This final rule affecting 7 CFR part 1212 (hereinafter referred to as the “Order”) is authorized under the Commodity Promotion, Research, and Information Act of 1996 (1996 Act) (7 U.S.C. 7411-7425).

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules and promoting flexibility. This final rule falls within a category of regulatory actions that the Office of Management and Budget (OMB) exempted from Executive Order 12866 review. Additionally, because this rule does not meet the definition of a significant regulatory action it does not trigger the requirements contained in Executive Order 13771. See OMB's Memorandum titled “Interim Guidance Implementing Section 2 of the Executive Order of January 30, 2017, titled `Reducing Regulation and Controlling Regulatory Costs' ” (February 2, 2017).

This final rule has been reviewed in accordance with the requirements of Executive Order 13175, Consultation and Coordination with Indian Tribal Governments. The review reveals that this regulation will not have substantial and direct effects on Tribal governments and will not have significant Tribal implications.

In addition, this final rule has been reviewed under Executive Order 12988, Civil Justice Reform. It is not intended to have retroactive effect. Section 524 of the 1996 Act (7 U.S.C. 7423) provides that it shall not affect or preempt any other Federal or State law authorizing promotion or research relating to an agricultural commodity.

Under section 519 of the 1996 Act (7 U.S.C. 7418), a person subject to an order may file a written petition with USDA stating that an order, any provision of an order, or any obligation imposed in connection with an order, is not established in accordance with the law, and request a modification of an order or an exemption from an order. Any petition filed challenging an order, any provision of an order, or any obligation imposed in connection with an order, shall be filed within two years after the effective date of an order, provision, or obligation subject to challenge in the petition. The petitioner will have the opportunity for a hearing on the petition. Thereafter, USDA will issue a ruling on the petition. The 1996 Act provides that the district court of the United States for any district in which the petitioner resides or conducts business shall have the jurisdiction to review a final ruling on the petition, if the petitioner files a complaint for that purpose not later than 20 days after the date of the entry of USDA's final ruling.

This final rule changes the importer-handler member and alternate to an importer member and alternate on the Board under the Honey Packers and Importers Research, Promotion, Consumer Education and Industry Information Order (Order). The Order is administered by the Board with oversight by USDA. Under the Order, assessments are collected from first handlers and importers and used for research and promotion projects designed to maintain and expand the market for honey and honey products in the United States and abroad. This rule will change the importer-handler representatives to importer representatives and make clarifying and conforming changes to other provisions of the program. This action was unanimously recommended by the Board in October 2017 and will allow more importers to be eligible to serve on the Board.

Section 1212.46 of the Order provides authority for the Board to recommend amendments to the Order. Section 1212.40 of the Order provides that the Board have ten members—three first handlers, two importers, one importer-handler, three producers, and one marketing cooperative representative. Each member shall have an alternate. Currently, the eligible importer-handler member and alternate must import at least 75 percent of the honey or honey products they market in the United States and handle at least 250,000 pounds annually. With this amendment, the total number of Board representatives will remain at ten, but importer representatives will increase from two to three representatives and the importer-handler member will be removed. Handlers will continue to be represented with three members on the Board. A corresponding adjustment will be made to the alternate representatives for each member. This action increases the pool of importer nominees eligible to serve on the Board and reflects the current distribution of the industry.

U.S. honey imports have dramatically increased from 104,984 metric tons in 2008 to 203,534 metric tons in 2017. In comparison, U.S. honey production has decreased. USDA's National Agricultural Statistics Service estimates U.S. honey production from producers with 5 or more colonies at 164 million pounds in 2008 and at 148 million pounds in 2017. 1 The changes to the Board will reflect the distribution of the production of honey and the quantity of the honey and honey products imported into the United States.

Nominations to the Board are made by qualified national organizations and these organizations were consulted before the Board's recommendation. No qualified national organizations were opposed to the recommendation.

The Board met on October 26, 2017, and unanimously recommended that the importer-handler member and alternate become an importer member and alternate, allowing more importers to be eligible to serve on the Board. Section 1212.40 of the Order is revised accordingly. Conforming changes will be made to remove references to the importer-handler representative by removing § 1212.12 and revising §§ 1212.22, 1212.41, and 1212.42(b).

