In addition, a new Note 11 has been added to the final rule to strongly encourage owners and operators of the affected airplanes to coordinate their requests for approvals of alternative methods of compliance or adjustment of the compliance times pertaining to this AD. Coordination of a single request (in lieu of a separate request from each owner/operator) will allow the FAA to more quickly review and respond.

After careful review of the available data, including the comments noted above, the FAA has determined that air safety and the public interest require the adoption of the rule with the changes previously described. The FAA has determined that these changes will neither increase the economic burden on any operator nor increase the scope of the AD.

There are approximately 12 airplanes of the affected design in the worldwide fleet. The FAA estimates that 10 airplanes of U.S. registry will be affected by this AD, that it will take approximately 1,500 work hours per airplane to accomplish the required actions, and that the average labor rate is $60 per work hour. Based on these figures, the cost impact of the AD on U.S. operators is estimated to be $900,000, or $90,000 per airplane.

The cost impact figure discussed above is based on assumptions that no operator has yet accomplished any of the requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions.

The regulations adopted herein will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, in accordance with Executive Order 13132, it is determined that this final rule does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment.

For the reasons discussed above, I certify that this action (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A final evaluation has been prepared for this action and it is contained in the Rules Docket. A copy of it may be obtained from the Rules Docket at the location provided under the caption ADDRESSES.

A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an AD that is applicable to certain Honeywell International, Inc. (formerly AlliedSignal, Inc. and Textron Lycoming) LTP 101 series turboprop and LTS101 series turboshaft engines was published in the Federal Register on March 12, 2001 (66 FR 14346). That action proposed to require a new life limitation and removal of rigid tube fuel manifold assemblies and replacement with serviceable assemblies.

Interested persons have been afforded an opportunity to participate in the making of this amendment. No comments were received on the proposal or the FAA's determination of the cost to the public. The FAA has determined that air safety and the public interest require the adoption of the rule as proposed.

There are approximately 1,600 engines of the affected design in the worldwide fleet. The FAA estimates that 670 engines installed on aircraft of U.S. registry would be affected by this proposed AD, that it would take approximately 2 work hours per engine to accomplish the required actions, and that the average labor rate is $60 per work hour. Required parts would cost approximately $6,000 per engine. Based on these figures, the total cost impact of the proposed AD on U.S. operators is estimated to be $4,100,400.

This final rule does not have federalism implications, as defined in Executive Order 13132, because it would not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Accordingly, the FAA has not consulted with state authorities prior to publication of this final rule.

For the reasons discussed above, I certify that this action (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) if promulgated, will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A final evaluation has been prepared for this action and it is contained in the Rules Docket. A copy of it may be obtained by contacting the Rules Docket at the location provided under the caption ADDRESSES .

Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration amends part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows:

The current provision at § 1260.26, Financial Management, advised recipients that NASA would phase-in the adoption of an automated SF 272 system not requiring forecast estimates with a projected date of October 1, 2001, for implementation. This automated system change will be effective October 1, 2001, and the submission requirements for forecast estimates is revised to reflect this implementation. Clarification of submission requirements for NASA Form 1206 “Assurance of Compliance with the National Aeronautics and Space Administration Regulations Pursuant to Nondiscrimination in Federally Assisted Programs” as well as editorial changes to Part 1260, Exhibit E—Special Conditions for Cooperative Agreements between NASA and Commercial Space Centers are made. Internal documentation required by the grant officer prior to award is amended to include any data deliverables that may be required when potentially hazardous operations, such as those related to flight and/or mission critical ground systems have been proposed. Lastly, § 1260.10 is amended to clarify that signature by the Authorizing Institutional Representative on the proposal Cover Page may confirm that all necessary certifications and assurances are met.

NASA certifies that this final rule will not have a significant economic impact on a substantial number of small business entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) because the changes made by this rule are only clarifications of existing requirements.

The Paperwork Reduction Act does not apply because this final rule does not impose any recordkeeping or information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq.

We are amending the Commission's debt collection rules to conform them to the Debt Collection Improvement Act of 1996 (DCIA) and related rules adopted by federal agencies with responsibilities for government-wide debt collection. Currently, the Commission has rules for collecting its unpaid debts through three offset methods: administrative, salary and tax offset. 1 The Commission also has rules concerning contracts for collection services to recover delinquent debts. The Commission adopted all of its debt collection rules in 1993 in accordance with then existing provisions of the Debt Collection Act, the Federal Claims Collection Standards (FCCS), and other authorities governing the collection of federal debts. On September 17, 1996, the Commission entered into an agreement with the Financial Management Service (FMS), a bureau of the Department of the Treasury (Treasury), by which FMS performs collection services pursuant to the DCIA on the Commission's behalf. In November 2000, the Treasury and the Department of Justice (Justice) adopted a new version of the FCCS, governing the collection of federal debts generally. 2 As a result of the promulgation of a series of rules issued since the passage of the DCIA, the Commission's existing rules for debt collection by offset need to be conformed and updated. In particular, the DCIA and revised government-wide regulations contemplate that Treasury will conduct centralized offset against amounts owed by the government to debtors. Under this centralized Treasury Offset Program (TOP), federal agencies are to refer delinquent debts to Treasury, which compares them to amounts to be paid out by the government. Treasury can then cause those amounts to be withheld in satisfaction of the debts. To participate in TOP, federal agencies are required to conform their debt collection rules to government-wide regulations regarding administrative, salary and tax refund offset.

