[Federal Register Volume 81, Number 242 (Friday, December 16, 2016)]
[Rules and Regulations]
[Pages 90949-90952]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30133]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
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Federal Register / Vol. 81, No. 242 / Friday, December 16, 2016 /
Rules and Regulations
[[Page 90949]]
DEPARTMENT OF TREASURY
Office of the Comptroller of the Currency
12 CFR Part 4
[Docket ID OCC-2016-0001]
RIN 1557-AE01
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 211
[Docket No. R-1531]
RIN 7100-AE45
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Parts 337, 347, and 390
RIN 3064-AE42
Expanded Examination Cycle for Certain Small Insured Depository
Institutions and U.S. Branches and Agencies of Foreign Banks
AGENCY: Office of the Comptroller of the Currency (OCC), Treasury;
Board of Governors of the Federal Reserve System (Board); and Federal
Deposit Insurance Corporation (FDIC).
ACTION: Joint final rules.
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SUMMARY: The OCC, Board, and FDIC (collectively, the agencies) are
jointly adopting as final and without change the agencies' interim
final rules published in the Federal Register on February 29, 2016,
that implemented section 83001 of the Fixing America's Surface
Transportation Act (FAST Act). Section 83001 of the FAST Act permits
the agencies to conduct a full-scope, on-site examination of qualifying
insured depository institutions with less than $1 billion in total
assets no less than once during each 18-month period. Prior to
enactment of the FAST Act, only qualifying insured depository
institutions with less than $500 million in total assets were eligible
for an 18-month on-site examination cycle. The final rules, like the
interim final rules, generally allow well capitalized and well managed
institutions with less than $1 billion in total assets to benefit from
the extended 18-month examination schedule. In addition, the final
rules adopt as final parallel changes to the agencies' regulations
governing the on-site examination cycle for U.S. branches and agencies
of foreign banks, consistent with the International Banking Act of
1978. Finally, through this rulemaking, the FDIC has integrated its
regulations regarding the frequency of safety and soundness
examinations for State nonmember banks and State savings associations.
DATES: Effective on January 17, 2017.
FOR FURTHER INFORMATION CONTACT:
OCC: Deborah Katz, Assistant Director, or Melissa J. Lisenbee,
Attorney, Legislative and Regulatory Activities Division, (202) 649-
5490; Scott Schainost, Midsize and Community Bank Supervision Liaison,
Midsize and Community Bank Supervision, (202) 649-8173.
Board: Division of Banking Supervision and Regulation--Richard
Naylor, Associate Director, (202) 728-5854; Richard Watkins, Deputy
Associate Director, (202) 452-3421; Virginia Gibbs, Manager, (202) 452-
2521; or Alexander Kobulsky, Supervisory Financial Analyst, (202) 452-
2031; and Legal Division--Laurie Schaffer, Associate General Counsel,
(202) 452-2277; Brian Chernoff, Senior Attorney, (202) 452-2952; or
Mary Watkins, Attorney, (202) 452-3722.
FDIC: Thomas F. Lyons, Chief, Policy and Program Development, (202)
898-6850, Karen Jones Currie, Senior Examination Specialist, (202) 898-
3981 for the Division of Risk Management Supervision; Mark A. Mellon,
Counsel, (202) 898-3884 for revisions to 12 CFR part 337; Rodney D.
Ray, Counsel, (202) 898-3556 for revisions to 12 CFR part 347; Suzanne
J. Dawley, Senior Attorney, (202) 898-6509 for revisions to 12 CFR part
390 for the Legal Division.
SUPPLEMENTARY INFORMATION:
I. Background
Section 10(d) of the Federal Deposit Insurance Act (FDI Act) \1\
generally requires the appropriate Federal banking agency for an
insured depository institution (IDI) to conduct a full-scope, on-site
examination of the institution at least once during each 12-month
period. Prior to enactment of section 83001 of the FAST Act,\2\ section
10(d)(4) of the FDI Act authorized the appropriate Federal banking
agency to extend the on-site examination cycle for an IDI to at least
once during an 18-month period if the IDI (1) had total assets of less
than $500 million; (2) was well capitalized (as defined in 12 U.S.C.