The current importer-handler member and alternate were appointed to the Board for a term that began on January 1, 2018 and ends on December 31, 2020. The importer-handler member and alternate will remain in their positions until their term expires on December 31, 2020. The following term beginning on January 1, 2021, will be filled by an importer member and importer alternate.

Finally, this action will revise the term Board as defined in § 1212.2 from the `Honey Packers and Importers Board' to the `National Honey Board' to reflect current practices. The term as it appears in § 1212.40 and in the undesignated heading preceding § 1212.40 will also be revised to read `National Honey Board.'

In accordance with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), AMS is required to examine the impact of the rule on small entities. Accordingly, AMS has considered the economic impact of this action on such entities.

The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions so that small businesses will not be disproportionately burdened. The Small Business Administration (SBA) defines, in 13 CFR part 121, small agricultural producers as those having annual receipts of no more than $750,000, and small agricultural service firms (first handlers and importers) as those having annual receipts of no more than $7.5 million.

The Board reported that there were about 785 importers and 40 first handlers of honey and honey products covered under the program during the 2017 fiscal period. Fourteen out of the 40 first handlers (35 percent) and 23 out of the 785 importers (3 percent) accounted for 91 and 90 percent of the assessments in their respective categories. Total assessments for 2017 were $8.87 million, of which $2.09 million (24 percent) were paid by first handlers and $6.78 million (76 percent) were paid by importers. This data can be used to compute an estimate of average annual revenue from honey sales from each of these categories, which in turn helps to estimate the number of large and small first handlers and importers. As mentioned above, 14 first handlers account for 91 percent of the domestic assessments. Multiplying first handler assessments in 2017 of $2,091,881 by 0.91 and then dividing by 14 yields an average annual assessment of $135,972 for the first handlers in this category. Dividing this figure ($135,972) by the assessment rate of 1.5 cents per pound ($0.015) yields an average quantity per first handler of 9.065 million pounds. Multiplying 9.065 million pounds by the average 2017 U.S. domestic price of $2.16 per pound  2 yields an average annual honey revenue per handler of $19.58 million, which is well above the SBA threshold of $7.5 million. It should be noted that this revenue estimate is based on the average price at the producer level, and the $19.58 million is an estimate of the total value at which the average size handler acquired the honey from producers. Therefore, most of the 14 first handlers that pay 91 percent of the domestic assessments are likely to be large firms according to the SBA definition.

An equivalent computation can be made for the 23 importers who paid 90 percent of the $6,778,147 in assessments in 2017. Of the 23 importers, the average assessment per importer was $265,741. Dividing the average assessment per importer by the assessment rate of $0.015 per pound yields an average quantity per importer estimate of 17.716 million pounds.

For honey imports, the equivalent of the season average price for domestic honey is referred to as a “unit value.” The unit value of $1.23 per pound is computed by dividing annual imported honey value of $550.16 million by average quantity of 448.72 million pounds. 3 Multiplying the $1.23 unit value by the average quantity of 17.716 million pounds yields average annual honey revenue per importer figure of $21.790 million, almost three times the SBA threshold figure of $7.5 million for a large firm. Therefore, the majority of the 23 importers that pay 90 percent of the assessments are large firms, according to the SBA definition.

Comparable computations can be made to determine the average 2017 honey revenue for the 26 first handlers and 762 importers that paid 9 and 10 percent, respectively, of the assessment in the first handler and importer categories. The first handler and importer average annual honey revenue figures are approximately $1,043,000 and $17,000, respectively, indicating that the vast majority are small businesses (in terms of honey sales), under the SBA large business threshold of $7.5 million in annual sales.

Based on the foregoing, the majority of first handlers and importers may be classified as small entities.