The most significant change to the Commission's debt collection rules is the addition of administrative wage garnishment for non-federal employee wages.  3 Previously, administrative wage garnishment was available only against federal employees, through federal salary offset. To garnish the wages of non-federal employees, federal agencies had to obtain a court order. As a result of the DCIA and Treasury's implementing rules,  4 the Commission, or a federal agency collecting debts on behalf of the Commission, has the authority to issue a wage garnishment order. Such an order could direct an employer to withhold an employee's wages and pay the amount withheld to the Commission, or the appropriate agency, to satisfy the delinquent debt. The DCIA authorizes federal agencies to garnish up to 15% of the disposable pay of a debtor to satisfy delinquent nontax debts owed to the United States.

Other changes to the Commission's debt collection rules are primarily technical in nature. The changes conform the Commission's rules to make them consistent with changes to federal debt collection law and regulations promulgated by Treasury, Justice, and the Office of Personnel Management (OPM).

The Commission adopting amendments to Subpart A of its debt collection rules, which set forth procedures for collection by administrative offset.  5 Administrative offset is the general procedure by which debts are collected through the withholding of funds payable to the debtor by the government.  6 The Commission is amending its regulations to make clear that debts can be processed through TOP.  7 As amended, Subpart A is consistent with the statutory procedures for administrative offset  8 and the FCCS.  9

The Commission is amending Subpart B of its debt collection rules, which sets forth procedures for collection by federal salary offset.  10 Federal salary offset is the collection of a debt owed by a federal employee by withholding up to 15% of the employee's disposable pay.  11 The procedures for salary offset are governed by 5 U.S.C. 5514, and by OPM regulations.  12 OPM amended its rules to make clear that salary offset should be conducted through TOP,  13 and the Commission is amending its regulations to reflect this preference. OPM also requires agencies to specify in their regulations that the notice and hearing provisions that are otherwise applicable to not apply when offset is effected within four pay periods to correct clerical errors or to collect amounts of $50 or less,  14 and requires that agency rules specify the maximum percentage (15% of disposable pay) that can be withheld.  15 As amended, the Commission's rules add conforming language. As amended, Subpart B is consistent with government-wide salary offset authorities.

The Commission is amending Subpart C of its rules for collection by tax refund offset,  16 which is the collection of a debt through the withholding of federal tax refunds owed to the debtor.  17 This form of offset previously was addressed by Internal Revenue Service regulations, but is now governed by Treasury regulations,  18 with which agency regulations must be consistent.  19 As amended, the Commission's rules make clear that debts will be referred to Treasury, and hence may be processed through TOP. As amended, Subpart C is consistent with the DCIA and Treasury's regulations.

The Commission is adopting new administrative wage garnishment regulations,  20 authorized by the DCIA.  21 Prior law required federal agencies to obtain a court order for garnishment of non-federal wages, but the DCIA permits agencies to collect debts by ordering a non-federal employer to deduct amounts up to 15% of an employee's disposable pay (or a greater amount to which the employee consents). Treasury regulations require agencies to adopt regulations for the conduct of administrative wage garnishment hearings,  22 The Commission's rules essentially track Treasury's regulations. A debtor will be provided 30 days notice of the Commission's intent to collect by garnishment, and will be provided an opportunity to inspect and copy records relating to the debt, an opportunity to enter into a written repayment agreement, and an opportunity for a hearing on the existence or amount of the debt. If the debtor does not request a hearing, a wage garnishment order will be sent to the debtor's employer within 30 days after the end of the 15-day period allowed for the debtor's response. If the debtor requests a hearing within 15 days of mailing of the Commission's initial notice, a hearing will be provided, and a decision will be rendered within 60 days after the hearing. If the Commission determines after the hearing to proceed with garnishment, a garnishment order will be sent to the debtor's employer within 30 days of its decision. The Commission's regulations are consistent with the DCIA and Treasury regulations.  23

In an effort to eliminate fraudulent applications in the Diversity Visa (DV) Program, the Department published an interim rule [66 FR 39435], with a request for comments, which amended the regulations at 22 CFR 42.33 regarding registration for the DV Program. The interim rule amended the Department's regulations by requiring that the applicant sign the DV entry in his or her native alphabet as this more naturally fulfills the requirement for a usual and customary signature on the DV entry. The interim regulations also required that, beginning with the DV 2003 registration, the entry must include photographs of the applicant, the applicant's spouse, and all of his or her unmarried children under age 21 years (including natural children as well as legally-adopted children and stepchildren). Photographs for all dependents must be submitted regardless of their nationality. Photographs are required even though the spouse or child no longer resides with the applicant and regardless of whether or not the dependent will accompany or follow to join the applicant in the United States. The name and date of birth of the family member must be printed on the back of his or her photograph. The Department is publishing this final rule to make final the interim regulations.