1831o); (3) was found, at its most recent examination, to be well
managed \3\ and to have a composite condition of ``outstanding'' or, in
the case of an institution that has total assets of not more than $100
million, ``outstanding'' or ``good;'' (4) was not subject to a formal
enforcement proceeding or order by the FDIC or its appropriate Federal
banking agency; and (5) had not undergone a change in control during
the previous 12-month period in which a full-scope, on-site examination
otherwise would have been required. Section 10(d)(10) of the FDI Act,
prior to the enactment of section 83001 of the FAST Act, also gave the
agencies discretionary authority to raise the eligibility size limit
for the 18-month examination cycle for otherwise qualifying IDIs with
an ``outstanding'' or ``good'' composite rating from $100 million to an
amount not to exceed $500 million in total assets if the agencies
determined that the higher limit would be consistent with the
principles of
[[Page 90950]]
safety and soundness.\4\ Under section 10(d)(3), the Board and the
FDIC, as the appropriate Federal banking agencies for State-chartered
insured banks and savings associations, are permitted to conduct on-
site examinations of such IDIs on alternating 12-month or 18-month
periods with the institution's State supervisor, if the Board or FDIC,
as appropriate, determines that the alternating examination conducted
by the State carries out the purposes of section 10(d) of the FDI
Act.\5\
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\1\ 12 U.S.C. 1820(d). Section 10(d) of the FDI Act was added by
section 111 of the Federal Deposit Insurance Corporation Improvement
Act of 1991.
\2\ Public Law 114-94, 129 Stat. 1312 (2015).
\3\ Depository institutions are evaluated under the Uniform
Financial Institutions Rating System (commonly referred to as
``CAMELS''). CAMELS is an acronym that is drawn from the first
letters of the individual components of the rating system: Capital
adequacy, Asset quality, Management, Earnings, Liquidity, and
Sensitivity to market risk. CAMELS ratings of ``1'' and ``2''
correspond with ratings of ``outstanding'' and ``good.'' In addition
to having a CAMELS composite rating of ``1'' or ``2,'' an IDI is
considered to be ``well managed'' for the purposes of section 10(d)
of the FDI Act only if the IDI also received a rating of ``1'' or
``2'' for the management component of the CAMELS rating at its most
recent examination. See 72 FR 17798 (Apr. 10, 2007).
\4\ 12 U.S.C. 1820(d)(10).
\5\ 12 U.S.C. 1820(d)(3).
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Section 7(c)(1)(C) of the International Banking Act (IBA) provides
that a Federal or a State branch or agency of a foreign bank shall be
subject to on-site examination by its appropriate Federal banking
agency or State bank supervisor as frequently as a national or State
bank would be subject to such an examination by the agency.\6\ The
agencies previously adopted regulations to implement the examination
cycle requirements of section 10(d) of the FDI Act and section
7(c)(1)(C) of the IBA, including the extended 18-month examination
cycle available to qualifying small institutions and U.S. branches and
agencies of foreign banks.\7\ The agencies have also exercised their
discretion, under section 10(d)(10) of the FDI Act, to extend the 18-
month examination cycle for otherwise qualifying institutions with
``good'' composite ratings,\8\ first, in 1997, for such institutions
with total assets of $250 million or less, and, again, in 2007, for
such institutions with total assets of $500 million or less.\9\
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\6\ 12 U.S.C. 3105(c)(1)(C).
\7\ See 12 CFR 4.6 and 4.7 (OCC), 12 CFR 208.64 and 211.26
(Board), 12 CFR 337.12, 347.211, and 390.351 (FDIC).
\8\ Corresponding to a CAMELS or Risk management, Operational
controls, Compliance, and Asset quality (ROCA) rating of ``2.''
\9\ See 62 FR 6449 (Feb. 12, 1997) (interim final rule); see
also 63 FR 16377 (Apr. 2, 1998) (final rule); see also 72 FR 17798
(Apr. 10, 2007) (interim final rule); see also 72 FR 54347 (Sept.
25, 2007) (final rule).