This rule changes the importer-handler Board member and alternate, as specified in section 1212.40 of the Order, to an importer member and alternate. The Order currently requires one importer-handler representative on the Board who must import at least 75 percent of the honey or honey products they market in the United States and handle at least 250,000 pounds annually. The U.S. honey industry has experienced dramatic increases in imported honey and honey products, as domestic production has decreased. Thus, the Board unanimously recommended that the importer-handler representative become an importer representative. This will allow for a greater pool of importer nominees to be eligible to serve on the Board. Conforming changes are being made to remove § 1212.12 and revise §§ 1212.22, 1212.41, and 1212.42(b). Finally, this rule updates the term Board to reflect current practices (§ 1212.2, the heading preceding §§ 1212.40 and 1212.40). Authority for this action is provided in § 1212.46(d) of the Order.

Relaxing the eligibility requirements for importer representatives on the Board is administrative in nature and would have no economic impact on entities covered under the program. This change will help increase the number of importers who would be eligible to serve on the Board. Eligible producers, first handlers, and importers interested in serving on the Board have to complete a background questionnaire. Those requirements are addressed later in this proposal in the section titled.

Prior to arriving at this action, the Board consulted with the qualified national organizations that make the nominations to the Board. Alternatives that were considered included making no changes and adjusting the eligibility requirements. However, in considering the distribution of the production of honey and the quantity of honey and honey products imported into the United States, the Board concluded that revising the importer-handler representative to an importer representative would be an accurate reflection of the industry and would increase the pool of eligible importers.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the information collection requirements that are imposed by the part have been previously approved by OMB under OMB control number 0581-0093. Additionally, Board nominees (including producers) must submit a Background Information form (AD-755) to ensure they are qualified to serve on the Board. The time to complete that form is estimated at 30 minutes per response. The background form is approved under OMB control no. 0505-0001. This rule will not result in a change to the information collection and recordkeeping requirements previously approved and would impose no additional reporting requirements and recordkeeping burden on honey producers, first handlers, or importers.

As with all Federal promotion programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public-sector agencies. Finally, USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule.

AMS is committed to complying with the E-Government Act, to promote the use of the internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

This action was discussed with the qualified national organizations. The Board met on October 26, 2017, and unanimously recommended changing the importer-handler representative to an importer representative. All of the Board's meetings are open to the public and interested persons are invited to participate and express their views.

A proposed rule concerning this action was published in the Federal Register on October 1, 2018 (83 FR 49314). A 30-day comment period ending on October 31, 2018, was provided to allow interested person to respond to the proposal. The proposed rule was included the Board's September newsletter. Notifications were sent to industry trade organizations and industry news publications. The proposal was also made available through the internet by USDA and the Office of the Federal Register. One comment was received, but it did not pertain to this proposal; therefore, no changes were made to the proposed rule.

For the reasons set forth in the preamble, 7 CFR part 1212 is amended as follows:

I. Policy Objectives

The policy objective of the final rule is to implement section 202 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, codified in 12 U.S.C. 1831f, which took effect on May 24, 2018. 1 The main effect of the legislation and the final rule is to permit FDIC-insured financial institutions, under certain circumstances, to except certain amounts of reciprocal deposits from treatment as brokered deposits.

The Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act) was enacted on May 24, 2018. 2 Section 202 of the Act amends section 29 of the Federal Deposit Insurance Act (FDI Act)  3 to except a capped amount of reciprocal deposits from treatment as brokered deposits for certain insured depository institutions. In addition, section 202 ensures that the interest rate restrictions in section 29 remain applicable to any deposit, including reciprocal deposits, whether or not they meet the limited exception. Section 202 was effective immediately upon enactment.

As more fully discussed below, well-capitalized institutions are not restricted from accepting or soliciting brokered deposits and have no restrictions on the rates they pay on deposits. However, under section 29, less than well-capitalized institutions may generally not accept, renew, or roll-over brokered deposits and may not offer rates on any deposits that are significantly higher than the prevailing rates in the institution's normal market area. Section 29 defines the term “deposit broker” and provides a list of exclusions to that term. Funds obtained through a deposit broker are considered brokered deposits. Section 202 amends section 29 to provide that a capped amount of reciprocal deposits will not be considered funds obtained through a deposit broker for certain insured depository institutions, and thus such deposits will be non-brokered. Reciprocal deposits that do not meet the section 202 exception are brokered deposits under section 29.