The Department's interim rule solicited comments regarding the regulatory changes. During the comment period, the Department received only two comments. Both commenters felt that the Department should clarify further the photograph requirement for dependent children. The Department's interim regulation requires that the entry must include photographs of ALL children who are unmarried and under age of 21 years. The word “all” implies any child of the alien, regardless of nationality, and regardless of whether the child resides with the applicant and whether or not the child intends to immigrate to the United States.

In past years, the Diversity Visa Program has been plagued by a high incidence of fraudulent derivatives applying with the principal DV applicant. This causes delays in DV issuances at many posts as much time is spent by consular staff investigating alleged family relationships. For this reason, it was determined that for DV-2003, photos of all unmarried children under age 21 would be required on the DV entry. With this rule, the Department hopes to avoid a complicated range of exceptions to the photo requirement, and the regulations regarding photographs for dependents shall remain as published in the interim rule.

One of the commenters also expressed concern about the size of the photograph, indicating that it may be difficult in some countries to obtain a photograph of the required size. While the Department does not have any reason to believe that applicants will have difficulty obtaining photographs of the required size, for DV 2003, photographs ranging in size from 37 mm x 37 mm to 50 mm x 50 mm will be accepted on the DV entries. Any DV 2003 entry submitted with photos that do not conform to the sizes in this range will be disqualified at the Kentucky Consular Center. The commenter also feels that some of the specifications are redundant. The Department believes that the specifications for acceptable photographs are sufficiently detailed, and although perhaps redundant, are specific as to what meets the Department's needs, and are probably, as the commenter points out, the most common requirements for producing a photograph for any type of official documents. The Department has, therefore, determined that the photograph specifications indicated in the interim rule shall remain as published.

The Department has reviewed the comments submitted during the comment period and has made some modification to the interim rule regarding the photograph size requirements.

We did not publish a notice of proposed rulemaking (NPRM) for this regulation. Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing an NPRM. Publishing an NPRM would be contrary to public safety interests since immediate action is needed to minimize potential danger to the public. There will be numerous spectator and participant vessels in close proximity to each other. Moreover, publishing an NPRM is unnecessary since this regulation will only be in effect for 3 hours.

Each year a Christmas boat parade is held in Charleston Harbor, South Carolina. We previously issued a permanent special local regulation for this event, at 33 CFR 100.721. Under that regulation the parade was permitted for a specific series of dates. Those dates only covered the years 1996 through 2000. The event remains the same this year with the exception of the addition of a fireworks display. These temporary regulations will help control vessel traffic for the boat parade and fireworks display.

The special local regulations for this event prohibit non-participant vessels from entering the regulated areas along the parade route and near the fireworks barge in Folly Island Channel. During the Christmas Boat Parade, non-participant vessels are required to stay 500 yards away from the lead parade vessel and 100 yards away from the last parade vessel. Non-participant vessels are also required to keep 50 yards away from the outermost parade vessel as the flotilla proceeds along the parade route.

The parade route begins in the Middle Ground, North of Charleston South Channel. The parade will proceed northeasterly along the west edge of Commercial Anchorage A, entering Rebellion Reach in the vicinity of Charleston Harbor Channel Lighted Buoy 2 (Light List Number 2520), thence proceeding northwesterly up Shutes Folly and Horse Reach to approximately two-tenths of a nautical mile north of USS Yorktown at position 32°47.7′N, 079°47.6′W, thence westerly across Hog Island Reach near Charleston Harbor North Channel Lighted Buoy 11 (Light List Number 2529) at approximate position 32°47.6′N, 079°55.1′W, entering Town Creek Lower reach near Town Creek Channel Lighted Buoy 2 (Light List Number 2715) at approximate position 32°47.7′N, 079°55.5′W thence south to 32°45.7′N, 079°55.3′W (approximately one half nautical mile southeast of Battery Point), thence northwesterly up the Ashley River, and continuing to the finishing point at City Marina at approximate position 32°46.6′N, 079°57.2′W.

Vessels are also prohibited from entering the regulated area encompassing the fireworks barge in Folly Island Channel. The regulated area encompasses a 300 yard radius around a fireworks barge in approximate position 32°46.192N, 079°54.327W. All coordinates referenced use datum: NAD 1983. This rule is effective from 5 p.m. to 8 p.m. on December 1, 2001.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866 and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Transportation (DOT) (44 FR 11040, February 26, 1979) because this rule is only in effect for 3 hours.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

This rule may affect the following entities, some of which may be small entities: the owners or operators of vessels intending to transit or anchor in a portion of Charleston Harbor from 5 p.m. to 8 p.m. on December 1, 2001. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities because this regulation is only in effect for 3 hours.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pubic Law 104-121), we offer to assist small entities in understanding the rule so that they may better evaluate its effects on them and participate in the rulemaking process. Small entities may contact the person listed under FOR FURTHER INFORMATION CONTACT for assistance in understanding and participating in this rulemaking. We also have a point of contact for commenting on actions by employees of the Coast Guard. Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247).

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. This rule will not result in such an expenditure.

This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not concern an environmental risk to health or safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. It has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

The Coast Guard has considered the environmental impact of this action and has determined pursuant to Figure 2-1, paragraph 34(h) of Commandant Instruction M16475.1D, that this action is categorically excluded from further environmental documentation.