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Section 83001 of the FAST Act, effective on December 4, 2015,
amended section 10(d) of the FDI Act to raise, from $500 million to $1
billion, the total asset threshold below which an agency may apply an
18-month (rather than a 12-month) on-site examination cycle for IDIs
with ``outstanding'' composite ratings, and to raise, from not more
than $100 million to not more than $200 million, the total asset
threshold below which an agency may apply an 18-month examination cycle
to an institution with an ``outstanding'' or ``good'' composite
rating.\10\ Section 83001 also amended section 10(d)(10) of the FDI Act
to authorize the appropriate Federal banking agency to increase, by
regulation, the maximum amount limitation for IDIs with ``outstanding''
or ``good'' composite ratings from not more than $200 million to not
more than $1 billion if the appropriate Federal banking agency
determines that the higher amount would be consistent with the
principles of safety and soundness for IDIs.\11\
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\10\ Public Law 114-94, 129 Stat. 1312 (2015).
\11\ Id.
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These FAST Act amendments reduce regulatory burdens on small, well
capitalized, and well managed institutions and allow the agencies to
better focus their supervisory resources on those IDIs and U.S.
branches and agencies of foreign banks that may present capital,
managerial, or other issues of supervisory concern.
II. Discussion of the Final Rules
On February 29, 2016, the agencies published and requested comment
on interim final rules to implement the amendments to section 10(d)
made by section 83001 of the FAST Act.\12\ The agencies are adopting
the interim final rules as final without change. In particular, the
agencies are adopting as final the increase, from $500 million to $1
billion, in the total asset threshold below which an IDI that meets the
criteria in section 10(d) and the agencies' rules may qualify for an
18-month, full-scope, on-site examination cycle. In addition, as
authorized by section 83001 of the FAST Act, the agencies have
determined that it is consistent with principles of safety and
soundness to permit institutions with total assets of $200 million or
greater and not exceeding $1 billion that received a composite CAMELS
rating of ``1'' or ``2,'' and that meet other qualifying criteria set
forth in section 10(d) and the agencies' rules, to qualify for an 18-
month examination cycle. Consistent with section 7(c)(1)(C) of the IBA,
the agencies also are adopting as final conforming changes to the
regulations that govern the on-site examination cycle of a U.S. branch
or agency of a foreign bank. These changes permit a U.S. branch or
agency of a foreign bank with total assets of less than $1 billion to
qualify for an 18-month examination cycle if the U.S. branch or agency
of a foreign bank received a composite ROCA rating of ``1'' or ``2'' at
its most recent examination and meets the other applicable criteria.
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\12\ 81 FR 10063 (Feb. 29, 2016).
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The FDIC analyzed the frequency with which institutions rated a
composite CAMELS rating of ``1'' or ``2'' failed within five years,
versus the frequency with which institutions rated a composite CAMELS
rating of ``3,'' ``4,'' or ``5'' failed within five years. FDIC
analysis indicates that between 1985 and 2011,\13\ FDIC-insured
depository institutions with assets less than $1 billion and a
composite CAMELS rating of ``1'' or ``2'' had a five-year failure rate
that was one-seventh as high as institutions with a CAMELS rating of
``3,'' ``4,'' or ``5.'' Moreover, the relationship between failure
rates in the two ratings groups did not meaningfully change when the
analysis was restricted to institutions with assets between $200
million and $500 million compared to institutions with assets between
$500 million to $1 billion. This analysis suggests that extending the
examination cycle for well-rated institutions with $500 million to $1
billion in assets by an additional six months, combined with the
agencies' off-site monitoring activities and ability to examine an
institution more frequently as necessary or appropriate, is unlikely to
negatively affect the safe and sound operations of qualifying
institutions or the ability of the agencies to effectively supervise
and protect the safety and soundness of institutions with total assets
of less than $1 billion.\14\ Furthermore, the agencies note that, in
order to qualify for an 18-month examination cycle, any institution
with total assets of less than $1 billion--including one with a CAMELS
composite rating of ``2''--must meet the other capital, managerial, and
supervisory criteria set forth in section 10(d). The agencies estimate
that the changes adopted by the final rules will increase the number of
institutions that may qualify for an extended 18-month examination
cycle by approximately 611 institutions (372 of which are supervised by
the FDIC, 142 by the OCC, and 97 by the Board), bringing the total
number of institutions that may qualify for an extended 18-month
examination cycle to 4,793 IDIs.\15\ Approximately 89 U.S. branches and
agencies of foreign banks would be eligible for the extended
examination cycle based on the final rules, an increase of 30 (one of
which is
[[Page 90951]]
supervised by the FDIC, four by the OCC, and 25 by the Board).\16\
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\13\ A list of failed institutions can be found on the FDIC's
Web site at https://www.fdic.gov/bank/individual/failed/banklist.html.