Under section 29 of the FDI Act, an insured depository institution that is less than well capitalized is restricted from accepting deposits by or through a deposit broker. 4 The FDIC may, however, waive this restriction if the insured depository institution is adequately capitalized; the restriction cannot be waived if the institution is less than adequately capitalized. 5 Section 29 also imposes restrictions on the deposit interest rates that an insured depository institution may offer if the institution is not well capitalized. 6 These interest rate restrictions cannot be waived. Section 337.6 of the FDIC's Rules and Regulations implements section 29 of the FDI Act. 7 Through this regulation, the FDIC has largely tracked the statutory definition of “deposit broker” and its exceptions.

A “deposit broker,” as defined by section 29 of the FDI Act, includes “any person engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions or the business of placing deposits with insured depository institutions for the purpose of selling interests in those deposits to third parties. . . . ” Under the FDIC's regulations, a “brokered deposit” is thus defined as a deposit accepted through a “deposit broker.”  8 The definition of “deposit broker” is subject to nine statutory exceptions in section 29 and one regulatory exception. 9

The reciprocal deposit arrangement is based upon a network of banks that place funds at other participating banks in order for depositors to receive insurance coverage for the entire amount of their deposits. 10 In these arrangements, institutions within the network are both sending and receiving identical amounts of deposits simultaneously. Because reciprocal arrangements can be complex, and involve numerous banks, they are often managed by a third-party network sponsor. As a result of this arrangement, the institutions themselves (along with the third-party network sponsors) are “in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions.”  11 The involvement of deposit brokers within the reciprocal network means the deposits are brokered deposits. 12

For assessment purposes, reciprocal deposits have been treated more favorably than other types of brokered deposits. In 2009, through rulemaking, the FDIC amended its risk-based assessment rate methodology for small institutions (generally, insured depository institutions with less than $10 billion dollars in total assets). 13 In that rulemaking, the FDIC added an “adjusted brokered deposit ratio” that applied to small institutions that were well capitalized and well rated. This ratio measured the extent to which significant reliance on brokered deposits helped to fund rapid asset growth. After consideration of comments received in response to the proposed rule, reciprocal deposits were not included as part of the adjusted brokered deposit ratio. In its final rule, the FDIC stated that “[it] recognizes that reciprocal deposits may be a more stable source of funding for healthy banks than other types of brokered deposits and that they may not be as readily used to fund rapid asset growth.”  14 When the FDIC updated its risk-based assessment rate methodology for established small institutions in 2016, it replaced the adjusted brokered deposit ratio with a new brokered deposit ratio. 15 The new ratio, which measures significant reliance on brokered deposits (rapid asset growth is considered as a separate measure) and applies to all established small institutions, continues to exclude reciprocal deposits for institutions that are both well capitalized and well rated. 16 Thus, for well capitalized, well rated institutions under $10 billion, reciprocal deposits continue to generally have no impact on assessments.

Prior to enactment of the Act, all reciprocal deposits were classified as brokered deposits. 17 Section 202 of the Act amends section 29 of the FDI Act to except a capped amount of reciprocal deposits from treatment as brokered deposits for certain insured depository institutions. Section 202's amendments took effect upon enactment on May 24, 2018.

Section 202 defines “reciprocal deposits” as “deposits received by an agent institution through a deposit placement network with the same maturity (if any) and in the same aggregate amount as covered deposits placed by the agent institution in other network member banks.” Network member banks may receive other deposits through a network such as (1) deposits received without the institution placing into the network a deposit of the same maturity and same aggregate amount (sometimes referred to as “one-way network deposits”) and (2) deposits placed by the institution into the network where the deposits were obtained, directly or indirectly, by or through a deposit broker. Such other network deposits meet the definition of brokered deposits but would not meet the definition of reciprocal deposits. Thus, these deposits would not be eligible to be excepted from an institution's brokered deposits under section 202.