We did not publish a notice of proposed rulemaking (NPRM) for this regulation. Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a NPRM. Publishing a NPRM and delaying the effective date of this regulation would be contrary to public safety interests since immediate action is needed to minimize potential danger to the public because there will be numerous spectator craft in the area where fireworks will be launched. Moreover, a NPRM is unnecessary because the regulation will have a minimal impact on the public because the regulated area is outside of the shipping channel and the regulation is only in effect for 3 hours.

For the same reasons, under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register .

These regulations are required to provide for the safety of life on navigable waters because of the inherent danger associated with storing and launching fireworks near spectator craft. This fireworks display is to celebrate the opening of the Waverly Hotel in Miami, FL. These regulations prohibit unauthorized vessels from entering the regulated area around a fireworks barge in Biscayne Bay on November 16, 2001.

This rule creates a regulated area around a fireworks barge in Biscayne Bay, Miami, Florida. All vessels are required to keep out of the regulated area, 1600 feet in diameter around the fireworks barge in Biscayne Bay, FL, at approximate position 25°46.618N, 080°08.4W unless specifically authorized by the Coast Guard Patrol Commander. All coordinates referenced use Datum NAD: 83. This rule is effective from 7 p.m. until 10 p.m. on November 16, 2001.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Transportation (DOT) (44 FR 11040, February 26, 1979) because this temporary rule will only be in effect for 3 hours.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

This rule may affect the following entities, some of which may be small entities: the owners or operators of vessels intending to transit or anchor in the regulated area in Biscayne Bay, FL from 7 p.m. to 10 p.m. on November 16, 2001. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities because the regulation will only be in effect for 3 hours.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-121), we offer to assist small entities in understanding the rule so that they may better evaluate its effects on them and participate in the rulemaking process. Small entities may contact the person listed under FOR FURTHUR INFORMATION CONTACT for assistance in understanding and participating in this rulemaking.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247).

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian Tribes, or on the distribution of power and responsibilities between the Federal Government and Indian Tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. It has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

We have considered the environmental impact of this rule and concluded that under Figure 2-1, paragraph 34(h) of Commandant Instruction M16475.1D, that this rule is categorically excluded from further environmental documentation.

On September 11, 2001, we published a notice of proposed rulemaking (NPRM) entitled Drawbridge Operation Regulations; Dorchester Bay, Massachusetts, in the Federal Register (66 FR 47123). We received no comments in response to the notice of proposed rulemaking. No public hearing was requested and none was held. Pursuant to 5 U.S.C. 553, good cause exists for making this regulation effective in less than 30 days after publication in the Federal Register . The Coast Guard discussed the bridge closure with the members of the only marine facility, the Dorchester Yacht Club, effected by this change in operating regulations prior to publication of the notice of proposed rulemaking and no objections were received.

The NPRM specified that we anticipated that the final rule would become effective less than 30 days following publication. Any delay encountered in this regulation's effective date would be unnecessary and contrary to the public interest since immediate action is needed to perform this project during the winter months when there have been few requests to open the bridge.

The William T. Morrisey Boulevard Bridge, at mile 0.0, across Dorchester Bay has a vertical clearance of 12 feet at mean high water and 22 feet at mean low water. The existing regulations at 33 CFR 117.597 require the draw to open on signal from April 16 through October 14; except that, the draw need not open for vessel traffic from 7:30 a.m. to 9 a.m. and from 4:30 p.m. to 6 p.m. except on Saturdays, Sundays, or holidays observed in the locality. From October 15 through April 15, the draw shall open on signal if at least twenty-four hours notice is given.

The bridge owner, the Metropolitan District Commission (MDC), asked the Coast Guard to temporarily change the drawbridge operation regulations to allow the bridge to remain in the closed position from November 1, 2001 through May 10, 2002, to facilitate rehabilitation construction at the bridge. The bridge owner and the Coast Guard contacted all known waterway users to advise them of the proposed closure. No objections or negative comments were received in response to this proposal.

The Coast Guard received no comments in response to the notice of proposed rulemaking and as a result, no changes have been made to this final rule.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866 and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Transportation (DOT) (44 FR 11040; February 26, 1979). This conclusion is based on the fact that the only marine facility affected by this rule has agreed to the closure period for the bridge.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612) we considered whether this rule would have a significant economic impact on a substantial number of small entities. “Small entities” comprises small businesses, not-for profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This conclusion is based on the fact that the only marine facility affected by this rule has agreed to the closure period for the bridge.

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

We have analyzed this rule under Executive Order 13132 and have determined that this rule does not have implications for federalism under that Order.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) governs the issuance of Federal regulations that require unfunded mandates. An unfunded mandate is a regulation that requires a State, local, or tribal government or the private sector to incur direct costs without the Federal Government's having first provided the funds to pay those unfunded mandate costs. This rule will not impose an unfunded mandate.

This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not concern an environmental risk to health or risk to safety that may disproportionately affect children.

The Coast Guard considered the environmental impact of this rule and concluded that under figure 2-1, paragraph (32)(e) of Commandant Instruction M16475.1C, this rule is categorically excluded from further environmental documentation because promulgation of changes to drawbridge regulations have been found to not have a significant effect on the environment. A written “Categorical Exclusion Determination” is not required for this final rule.