\14\ The agencies continue to reserve the right in their
regulations to examine an IDI or U.S. branch or agency of a foreign
bank more frequently than is required by the FDI Act or IBA. See 12
CFR 4.6(c) and 4.7(c) (OCC), 12 CFR 208.64(c) and 211.26(c)(3)
(Board), 12 CFR 337.12(c), 347.211(c) (FDIC), and 390.351(c).
\15\ Call report data, March 31, 2016.
\16\ Id.
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Finally, the FDIC is adopting as final changes made in the interim
final rules to integrate its regulations regarding the frequency of
safety and soundness examinations for State nonmember banks and State
savings associations. Twelve CFR 390.351 was rescinded and removed
because it was substantively identical to 12 CFR 337.12 and, therefore,
redundant to section 12 CFR 337.12. Twelve CFR 337.12 was amended to
reflect the authority of the FDIC under section 4(a) of the Home
Owners' Loan Act to provide for the examination and safe and sound
operation of State savings associations. State savings associations now
are within the scope of 12 CFR 337.12, and, all FDIC-supervised
institutions, including State savings associations, are subject to the
requirements of 12 CFR 337.12.
The agencies received three comment letters in response to the
interim final rules. Two commenters, both industry trade groups,
supported the interim final rules. Both commenters agreed that
extending the examination cycle for IDIs that meet the interim final
rules' criteria would not negatively affect the safe and sound
operations of the institutions or the ability of the agencies to
supervise them. The third commenter, an individual, did not support the
interim final rules, but offered no specific reasons for that
opposition.
For the reasons described in this section, the agencies are
adopting these rules as final without change.
Effective Date
The Administrative Procedure Act (APA) generally requires that a
final rule be published in the Federal Register no less than 30 days
before its effective date.\17\ Therefore, the final rules will become
effective on January 17, 2017. The interim final rules will continue to
be in effect until the final rules become effective.
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\17\ 5 U.S.C. 553(d).
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Section 302 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (RCDRIA) requires that each Federal banking
agency, in determining the effective date and administrative compliance
requirements for new regulations that impose additional reporting,
disclosures, or other requirements on IDIs, consider, consistent with
principles of safety and soundness and the public interest, any
administrative burdens that such regulations would place on depository
institutions, including small depository institutions, and customers of
depository institutions, as well as the benefits of such
regulations.\18\ Further, new regulations that impose additional
reporting, disclosures, or other new requirements on IDIs generally
must take effect on the first day of a calendar quarter that begins on
or after the date on which the regulations are published in final
form.\19\ The final rules adopt the interim final rules without change.
The RCDRIA does not apply to the final rules because the rules do not
impose any additional reporting, disclosures, or other new requirements
on IDIs.
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\18\ 12 U.S.C. 4802(a).
\19\ 12 U.S.C. 4802(b).
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III. Regulatory Analysis
A. Plain Language
Section 722 of the Gramm-Leach-Bliley Act \20\ requires the Federal
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000. The agencies' staff believe the final
rules are presented in a clear and straightforward manner and having
received no comments on how to make the interim final rules easier to
understand, the agencies adopt the final rules without change.
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\20\ Pub. L. 106-102, section 722, 113 Stat. 1338, 1471 (1999).