On September 12, 2018, the FDIC Board authorized publication of a notice of proposed rulemaking (NPR) to implement section 202. The NPR was published in the Federal Register on September 26, 2018, with a 30-day comment period. 18 In the NPR, the FDIC proposed to implement section 202's limited exception by incorporating its provisions into § 337.6(e)(2) of the brokered deposit rules, without change. These provisions, and their definitions, must be satisfied in order for a capped amount of reciprocal deposits to be excepted from treatment as brokered deposits. The FDIC also proposed to conform its assessment regulations with section 202 and the proposed amendments to the brokered deposit regulations.

The FDIC received twelve comments from insured depository institutions, banking associations, bank service providers, and law firms writing on behalf of institutions. The commenters generally supported the proposed rule. After careful consideration of all comments received, the FDIC is adopting as proposed the amendments to 12 CFR part 337, which incorporate section 202 of the Act, and the conforming amendments to the assessment regulations in 12 CFR part 327. Comments are discussed in the relevant sections, below.

The term “deposit placement network” is defined in section 202 as a network in which an insured depository institution participates, together with other insured depository institutions, for the processing and receipt of reciprocal deposits. Institutions that are members of the deposit placement network are “network member banks.”

The deposits that an “agent institution” places at other banks in return for reciprocal deposits are termed “covered deposits” under section 202. The term covered deposit is defined as a deposit that (1) is submitted for placement through a deposit placement network and (2) does not consist of funds that were obtained for the agent institution, directly or indirectly, by or through a deposit broker before submission for placement through the deposit placement network.

One commenter requested that the FDIC clarify whether deposits placed at an insured depository institution in satisfaction of Section 29's “primary purpose exception”  19 would meet the definition of “covered deposit” and thus be eligible for the limited exception for reciprocal deposits.”  20 The term “deposit broker” does not include an agent or nominee whose primary purpose is not the placement of funds with depository institutions. 21 Deposits placed at an insured depository institution by an entity that is not a deposit broker because it meets the primary purpose exception are not brokered. Thus, if such non-brokered deposits are submitted for placement through a deposit placement network, they may qualify as “covered deposits” eligible for the limited exception for reciprocal deposits, subject to the other requirements and definitions in section 202 and the Final Rule.

Consistent with section 202, § 337.6(e)(2) defines “agent institution” as an insured depository institution that places a covered deposit through a deposit placement network at other insured depository institutions in amounts that are less than or equal to the standard maximum deposit insurance amount, and specifies the interest rate to be paid for such amounts, if the insured depository institution:

• Is well capitalized  22 and has a composite condition of outstanding (CAMELS “1”) or good (CAMELS “2”) when most recently examined under section 10(d) of the FDI Act (described as “well rated”)  23 ;

• has obtained a waiver pursuant to section 29(c) of the FDI Act; or

☐ does not receive an amount of reciprocal deposits that causes the total amount of reciprocal deposits held by the agent institution to be greater than the average of the total amount of reciprocal deposits held by the agent institution on the last day of each of the four calendar quarters preceding the calendar quarter in which the agent institution was found not to have a composite condition of outstanding or good or was determined to be not well capitalized.

Consistent with section 202, under the regulation, an “agent institution” can except reciprocal deposits from being classified as brokered deposits up to its applicable statutory caps, as explained below.

An agent institution may except reciprocal deposits up to the lesser of the following amounts (referred to as the general cap ) from being classified as brokered deposits:  24

☐ $5 billion or

☐ An amount equal to 20 percent of the agent institution's total liabilities. Reciprocal deposits in excess of the general cap, as well as those reciprocal deposits that do not meet section 202's limited exception, are brokered deposits.

A special cap applies if the institution is either not well rated or not well capitalized. In this case, the institution may meet the definition of “agent institution” if it does not receive reciprocal deposits in excess of the special cap, which is the average amount of reciprocal deposits held at quarter-end during the last four quarters preceding the quarter that the institution fell below well capitalized or well rated. Thus, the special cap is applicable to agent institutions that were previously well capitalized and well rated. Section 202 does not provide a date by which an institution must demonstrate that its amount of reciprocal deposits are within the special cap.