This final rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. It has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

We did not publish a notice of proposed rulemaking (NPRM) for this regulation. The Coast Guard for good cause finds that, under 5 U.S.C. 553(b)(B) and (d)(3), notice and public comment on the rule before the effective date of the rule and advance publication are impracticable and contrary to public interest. Immediate action is necessary to ensure the safety of life, property, the environment, as well as safe passage for vessels transiting this area. The conduct of notice and comment rulemaking proceedings and compliance with advance notice requirements present significant public security and safety concerns that outweigh the public interest in compliance with these provisions. Public rulemaking proceedings and advance publication could provoke consequences that would pose a risk of harm to the public, military personnel, and law enforcement personnel charged with enforcement of the security zone. This regulation is geographically limited so that it meets the needs of national security with a minimal burden on the public.

The security zone is established to provide additional protection of the locks in response to the September 11, 2001 terrorist attacks on the World Trade Center buildings in New York City and on the Pentagon in Arlington, Virginia. The security zone is intended to restrict vessel traffic movement through and around the Sault Locks. All persons and vessels shall comply with the instructions of the Captain of the Port Sault Ste. Marie or the designated on scene patrol personnel. Entry into, transiting, or anchoring within the security zone is prohibited unless authorized by the Captain of the Port Sault Ste. Marie or his designated on scene representative. The Captain of the Port Sault Ste. Marie may be contacted via the VTS at telephone number (906) 635-3232 or on VHF channel 12 (156.6 MHz) or VHF channel 14 (156.7 MHz).

This temporary rule is not a significant regulatory action under section 3(f) of Executive Order 12866 and does not require an assessment of potential costs and benefits under section 6(a)(3) of that order. It has not been reviewed by the Office of Management and Budget under that order. It is not significant under the regulatory policies and procedures of the Department of Transportation (DOT) (44 FR 11040; February 26, 1979).

The security zone covers a vital portion of the St. Mary's River transited by commercial and recreational vessels and is being created to protect the Sault locks. The Coast Guard does foresee minor interruption to the passage of vessels through this area. While vessels will need authorization to transit the zone, the Coast Guard expects minimal interference with or delay in their passage.

Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) the Coast Guard considered whether this rule will have a significant impact on a substantial number of small businesses and not-for-profit organizations that are not dominant in their respective fields, and government jurisdictions with populations less than 50,000.

The Coast Guard certifies under section 605(b) that this temporary final rule will not have a significant economic impact on a substantial number of small entities.

This rule will affect the following entities, some of which may be small entities: The owners or operators of vessels intending to transit the St. Mary's River up-river, between, and down-river of the Sault Locks immediately until terminated by COTP Sault Ste. Marie.

This security zone will not have a significant economic impact on a substantial number of small entities for the following reasons. Vessel traffic will be allowed to pass through the zone with the permission of the COTP or his designated on scene representative.

Under section 213(a) of the small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-121), we offer to assist small entities in understanding this rule so that they can better evaluate its effectiveness and participate in the rulemaking process. If your small business or organization is affected by this rule, and you have questions concerning its provisions or options for compliance, please contact the office listed in ADDRESSES in this preamble.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247).

This rule contains no information collection requirements under the Paperwork Reduction Act (44 U.S.C. 3501 et seq. ).

We have analyzed this rule under Executive Order 13132, Federalism, and have determined that this rule does not have implications for Federalism under that order.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) governs the issuance of Federal regulations that require unfunded mandates. An unfunded mandate is a regulation that requires a State, local, or tribal government or the private sector to incur direct costs without the Federal Government's having first provided the funds to pay those unfunded mandate costs. This rule will not impose an unfunded mandate.

This rule will not affect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

The Coast Guard considered the environmental impact of this regulation and concluded that, under figure 2-1, paragraph (34)(g) of Commandant Instruction M16475.1C, it is categorically excluded from further environmental documentation. A “Categorical Exclusion Determination” is available in the docket for inspection or copying where indicated under ADDRESSES.

This SUPPLEMENTARY INFORMATION section is organized to address the following questions:

EPA is fully approving as meeting the requirements of section 182(c)(2) and (d) of the Act, the Post 1996 ROP plans and the one-hour attainment demonstration SIP, demonstrating attainment by November 2005, which were submitted by Pennsylvania for the Philadelphia area. The following tables identify submittal dates and amendment dates for the Post 1996 ROP plans and the attainment demonstration:

In a December 16, 1999 (64 FR 70428) notice of proposed rulemaking (the December 16, 1999 NPR), we proposed approval of Pennsylvania's 2005 attainment demonstration for the Philadelphia area.

On February 22, 2000 (65 FR 8703), EPA published a notice of availability on guidance memoranda relating to the ten one-hour ozone attainment demonstrations (including the Philadelphia area) proposed for approval or conditional approval on December 16, 1999. The guidance memoranda are entitled: “Guidance on Motor Vehicle Emissions Budgets in One-Hour Ozone Attainment Demonstrations” dated November 3, 1999, and “Guidance on the Reasonably Available Control Measures (RACM) Requirement and Attainment Demonstration Submissions for Ozone Nonattainment Areas” dated November 30, 1999.

