[Federal Register Volume 71, Number 237 (Monday, December 11, 2006)]
[Rules and Regulations]
[Pages 71472-71475]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-20956]


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FEDERAL RESERVE SYSTEM

12 CFR Part 215

[Regulation O; Docket No. R-1271]


Loans to Executive Officers, Directors, and Principal 
Shareholders of Member Banks

AGENCY: Board of Governors of the Federal Reserve System (``Board'').

ACTION: Interim rule with request for public comments.

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SUMMARY: The Board is adopting, on an interim basis, and soliciting 
comment on amendments to the Board's Regulation O to eliminate certain 
reporting requirements. These amendments implement section 601 of the 
Financial Services Regulatory Relief Act of 2006. The Board proposed 
and supported eliminating these statutory reporting provisions because 
the Board had found that they did not contribute significantly to the 
effective monitoring of insider lending or the prevention of insider 
abuse.

DATES: This interim rule is effective on December 11, 2006. Comments 
must be received by January 10, 2007.

ADDRESSES: You may submit comments, identified by Docket No. R-1271, by 
any of the following methods:
     Agency Web site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected].

[[Page 71473]]

Include docket number in the subject line of the message.
     FAX: 202/452-3819 or 202/452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.

    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical 
reasons. Accordingly, your comments will not be edited to remove any 
identifying or contact information. Public comments may also be viewed 
electronically or in paper in Room MP-500 of the Board's Martin 
Building (20th and C Streets, NW.) between 9 a.m. and 5 p.m. on 
weekdays.

FOR FURTHER INFORMATION CONTACT: Mark E. Van Der Weide, Senior Counsel 
(202/452-2263), or Amanda K. Allexon, Attorney (202-452-3818), Legal 
Division. Users of Telecommunication Device for the Deaf (TTD) only, 
contact (202) 263-4869.

SUPPLEMENTARY INFORMATION:

Background and Description of Interim Rule

    Section 22(h) of the Federal Reserve Act (``FRA'') restricts the 
ability of member banks to extend credit to their executive officers, 
directors, principal shareholders, and to related interests of such 
persons.\1\ Section 22(g) of the FRA imposes some additional 
limitations on extensions of credit made by member banks to their 
executive officers.\2\ Section 106(b)(2) of the Bank Holding Company 
Act Amendments of 1970 (``BHC Act Amendments'') adds further 
restrictions on extensions of credit to an executive officer, director, 
or principal shareholder of a bank from a correspondent bank.\3\ The 
Board's Regulation O implements sections 22(g) and 22(h) of the FRA, as 
well as section 106(b)(2) of the BHC Act Amendments.\4\ Sections 22(g) 
and 22(h) and Regulation O apply, by their terms, to all banks that are 
members of the Federal Reserve System.\5\ Other Federal law subjects 
federally insured state non-member banks and insured savings 
associations to sections 22(g) and 22(h) and Regulation O in the same 
manner and to the same extent as if they were member banks.\6\
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    \1\ 12 U.S.C. 375b.
    \2\ 12 U.S.C. 375a.
    \3\ 12 U.S.C. 1972(2).
    \4\ 12 CFR part 215.
    \5\ Section 106(b)(2) of the BHC Act Amendments applies by its 
terms to insured banks, mutual savings banks, savings banks, and 
savings associations.
    \6\ 12 U.S.C. 1828(j), 1468(b); 12 CFR 563.43.
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    Section 601 of the Financial Services Regulatory Relief Act of 2006 
(``Act'') (Pub. L. 109-351) removed several statutory reporting 
requirements relating to insider lending by member banks. These 
amendments, which became effective on October 13, 2006, eliminated the 
statutory provisions that:
     Require a member bank to include a separate report with 
its quarterly Reports of Condition and Income (``Call Report'') on any 
extensions of credit the bank has made to its executive officers since 
its last Call Report (12 U.S.C. 375a(9));
     Require an executive officer of a member bank to file a 
report with the member bank's board of directors whenever the executive 
officer obtains an extension of credit from another bank in an amount 
that exceeds the amount the executive officer could obtain from the 
member bank (12 U.S.C. 375a(6));
     Require an executive officer or principal shareholder of a 
depository institution to file an annual report with the institution's 
board of directors during any year in which the officer or shareholder 
has an outstanding extension of credit from a correspondent bank of the 
institution (12 U.S.C. 1972(2)(G)(i)); and
     Authorize the Federal banking agencies to issue 
regulations that require the reporting and public disclosure of 
information related to extensions of credit received by an executive 
officer or principal shareholder of a depository institution from a 
correspondent bank of the institution (12 U.S.C. 1972(2)(G)(ii)).
    The Board proposed and supported eliminating these statutory 
reporting provisions because the Board had found that they did not 
contribute significantly to the effective monitoring of insider lending 
or the prevention of insider abuse.
    The Board is adopting, and inviting public comment on, this interim 
rule to implement the changes made by section 601 of the Act. In 
particular, the interim rule eliminates:
     Section 215.9 of Regulation O, which requires an executive 
officer of a member bank to file a report with the member bank's board 
of directors whenever the executive officer obtains certain extensions 
of credit from another bank;
     Section 215.10 of Regulation O, which requires a member 
bank to include a separate report with its quarterly Call Report on any 
extensions of credit the bank has made to its executive officers since 
its last Call Report; and
     Subpart B of Regulation O, which requires the reporting 
and public disclosure of extensions of credit to an executive officer 
or principal shareholder of a member bank by a correspondent bank of 
the member bank.