The FDIC will calculate an institution's special cap based on information reported in its Call Reports as proposed. For an institution that falls below well rated or well capitalized, the FDIC will evaluate the institution's compliance with the special cap based on Call Report data submitted for the reporting date immediately following when the determination is made.

One commenter was concerned that it would not be possible to calculate a four quarter history of reciprocal deposits until March 31, 2019, because reciprocal deposits were not defined separately from brokered deposits before section 202 was enacted on May 24, 2018. However, reciprocal deposit data prior to the date of enactment is available because institutions have reported reciprocal deposits on Call Report Schedule RC-O since June 30, 2009. 25

Below are descriptions of how the two statutory caps will apply to an agent institution based upon its capital and composite ratings. 26

1. Well capitalized and well rated. Institutions that are both well capitalized and well rated can have non-brokered reciprocal deposits up to the general cap. Any amount of reciprocal deposits over the general cap will not meet the limited exception and therefore that amount will be considered to be “brokered deposits.” Well capitalized institutions may accept brokered deposits, including reciprocal deposits that are brokered deposits, without restrictions.

2. Not well capitalized or not well rated. Institutions that are either not well capitalized or not well rated are subject to the lesser of either the special cap or the general cap. The amount of reciprocal deposits within the institution's applicable cap will not be considered brokered deposits. In no event, however, can an institution's non-brokered reciprocal deposits exceed the general cap. With respect to an institution that is well capitalized but not well rated, if it received reciprocal deposits above the special cap, it will no longer meet the definition of “agent institution.”

Institutions that are less than well capitalized, however, are subject to restrictions on the acceptance of brokered deposits, including reciprocal deposits that are brokered deposits. Because only reciprocal deposits of an agent institution that are below the applicable cap are considered non-brokered, a less than well-capitalized agent institution may not accept reciprocal deposits in excess of the special cap. (An adequately capitalized institution's non-brokered reciprocal deposits may be above the special cap with a waiver from the FDIC, but can also never exceed the general cap. 27 )

Two commenters objected to the proposed rule's application of the special cap when an institution falls below well capitalized or is no longer well rated. They noted that while section 202 limits the amount an agent institution can “receive,” it does not limit amounts an agent institution can maintain, retain, or hold. Thus, according to commenters, an institution that falls below well capitalized or well rated should not be required to lower the amount of reciprocal deposits it holds within the special cap. Rather these institutions should be able to retain reciprocal deposits, even if above the special cap, so long as when those reciprocal deposits mature or roll off, the institution does not receive additional reciprocal deposits that cause its total to exceed the special cap ( i.e., the previous four-quarter average). One commenter argued that this interpretation is consistent with the FDIC's current interpretation of Section 29 of the Federal Deposit Insurance Act: If an institution drops to adequately capitalized, it does not need a waiver for deposits previously accepted when it was well capitalized. In this case, the adequately capitalized institution would continue to report such deposits as brokered.

The FDIC recognizes that the statute only limits the amount of reciprocal deposits an institution may “receive” in order to be considered an agent institution. Thus, an institution that is less than well capitalized or not well rated will still qualify as an agent institution if it holds a level of reciprocal deposits above the special cap, as long as (1) such deposits were received before the institution became less than well capitalized or not well rated, (2) such deposits are time deposits, 28 and (3) the institution satisfies all other qualifications necessary to be an agent institution. For example, an institution that is well capitalized but no longer well rated could continue to be an agent institution if it holds reciprocal time deposits that it received prior to its rating downgrade until those time deposits mature or roll off, but would no longer be an agent institution if it renewed or rolled over such deposits and doing so caused the total amount of reciprocal deposits to exceed the special cap. In this case, once the institution receives reciprocal deposits in excess of its special cap, it is no longer an agent institution. If an institution is not an agent institution, all of its reciprocal deposits should be reported as brokered deposits.

Another commenter noted that an institution that is well capitalized but not well rated may be treated the same or worse under section 202 and the proposed rule than adequately capitalized or undercapitalized institutions. This is because, under section 29(c) of the FDI Act, only an adequately capitalized institution may be an agent institution pursuant to a waiver. Thus, according to the commenter, a well-capitalized but not well-rated institution would be treated the same as an undercapitalized institution, both of which are not eligible for a waiver under section 29(c) and could only qualify as an agent institution through application of the special cap. The commenter suggested that the FDIC amend the regulation to alleviate this discrepancy in relative treatment, arguing that this would better reflect congressional intent.