On July 28, 2000 (65 FR 46383), EPA published a supplemental notice of proposed rulemaking (SNPR) on the attainment demonstration. In that supplemental notice, we clarified and expanded on two issues relating to the motor vehicle emissions budgets in attainment demonstration SIP revisions. This supplemental notice is discussed in Section I.E. of this document.

On August 24, 2001 (66 FR 44568), EPA published a NPR proposing to approve Pennsylvania's Post 1996 plans for the Philadelphia area. We did not receive any comments on that NPR. In this final rulemaking action, we are approving the Post 1996 ROP plans submitted by Pennsylvania from 1996 through the 2005 attainment year.

On August 30, 2001 (66 FR 45797), EPA published a SNPR on the attainment demonstration. In that supplemental notice, we proposed to approve Pennsylvania's analysis and determination that there are no additional reasonably available control measures (RACM) for the area. We received no comments on that SNPR.

Comments received on the December 16, 1999 (64 FR 70428) and July 28, 2000 (65 FR 46383) proposed actions listed in this section relevant to the Philadelphia area attainment demonstration are discussed in Sections I. K. and II.

On December 16, 1999 (64 FR 70428), we proposed approval of the attainment demonstration submitted by the Commonwealth of Pennsylvania for the Philadelphia area. Our approval was contingent upon certain actions by Pennsylvania. These actions were to:

(1) Adopt and submit adequate motor vehicle emissions budgets.

(2) Submit a list of control measures that, when implemented, would be expected to provide sufficient additional emission reductions to further reduce emissions to support the attainment test and a commitment that these measures would not involve additional limits on highway construction beyond those that could be imposed under the submitted motor vehicle emissions budget.

(3) Adopt and submit a rule(s) for the regional NO X reductions consistent with the modeling demonstration.

(4) Adopt and submit an enforceable commitment(s), or a reaffirmation of existing enforceable commitment to do the following:

(a) Submit measures by October 31, 2001 for additional emission reductions as required in the attainment demonstration test, and for additional emission reduction measures developed through the regional process, submit an enforceable commitment for the additional measures and a backstop commitment to adopt and submit intrastate measures for the emission reductions in the event the regional process does not recommend measures that produce emission reductions.

(b) Submit a revised SIP & motor vehicle emissions budget by October 31, 2001 if additional measures affect the motor vehicle emissions inventory.

(c) Submit revised SIP and motor vehicle emissions budgets 1 year after MOBILE6 issued.

(d) Perform a mid-course review by December 31, 2001.

Since December 16, 1999, Pennsylvania has submitted a number of amendments to the Pennsylvania SIP for Philadelphia:

(1) On February 25, 2000, the Commonwealth submitted the “State Implementation Plan Revision to the Philadelphia Ozone Nonattainment Area” dated January, 2000. This submittal contained the revised motor vehicle emissions budgets for the Post 1996 ROP plans and the attainment demonstration. The revised motor vehicle emissions budgets reflected the benefits achieved from the NLEV program and the HDDE rule.

(2) In the February 25, 2000 submittal, the Commonwealth included a commitment to revise the motor vehicle emissions budgets within one year after the official release of the MOBILE 6 model.

(3) On February 25, 2000, the Commonwealth also submitted a letter reaffirming a previous commitment to adopt additional measures needed to reach attainment by October 31, 2001 and to revise the SIP and motor vehicle emissions budgets by October 31, 2001 if the additional measures affect the motor vehicle emissions inventory in accordance with the requirements of the CAA. In its February 25, 2000 letter, the Commonwealth enclosed a copy of the Southeastern Pennsylvania's Stakeholder's report which includes a list of potential control measures that the work group identified and considered during the Stakeholder's process.

(2) On July 19, 2001 the Commonwealth submitted a revision to its 2005 attainment demonstration SIP which includes revised attainment year motor vehicle emissions budgets for the Philadelphia area. The revised motor vehicle emissions budgets reflect the benefits of the Tier 2/Sulfur rule estimated for the Philadelphia area. The Commonwealth also included in the July 19, 2001 submittal a formal SIP commitment to perform a mid course review by December 31, 2003.

(3) On July 19, 2001, the Commonwealth also submitted a supplement to its 2005 attainment demonstration SIP submittal consisting of a RACM analysis and determination.

(1) On July 28, 2000, EPA published a supplemental notice of proposed rulemaking (SNPR) on the 2005 attainment demonstration (65 FR 46383). In that supplemental notice, we clarified and expanded on two issues relating to the motor vehicle emissions budgets in this attainment demonstration SIP revision:

(a) First, we proposed a clarification of what occurs if we finalize conditional or full approval of this and certain other attainment demonstration SIP revisions based on a state commitment to revise the SIP's motor vehicle emissions budgets in the future. Under the proposal, the motor vehicle emissions budgets in the approved SIP will apply for transportation conformity purposes only until the budgets are revised consistent with the commitment and we have found the new budgets adequate. Once we have found the newly revised budgets adequate, then they would apply instead of the previous conditionally or fully approved budgets. Normally, revisions to approved budgets cannot be used for conformity purposes until we approve the revised budgets into the SIP. Therefore, we proposed to clarify that when our approval of this and certain other 1-hour ozone attainment demonstrations is based on a commitment to future revisions to the budget, our approval of the budget lasts only until revisions to satisfy those conditions are submitted and we find them adequate.

