[Federal Register Volume 69, Number 79 (Friday, April 23, 2004)]
[Proposed Rules]
[Pages 21978-21981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-9360]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 32

[Docket No. 04-11]
RIN 1557-AC83


Lending Limits Pilot Program

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
proposing to extend for three years an OCC pilot program that 
authorizes new, special lending limits for 1-4 family residential real 
estate loans and small business loans. Under the program, eligible 
national banks with main offices located in states that have a lending 
limit available for residential real estate loans or small business 
loans that is higher than the current Federal limit, may apply to take 
part in the pilot and make use of the higher limits. The pilot program 
will expire on June 11, 2004, although national banks approved to 
participate in the program as of that date may continue to lend under 
the higher limits until September 10, 2004. While our preliminary 
analysis indicates that

[[Page 21979]]

the pilot program has operated in a safe and sound manner, additional 
experience with the program is needed before we can make a 
determination to retain, modify, or rescind these special lending 
limits. Accordingly, the proposal would extend the pilot program for an 
additional three years. The proposal also seeks comment on expansion or 
modification of the scope of the current pilot program.

DATES: Comments must be received by May 24, 2004.

ADDRESSES: Please designate the OCC in your comment and include the 
docket number 04-11. Because paper mail in the Washington area and at 
OCC may be subject to delays, please submit your comments by e-mail or 
fax whenever possible. You may submit comments by any of the following 
methods:
     Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
     OCC Web Site: http://www.occ.treas.gov. Click on 
``Contact the OCC,'' scroll down and click on ``Comments on Proposed 
Regulations.''
     E-mail address: [email protected].
     Fax: (202) 874-4448.
     Mail: Office of the Comptroller of the Currency, 
250 E Street, SW., Public Reference Room, Mail Stop 1-5, Washington, DC 
20219.
     Hand Delivery/Courier: 250 E Street, SW., Attn: 
Public Reference Room, Mail Stop 1-5, Washington, DC 20219.
    Instructions: As a general rule, the OCC will enter all comments 
received into the docket without change, including any business or 
personal information that you provide. The Freedom of Information Act 
(FOIA) protects certain information, such as trade secrets and 
commercial or financial information from disclosure. You may request, 
and the OCC may grant, confidential treatment for items of information 
in your comment that you identify as protected under FOIA.
    You may review comments and other related materials by any of the 
following methods:
     Viewing Comments Personally: You may personally 
inspect and photocopy comments at the OCC's Public Reference Room, 250 
E Street, SW., Washington, DC. You can make an appointment to inspect 
comments by calling (202) 874-5043.
     Viewing Comments Electronically: You may request 
e-mail or CD-ROM copies of comments that the OCC has received by 
contacting the OCC's Public Reference Room at [email protected].
     Docket: You may also request available 
background documents using the methods described earlier.

FOR FURTHER INFORMATION CONTACT: Tom O'Dea, National Bank Examiner, 
Credit Risk, (202-874-5170); Stuart Feldstein, Assistant Director, 
Legislative and Regulatory Activities Division, (202) 874-5090, 
Mitchell Plave, Counsel, Legislative and Regulatory Activities 
Division, (202) 874-5090, or Jonathan Fink, Senior Attorney, Bank 
Activities and Structure, (202) 874-5300.

SUPPLEMENTARY INFORMATION:

Background

    Twelve U.S.C. 84 governs the percentage of capital and surplus that 
a bank may loan to any one borrower. Section 84 and the OCC's 
implementing regulations, 12 CFR part 32, permit a national bank to 
make loans in an amount up to 15 percent of its unimpaired capital and 
surplus to a single borrower. A national bank may extend credit up to 
an additional 10 percent of unimpaired capital and surplus to the same 
borrower if the amount of the loan that exceeds the 15 percent limit is 
secured by ``readily marketable collateral.'' Part 32 refers to these 
lending limits as the ``combined general limit.'' The statute and 
regulation also provide other exceptions to, and exemptions from, the 
combined general limit for various types of loans and extensions of 
credit.
    Section 84 authorizes the OCC to establish lending limits ``for 
particular classes or categories of loans'' that are different from 
those expressly provided by the statute's terms. Effective September 
10, 2001, the OCC published a final rule (2001 final rule) to amend 
part 32 to establish a pilot program with special lending limits for 
residential real estate loans and small business loans. 66 FR 31114 
(June 11, 2001). The purpose of the program was to enable community 
banks to remain competitive in states that provide their state-
chartered institutions with a higher lending limit for these types of 
loans, while maintaining national bank safety and soundness.
    For purposes of the pilot program, a residential real estate loan 
is a loan secured by a perfected first-lien security interest in one-
to-four family real estate in an amount that does not exceed 80 percent 
of the appraised value of the collateral at the time the loan is made. 
A small business loan is a loan secured by ``nonfarm, nonresidential 
property'' or a ``commercial and industrial loan'' as those terms are 
defined in the instructions for preparation of the Consolidated Report 
of Condition and Income (Call Report), Schedule RC-C, Part 1, 1.e and 4 
(rev. 3-03).
    The pilot program authorizes eligible national banks to apply for 
approval to make residential real estate loans and small business loans 
to a single borrower in addition to amounts that they may already lend 
to a single borrower under the existing combined general limit and 
special limits in 12 CFR 32.3(a) and (b). A bank is eligible for the 
pilot program only if it is well capitalized, as defined in 12 CFR 
6.4(b)(1), and has a rating of 1 or 2 under the Uniform Financial 
Institutions Rating System (UFIRS), with at least a rating of 2 for 
asset quality and for management. These criteria ensure that only banks 
with sufficient capital and good managerial oversight are permitted to 
use the increased limits.
    Under the pilot program, an eligible national bank may make 
residential loans in an additional amount up to the lesser of 10 
percent of its capital and surplus, or the percent of its capital and 
surplus in excess of 15 percent that a state bank is permitted to lend 
under the state lending limit that is available for residential real 
estate loans or unsecured loans in the state where the main office of 
the national bank is located. Similarly, an eligible national bank may 
make small business loans in an additional amount up to the lesser of 
10 percent of capital and surplus or the percent of its capital and 
surplus in excess of 15 percent that a state bank is permitted to lend 
under the state lending limit that is available for small business 
loans or unsecured loans in the state where the main office of the 
national bank is located. In each case, the bank may not lend more than 
$10 million to a single borrower under the new authority.
    The OCC adopted a number of safeguards that apply to banks using 
the authority under the pilot program. For example, the amount that a 
bank may lend under the pilot program's special limits is subject to an 
individual borrower cap and an aggregate borrower cap. Under the 
individual borrower cap, the total outstanding amount of a bank's loans 
to one borrower under 12 CFR 32.3(a) and (b), together with loans made 
under the program, may not exceed 25 percent of the bank's capital and 
surplus. The aggregate cap provides that the total outstanding amount 
of any loan or parts of loans made by a bank to all of its borrowers 
under the special limits of the pilot program may not exceed 100 
percent of the bank's capital and surplus.
    A bank must apply and obtain the OCC's approval before it may use 
the

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special lending limits. The application includes a certification that 
the bank is well capitalized and has the requisite ratings, citation to 
state law on lending limits, a copy of a written resolution by a 
majority of the bank's board of directors approving the use of the new 
lending authority, and a description of how the board will exercise its 
continuing responsibility to oversee the use of this lending authority.

Description of the Proposal

    The pilot program is scheduled to expire on June 11, 2004, although 
national banks approved to participate in the program as of June 11, 
2004 can continue to lend under the extended limits until September 10, 
2004. The OCC stated in the preamble to the 2001 final rule that prior 
to the conclusion of the pilot program it would evaluate its 
experiences and determine whether, and under what circumstances, to 
extend the program.
    As of the end of February 2004, 169 national banks headquartered in 
23 states had received approval to participate in the program. The OCC 
compared the performance of 129 banks that participated in the program 
to that of comparable state-chartered banks and national banks that did 
not participate in the program focusing on: (1) Loan portfolio 
composition; (2) asset quality; (3) liquidity and capital; and (4) 
differences in interest expense, non-interest expense and profitability 
indicators between participating banks and their peers. Based on this 
review, the OCC could not attribute any statistical differences 
directly to participation in the program. In the OCC's view, banks in 
the program have not had the additional lending authority for a 
sufficient period of time for the OCC to assess fully the effects of 
their participation in the program. In particular, the limited number 
of banks in the program, and the relatively small number of quarters of 
data available for review, make reaching a definitive conclusion about 
the program premature.
    For these reasons, this proposal would amend 12 CFR part 32 to 
continue the pilot program in its current form until June 11, 2007. 
Banks that receive OCC approval to participate in the program before 
June 11, 2007, would be authorized to lend under the expanded limits 
until September 10, 2007, provided that a bank continues to be an 
``eligible bank'' as defined in 12 CFR 32.2(i). Banks already approved 
under the pilot program need not do anything further to continue their 
approval.
    The OCC invites comment on all aspects of this proposal, including 
whether to continue the pilot program as proposed and, if it is 
continued, whether to modify it for the next three-year period. 
Commenters recommending modifications that would expand the types of 
loans covered by, or otherwise liberalize the program are encouraged to 
identify appropriate safeguards to ensure that the changes they propose 
are consistent with safety and soundness.
    Commenters urging the expansion of the pilot program also are asked 
to describe situations or circumstances in which a higher state lending 
limit has competitively disadvantaged a national bank in that lending 
market. For example, in what circumstances has the current scope of the 
pilot program prevented the bank from making loans?
    The part 32 lending limits apply to all loans and extensions of 
credit made by national banks and their ``domestic operating 
subsidiaries.'' The OCC is aware that some national banks control 
entities authorized by statute (``statutory subsidiaries'') other than 
operating subsidiaries or financial subsidiaries (e.g., agricultural 
credit corporations) that make loans that are currently excluded from 
the part 32 lending limits. The OCC invites comment on the current 
treatment of such ``statutory subsidiaries,'' including whether the 
current treatment provides a means to achieve additional flexibility in 
agricultural lending, and whether, and if so how, loans by such 
entities should be included in the scope of the part 32 lending limits.

Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act, Pub. L. 106-102, sec. 
722, 113 Stat. 1338, 1471 (Nov. 12, 1999), requires the Federal banking 
agencies to use plain language in all proposed and final rules 
published. We invite your comments on how to make this proposal easier 
to understand. For example:
     Have we organized the material to suit your 
needs? If not, how could this material be better organized?
     Are the requirements in the proposed regulation 
clearly stated? If not, how could the regulation be more clearly 
stated?
     Does the proposed regulation contain language or 
jargon that is not clear? If so, which language requires clarification?
     Would a different format (grouping and order of 
sections, use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes to the format would make the regulation 
easier to understand?
     What else could we do to make the regulation 
easier to understand?

Solicitation of Comments on Impact on Community Banks

    The OCC adopted the pilot program following a review of our 
regulations that focused specifically on ways to change the regulations 
to respond to community bank needs. 66 FR 31114, 31115 (June 11, 2001). 
The purpose of the review was to explore ways in which our regulations 
could be modified, consistent with safety and soundness, to reflect the 
fact that community banks operate with more limited resources, and 
often different risk profiles, than larger institutions. Our goal was 
to identify alternative regulatory approaches to minimize the burden on 
community banks and promote their competitiveness.
    The OCC seeks comments on how community banks assess the program 
and on the impact of the proposal on community banks' current resources 
and available personnel with requisite expertise. The OCC also seeks 
comments on whether the goals of the proposal could be achieved, for 
community banks, through an alternative approach.

Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (RFA) requires Federal agencies 
either to certify that a proposed rule would not, if adopted in final 
form, have a significant impact on a substantial number of small 
entities or to prepare an initial regulatory flexibility analysis 
(IRFA) of the proposal and publish the analysis for comment. See 5 
U.S.C. 603, 605. On the basis of the information currently available, 
the OCC is of the opinion that this proposal, if adopted in final form, 
is unlikely to have a significant impact on a substantial number of 
small entities, within the meaning of those terms as used in the RFA. 
Commenters are invited to provide the OCC with any information they may 
have about the likely quantitative effects of the proposal.

Executive Order 12866

    The OCC has determined that this proposal is not a significant 
regulatory action under Executive Order 12866.

Unfunded Mandates Reform Act of 1995 Determinations

    Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 
1532 (Unfunded Mandates Act), requires that an agency prepare a 
budgetary impact statement before

[[Page 21981]]

promulgating any rule likely to result in a Federal mandate that may 
result in the expenditure by state, local, and tribal governments, in 
the aggregate, or by the private sector, of $100 million or more in any 
one year. If a budgetary impact statement is required, section 205 of 
the Unfunded Mandates Act also requires the agency to identify and 
consider a reasonable number of regulatory alternatives before 
promulgating the rule. The OCC has determined that this proposal will 
not result in expenditures by state, local, and tribal governments, in 
the aggregate, or by the private sector, of $100 million or more in any 
one year. Accordingly, the OCC has not prepared a budgetary impact 
statement or specifically addressed the regulatory alternatives 
considered.

Paperwork Reduction Act

    The Office of Management and Budget (OMB) has reviewed and approved 
the collection of information requirements contained in the pilot 
program under control number 1557-0221, in accordance with the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). However, 
because OCC is proposing to extend the pilot program, we invite comment 
on:
    (1) Whether the proposed collection of information contained in 
this notice of proposed rulemaking is necessary for the proper 
performance of the OCC's functions, including whether the information 
has practical utility;
    (2) The accuracy of the OCC's estimate of the burden of the 
proposed information collection;
    (3) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (4) Ways to minimize the burden of the information collection on 
the respondents, including the use of automated collection techniques 
or other forms of information technology; and
    (5) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.

List of Subjects in 12 CFR Part 32

    National banks, Reporting and recordkeeping requirements.

Authority and Issuance

    For the reasons set forth in the preamble, part 32 of chapter I of 
title 12 of the Code of Federal Regulations is proposed to be amended 
as follows:

PART 32--LENDING LIMITS

    1. The authority citation for part 32 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 84, and 93a.

    2. In Sec.  32.7, paragraphs (c) and (e) are revised to read as 
follows:


Sec.  32.7  Pilot program for residential real estate and small 
business loans.

* * * * *
    (c) Duration of approval. Except as provided in paragraph (d) of 
this section, a national bank that has received OCC approval may 
continue to make loans and extensions of credit under the special 
lending limits in paragraphs (a)(1) and (2) of this section until the 
date three years after September 10, 2004, provided the bank remains an 
``eligible bank.''
* * * * *
    (e) Duration of pilot program. The pilot program will terminate on 
June 11, 2007, unless it is terminated sooner by the OCC.
* * * * *

    Dated: April 20, 2004.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 04-9360 Filed 4-22-04; 8:45 am]
BILLING CODE 4810-33-P