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B. Regulatory Flexibility Act
Board: Regulatory Flexibility Act \21\ (RFA) requires an agency to
prepare a final regulatory flexibility analysis (FRFA) when an agency
promulgates a final rule, unless pursuant to section 605(b) of the RFA,
the agency certifies that the final rule will not, if promulgated, have
a significant economic impact on a substantial number of small
entities. In this context, small entities include banking entities with
total assets less than or equal to $550 million.
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\21\ 5 U.S.C. 601 et seq.
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The final rules do not have a significant impact on a substantial
number of small entities. Like the interim final rules, the final rules
expand the number of institutions eligible for an extended examination
cycle, thus reducing the regulatory burden associated with on-site
examinations for these institutions. Further, only 22 of the 122 Board-
regulated institutions affected by the final rules have assets between
$500 million and $550 million and thus would be considered small
entities. These 22 institutions represent a small percentage (3.3
percent) of the 657 Board-supervised institutions with total assets
less than $550 million.\22\ For these reasons, the Board certifies that
the final rules will not have a significant impact on a substantial
number of small entities as defined in the RFA,\23\ and therefore, a
regulatory flexibility analysis is not required.
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\22\ Call report data, March 31, 2016.
\23\ 5 U.S.C. 601 et seq.
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FDIC: The RFA\24\ requires an agency, in connection with a notice
of final rulemaking, to prepare a FRFA analysis describing the impact
of the rule on small entities (defined by the Small Business
Administration for the purposes of the RFA to include banking entities
with total assets of $550 million or less) or to certify that the final
rule will not have a significant economic impact on a substantial
number of small entities.
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\24\ Id.
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The final rule does not impose any significant economic impact on a
substantial number of small entities. The final rule raises the asset
eligibility threshold for extended examination cycles from $500 million
to $1 billion, expanding the number of qualifying institutions and U.S.
branches and agencies of foreign banks, and reduces the regulatory
burden associated with on-site examinations. Of the 372 FDIC-supervised
institutions that could be impacted by the rule, only 71 of the FDIC-
supervised institutions have total assets between $500 million and $550
million which is a very small share (2.5 percent) of the 2,817 FDIC-
supervised institutions with total assets less than $550 million.\25\
For this reason, the FDIC certifies that the final rule will not have a
significant economic impact on a substantial number of small entities
as defined in the RFA, and therefore, a regulatory flexibility analysis
is not required.
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\25\ Call report data, March 31, 2016.
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OCC: The RFA applies only to rules for which an agency publishes a
general notice of proposed rulemaking pursuant to 5 U.S.C. 553(b).
Consistent with section 553(b)(B) of the APA, the agencies determined
for good cause that general notice and opportunity for public comment
were not necessary and issued an interim final rule rather than a
proposed rule. Accordingly, the RFA's requirements relating to initial
and final regulatory flexibility analyses do not apply.
C. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 \26\ states that no agency may
conduct or sponsor, nor is the respondent required to respond to, an
[[Page 90952]]
information collection unless it displays a currently valid Office of
Management and Budget (OMB) control number. Because the final rules do
not create a new, or revise an existing collection of information, no
information collection submission needs to be made to OMB.
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\26\ 44 U.S.C. 3501-3521.
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D. The Economic Growth and Regulatory Paperwork Reduction Act
Under section 2222 of the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (EGRPRA),\27\ the agencies are required to
conduct a review at least once every 10 years to identify any outdated
or otherwise unnecessary regulations. The agencies completed the last
comprehensive review of their regulations under EGRPRA in 2006 and are
currently conducting the next decennial review. The burden reduction
evidenced in these final rules is consistent with the objectives of the
EGRPRA review process.
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\27\ Public Law 104-208, 110 Stat. 3309 (1996).
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Authority and Issuance
0
For the reasons set forth in the joint preamble, the interim rule
published on February 29, 2016 at 81 FR 10063, is adopted as final
without change.
Dated: October 19, 2016.
Thomas J. Curry,
Comptroller of the Currency.
Board of Governors of the Federal Reserve System, December 6,
2016.
Robert deV. Frierson,
Secretary of the Board.
Dated at Washington, DC, this 19th day of October 2016.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2016-30133 Filed 12-15-16; 8:45 am]
BILLING CODE 4810-33-P 6210-01-P 6714-01-P