(b) Second, we proposed that States may opt to commit to revise their emissions budgets 1 year after the release of the MOBILE6 model, as originally proposed on December 16, 1999; or, States may commit to a new option, i.e., to revise their budgets 2 years following the release of the MOBILE6 model, provided that conformity is not determined without adequate MOBILE6-derived SIP budgets during the second year. This second option did not affect the Philadelphia area because Pennsylvania has submitted an enforceable commitment to revise the motor vehicle emissions budgets within one year after the official release of the MOBILE6 model.

(c) In addition, we reopened the comment period to take comment on these two issues and to allow comment on any additional materials that were placed in the dockets for the proposed actions, close to or after the initial comment period closed on February 14, 2000 (65 FR at 46383, July 28, 2000). For many of the areas, additional information had been placed in the docket close to or since the initial comment period concluded. In general, these materials were identified as consisting of motor vehicle emissions budgets, and revised or additional commitments or reaffirmations submitted by the States (65 FR at 46387, July 28, 2000).

(2) On August 24, 2001 (66 FR 44571), EPA published a SNPR for Pennsylvania's attainment demonstration for the Philadelphia area. In that supplemental notice, we proposed to approve Pennsylvania's revision to the motor vehicle emissions budgets for the attainment year of 2005 which reflected the benefits of the Federal Tier 2/Sulfur rule. In that SNPR, we also proposed to approve the Commonwealth's formal SIP commitment to perform a mid-course review by December 31, 2003. We received no comments on that SNPR.

(3) As noted earlier, on August 24, 2001 (66 FR 44568), EPA published a NPR proposing to approve Pennsylvania's Post 1996 plans for the Philadelphia area. We did not receive any comments on that NPR. In this final rulemaking action, we are approving the Post 1996 ROP plans submitted by Pennsylvania from 1996 through the 2005 attainment year.

(4) On August 30, 2001 (66 FR 45797), EPA published a SNPR on the attainment demonstration. In that supplemental notice, we proposed to approve Pennsylvania's RACM analysis and determination for the Philadelphia area. We received no comments on that SNPR.

Pennsylvania submitted a revision to the attainment plan SIP for the Philadelphia area on July 19, 2001. This revision contained revised motor vehicle emissions budgets for the attainment year of 2005 that reflected the benefits of the Federal Tier 2/Sulfur rule. 1

On August 24, 2001 (66 FR 44571), we proposed to approve and proposed to find adequate the budgets in Pennsylvania's July 19, 2001 submittal of the revised attainment plan. Our August 24, 2001 proposed rulemaking opened a public comment period to take comment on the approvability and adequacy of the budgets. No public comments were received pursuant to the August 24, 2001 proposed rulemaking. We are fully approving and making a determination of adequacy in this final rule for the budgets for the Pennsylvania portion of the Philadelphia area submitted on July 19, 2001.

Pennsylvania has an acceptable commitment to revise the attainment year motor vehicle emissions budgets using the MOBILE6 model within one year after the release of the MOBILE6 model, and EPA is approving that commitment in this final rulemaking.

In the December 16, 1999 NPR for the Pennsylvania attainment demonstration SIP, EPA noted in Tables 3 through 6 the status of many of the control measures or part D requirements of the Act for serious and severe areas. The following provides the status of those SIP elements which are relied on in the attainment demonstration but which were not fully approved as of December 16, 1999:

(1) On December 28, 1999, EPA approved Pennsylvania's NLEV SIP (64 FR 72564).

(2) On June 6, 2000, EPA approved Pennsylvania's NO X OTC MOU Phase II rule(65 FR 35842).

(3) On August 21, 2001, EPA approved Pennsylvania's NO X Budget Rule (66 FR 43795).

(4) On August 24, 2001, EPA approved Pennsylvania's, 15 percent VOC Reduction Plan (66 FR 44547).

(5) On October 15, 2001, EPA signed a final rule converting its limited approval of Pennsylvania's generic NO X and VOC RACT regulations to a full approval as they apply in the Philadelphia area. This final rule has been or will be published in the Federal Register in the near future.

As stated previously, in this final rulemaking action, we are approving the Post 1996 ROP plans submitted by Pennsylvania from 1996 through the 2005 attainment year. These plans demonstrate ROP for milestone years 1999, 2002, and 2005.

EPA has determined that the budgets in the Post-1996 ROP plan and the attainment demonstration are adequate. In this action EPA is approving these budgets which are listed in Table 4. by type of control strategy SIP. 2 Table 4. also provides the amounts of the budgets in tons per day (TPD), the year associated with the budgets, and the effective date of EPA's adequacy determination for those budgets.