The interim rule also makes minor conforming changes to Regulation O to 
reflect the removal of these provisions. The Board invites comment on 
all aspects of the interim rule.
    The Board notes that the changes made by section 601 and this 
interim rule do not alter the substantive restrictions on loans by 
depository institutions to their executive officers and principal 
shareholders found in Regulation O. Section 601 and this interim rule 
also do not alter the substantive restrictions on loans made to 
executive officers and principal shareholders of depository 
institutions by their correspondent banks found at 12 U.S.C. 1972(2). 
Moreover, elimination of these reporting requirements does not limit 
the authority of the appropriate Federal banking agency to take 
enforcement action against a depository institution or its insiders for 
violation of these insider lending restrictions. In addition, the Board 
notes that Regulation O would continue to require that a depository 
institution and its insiders maintain sufficient information to enable 
examiners to monitor the institution's compliance with the 
regulation,\7\ and the Federal banking agencies would retain authority 
under other provisions of law to collect information regarding insider 
lending by depository institutions.
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    \7\ 12 CFR 215.8.
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Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
Board certifies that the interim rule would not have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). 
Although the interim rule would apply to all member banks regardless of 
their size, the interim rule would reduce the regulatory burden on 
member banks, including small member banks, by removing requirements to 
report certain types of extensions of credit to insiders and to 
insiders of correspondent banks. Accordingly, a regulatory flexibility 
analysis is not required.

[[Page 71474]]

Administrative Procedure Act

    The provisions of the rule are effective on December 11, 2006. 
Pursuant to 5 U.S.C. 553, the Board finds that there is good cause to 
make the interim rule effective on Decermber 11, 2006. As noted above, 
the rule implements statutory changes that became effective on October 
13, 2006, and also reduces burden. The Board is interested in public 
comment on all aspects of the interim rule and will revise the interim 
rule as appropriate after reviewing public comment.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Ch. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the interim 
final rule under the authority delegated to the Board by the Office of 
Management and Budget.
    The collections of information that are proposed to be revised by 
this rulemaking are found in 12 CFR 215.9 and 215.10, and 12 CFR part 
215, subpart B. This information previously was required to evidence 
compliance with the requirements of the Federal Reserve Act (12 U.S.C. 
375a and 375b) and 12 U.S.C. 1972. The respondents/recordkeepers are 
for-profit financial institutions, including small businesses, and 
individuals.
    The Federal Reserve may not conduct or sponsor, and an organization 
is not required to respond to, this information collection unless it 
displays a currently valid OMB control number. The OMB control number 
associated with 12 CFR 215.9 and 12 CFR part 215, subpart B is 7100-
0034 (FFIEC 004). The OMB control number associated with 12 CFR 215.10 
is 7100-0036 (FFIEC 031 and 041). The FFIEC 004 would be discontinued 
as a result of this rule. The estimated burden per response for each of 
the paperwork requirements associated with the FFIEC 004 information 
collection varies between nine minutes and one hour. It is estimated 
that there are 4,760 respondents and recordkeepers and an average 
frequency of one response per respondent each year. The total amount of 
annual burden that would be saved as a result of this rule is estimated 
to be 5,331 hours. The estimated annual cost savings would be $239,895. 
In addition, the last page of the FFIEC 031 and 041 reporting forms 
(loans to executive officers), which is associated with 12 CFR 215.10, 
would be eliminated as a result of this rule. The estimated burden per 
response for this portion of the reporting forms is fifteen minutes. It 
is estimated that there are 919 respondents and an average frequency of 
four responses per respondent each year. Therefore the total amount of 
annual burden that would be eliminated is estimated to be 919 hours and 
there is estimated to be minimal cost savings.
    For the FFIEC 004, individual respondent financial information is 
regarded as confidential under the Freedom of Information Act (5 U.S.C. 
552(b)(4), (6) and (8)). However, until the passage of the Act and the 
issuance of this interim rule, upon request from the public the member 
bank has been required to disclose the name of each executive officer 
and principal shareholder who, together with related interests, has 
loans from correspondent banks equal to a minimum of 5 percent of the 
member bank's capital and surplus, or $500,000, whichever is less. For 
the FFIEC 031 and 041, the data are not considered confidential.
    The Federal Reserve has a continuing interest in the public's 
opinions of our collections of information. At any time, comments 
regarding the burden estimate, or any other aspect of this collection 
of information, including suggestions for reducing the burden, may be 
sent to: Secretary, Board of Governors of the Federal Reserve System, 
20th and C Streets, NW., Washington, DC 20551; and to the Office of 
Management and Budget, Paperwork Reduction Project (7100-0034 or 7100-
0036), Washington, DC 20503.

Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (12 U.S.C. 4809) requires 
the Board to use ``plain language'' in all rules published in the 
Federal Register. The Board believes the interim rule is presented in a 
simple and straightforward manner but invites comment on whether the 
Board could take additional steps to make the rule easier to 
understand.

List of Subjects in 12 CFR Part 215

    Credit, Penalties, Reporting and recordkeeping requirements.

Authority and Issuance

0
For the reasons set out in the preamble, the Board amends 12 CFR part 
215 to read as follows:

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

0
1. The authority citation for part 215 is revised to read as follows:

    Authority: 12 U.S.C. 248(a), 375a(10), 375b(9) and (10), 
1817(k); and Pub. L. 102-242, 105 Stat. 2236 (1991).


0
2. Remove the heading Subpart A--Loans by Member Banks to Their 
Executive Officers, Directors, and Principal Shareholders.

0
3. Section 215.1 is revised to read as follows:


Sec.  215.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to sections 11(a), 
22(g), and 22(h) of the Federal Reserve Act (12 U.S.C. 248(a), 375a, 
and 375b), 12 U.S.C. 1817(k), and section 306 of the Federal Deposit 
Insurance Corporation Improvement Act of 1991 (Pub. L. 102-242, 105 
Stat. 2236 (1991)).
    (b) Purpose and scope--(1) This part governs any extension of 
credit made by a member bank to an executive officer, director, or 
principal shareholder of the member bank, of any company of which the 
member bank is a subsidiary, and of any other subsidiary of that 
company.
    (2) This part also applies to any extension of credit made by a 
member bank to a company controlled by such a person, or to a political 
or campaign committee that benefits or is controlled by such a person.
    (3) This part also implements the reporting requirements of 12 
U.S.C. 1817(k) concerning extensions of credit by a member bank to its 
executive officers or principal shareholders (or to the related 
interests of such persons).
    (4) Extensions of credit made to an executive officer, director, or 
principal shareholder of a bank (or to a related interest of such 
person) by a correspondent bank also are subject to restrictions set 
forth in 12 U.S.C. 1972(2).

0
4. In Sec.  215.2, the introductory text is revised to read as follows:


Sec.  215.2  Definitions.

    For purposes of this part, the following definitions apply unless 
otherwise specified:
* * * * *

0
5. Remove Sec. Sec.  215.9 and 215.10 and redesignate Sec. Sec.  
215.11, 215.12, and 215.13 as Sec. Sec.  215.9, 215.10, and 215.11, 
respectively.

0
6. In newly designated Sec.  215.9:
0
a. In paragraph (a)(1), remove footnote 4.
0
b. Paragraph (a)(2)(ii) is revised to read as follows:


Sec.  215.9  Disclosure of credit from member banks to executive 
officers and principal shareholders.

    (a) * * *
    (2) * * *

[[Page 71475]]

    (ii) Any political or campaign committee the funds or services of 
which will benefit a person or that is controlled by a person. For the 
purpose of this section, a related interest does not include a bank or 
a foreign bank (as defined in 12 U.S.C. 3101(7)).
* * * * *

0
7. Newly designated Sec.  215.11 is revised to read as follows:


Sec.  215.11  Civil penalties.

    Any member bank, or any officer, director, employee, agent, or 
other person participating in the conduct of the affairs of the bank, 
that violates any provision of this part (other than Sec.  215.9) is 
subject to civil penalties as specified in section 29 of the Federal 
Reserve Act (12 U.S.C. 504).

0
8. The Appendix to Subpart A of Part 215 is redesignated as the 
Appendix to Part 215.

0
9. Remove the heading Subpart B--Reports on Indebtedness of Executive 
Officers and Principal Shareholders to Correspondent Banks.

0
10. Remove Sec. Sec.  215.20, 215.21, 215.22, and 215.23.

    By order of the Board of Governors of the Federal Reserve 
System, December 6, 2006.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E6-20956 Filed 12-8-06; 8:45 am]
BILLING CODE 6210-01-P