The Commission promulgated new rules to increase the type and quality of telephone relay service available to individuals with hearing and speech disabilities in CC Docket No. 98-67, Telecommunications Relay Services and Speech-to-Speech Services for Individuals with Hearing and Speech Disabilities , (released March 6, 2000), 65 FR 38432 (June 18, 2000). Some of these rules were subject to a delayed effective date of December 18, 2000. Shortly after these rules were published, the Commission promulgated new rules to establish “711” as a uniform, abbreviated dialing code for telephone relay service in CC Docket No. 92-105, The Use of N11 Codes and Other Abbreviated Dialing Arrangements , (released August 9, 2000), 65 FR 54799 (September 11, 2000). The new “711” rules were not subject to a delayed effective date, and became effective on October 11, 2000.

Section 64.601's definition for “711” telephone service, added in CC Docket No. 92-105, was omitted by the later effective date of amendments to § 68.601 promulgated in CC Docket No. 98-67. This corrected amendment adds the definition back into the rule and renumbers the definitions (1) through (13) to (2) through (14).

Section 64.603 was amended in CC Docket No. 92-105 to add a sentence in the undesignated introductory paragraph that was omitted by the later effective date of amendments to § 64.603 promulgated in CC Docket No. 98-67. Accordingly, a new third sentence should be added to the undesignated introductory text of § 64.603 as follows:“ * * * In addition, each common carrier providing telephone voice transmission services shall provide, not later than October 1, 2001, access via the 711 dialing code to all relay services as a toll free call * * * .”

Regulations implemented under the authority of the Atlantic Tunas Convention Act (16 U.S.C. 971 et seq. ) and the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. 1801 et seq. ) governing the harvest of BFT by persons and vessels subject to U.S. jurisdiction are found at 50 CFR part 635. Section 635.27 subdivides the U.S. BFT quota recommended by the International Commission for the Conservation of Atlantic Tunas among the various domestic fishing categories. The General category landings quota, including time-period subquotas and the New York Bight set-aside, are specified annually as required under § 635.27(a)(1). The 2001 fishing year General category quota and effort control specifications were issued on July 13, 2001 (66 FR 37421, July 18, 2001).

NMFS is required, under § 635.28 (a)(1), to file with the Office of the Federal Register for publication notification of closure when a BFT quota is reached, or is projected to be reached. On and after the effective date and time of such closure notification, for the remainder of the fishing year or for a specified period as indicated in the notification, fishing for, retaining, possessing, or landing BFT under that quota category is prohibited until the opening of the subsequent quota period or until such date as specified in the notification.

The adjusted 2001 fishing year BFT quota specifications issued pursuant to § 635.27 set a coastwide General category quota of 816.7 metric tons (mt) of large medium and giant BFT to be harvested from the regulatory area during the 2001 fishing year. Based on reported landings and effort, NMFS projects that this quota will be reached by October 23, 2001. Therefore, fishing for, retaining, possessing, or landing large medium or giant BFT intended for sale by persons aboard vessels in the General or Charter/Headboat categories must cease at 11:30 p.m. local time October 23, 2001. The intent of this closure is to prevent overharvest of the coastwide quota established for the General category.

General category permit holders may tag and release BFT while the General category is closed, subject to the requirements of the tag-and-release program at § 635.26. Vessels permitted in the Charter/Headboat category that are still eligible for the Angling category trophy fish allowance under § 635.23(c)(1) and (2) may land one large medium or giant BFT prior to May 31, 2002.

This action is taken under § 635.28(a) and is exempt from review under E.O. 12866.

On December 27, 2000, NMFS published notice of a harvest guideline of 134,737 mt for Pacific sardine in the Federal Register (65 FR 81766) for the fishing season January 1, 2001, through December 31, 2001. The harvest guideline was allocated as specified in the FMP, that is, one-third (44,912 mt) for Subarea A, which is north of 35° 40' N. lat. (Pt. Piedras Blancas, California) to the Canadian border; and two-thirds (89,825 mt) for Subarea B, which is south of 35° 40' N. lat. to the Mexican border.

Section 5.2.2 of the FMP requires that a review of the fishery be conducted 9 months after the beginning of the fishing season and any uncaught portion of the harvest guideline totaled and divided equally between Subarea A and Subarea B. At its September 2001 meeting, the Pacific Fishery Management Council (Council) received a report on the sardine fishery from its Coastal Pelagic Species Management Team and heard statements about the harvest of Pacific sardine on the Pacific coast from representatives of California, Oregon, and Washington. Based on this testimony, the Council recommended that NMFS reallocate the remaining portion of the harvest guideline as specified in the FMP. Therefore, the 72,306 mt of the uncaught portion of the harvest guideline is reallocated in the following manner: 36,153 mt north of Pt. Piedras Blancas (Subarea A), and 36,153 mt south of Pt. Piedras Blancas (Subarea B).

This action is authorized by the FMP in accordance with 50 CFR 660.517 and is exempt from review under Executive Order 12866.

The Assistant Administrator for Fisheries, NOAA (AA) finds for good cause under 5 U.S.C. 553(b)(3)(B) that providing prior notice and an opportunity for public comment on this action is unnecessary and impracticable. It is unnecessary because redistribution of the harvest guideline in this proportion is a ministerial act required by the FMP. It is impracticable because affording prior notice and opportunity for public comment would preclude NMFS from quickly taking action to redistribute the sardine quotas in the north and south areas in order to prevent the quotas in these areas from being exceeded.