Amending the final rule in the manner that the commenter suggests would be inconsistent with section 29 of the FDI Act, as well as section 202 of the Act. Section 202 unambiguously defines “agent institution” to include an institution that has obtained a waiver pursuant to paragraph (c) of section 29. Section 29 of the FDI Act only allows the FDIC to grant a waiver for adequately capitalized institutions.

Several commenters objected that the regulation would not allow de novo institutions to benefit from the limited exception for reciprocal deposits because they would not have a composite condition rating for 12 to 14 months after being in operation and would not be eligible for the special cap because they would not have a prior four quarter average of reciprocal deposits. Commenters therefore proposed that the FDIC allow de novo institutions to be treated as agent institutions subject to the general cap. Some commenters suggested that the FDIC treat a de novo institution's pre-opening activities and approval of its business plan from both the FDIC and the chartering authority as substitute for a composite condition rating of outstanding or good. Another commenter argued that in the absence of a four quarter average of reciprocal deposits that precedes an adverse rating or an adverse capital determination, no amount of reciprocal deposits would cause its total amount of reciprocal deposits to exceed the special cap, and therefore qualifies as an agent institution.

De novo institutions may be eligible for the limited exception for reciprocal deposits once they meet the definition of agent institution under the statute and Final Rule, which adopts the exact language of section 202. The FDIC considered treating a de novo institution as well rated as commenters suggested, but section 202 specifically requires that an institution “when most recently examined under section 10(d) was found to have a composite condition of outstanding or good.” Pre-opening activities are not examinations under section 10(d) of the FDI Act. 29 In addition, a de novo institution that does not have a preceding four quarter average of reciprocal deposits would also not be able to qualify as an agent institution under the special cap prong.

De novo institutions that do not qualify as “agent institutions” are not prohibited from accepting reciprocal deposits, but would need to report them as brokered.

Although de novo institutions may not be eligible for the limited exception for reporting reciprocal deposits as non-brokered until they receive their first rating under section 10(d) of the FDI Act, the FDIC will make every effort to accelerate the timing of a de novo state nonmember bank's first examination. To this end, the FDIC will update examiner instructions to make clear to open and operating de novo state nonmember banks that wish to make use of the limited exemption for not reporting reciprocal deposits as brokered that they may request an accelerated on-site examination in order to obtain an examination rating. The FDIC will work with the other federal banking agencies to encourage similar supervisory treatment.

The FDIC is finalizing as proposed the conforming amendments to its assessments regulations to be consistent with the statutory definition of reciprocal deposits. Prior to enactment of section 202, all reciprocal deposits as defined in the assessment regulations met the definition of brokered deposits. Because section 202 excepts certain reciprocal deposits from treatment as brokered deposits, the FDIC is replacing the current definition of “reciprocal deposits” in § 327.8(q) with a new term, “brokered reciprocal deposit.” A “brokered reciprocal deposit” is a “reciprocal deposit” as defined under section 202, and § 337.6(e)(2)(v), that does not meet the statute's limited exception (for example, deposits over the applicable caps discussed above). The FDIC is also making conforming amendments to § 327.16(a)(1)(ii) and (e)(3), which reference reciprocal deposits.

For assessment purposes, “brokered reciprocal deposits” will continue to be excluded from the brokered deposit ratio for established small institutions that are well capitalized and well rated. 30 For new small banks and large and highly complex banks that are less than well capitalized or not well rated, “brokered reciprocal deposits” will continue to be included in an institution's total brokered deposits for the brokered deposit adjustment. 31

The objective of this regulation is to adjust the maximum CMPs for inflation through a final rulemaking to retain the deterrent effect of such penalties.

The Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Debt Collection Improvement Act of 1996 (1996 Act) and the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (2015 Act) (collectively, 1990 Act, as amended), requires all Federal agencies with the authority to enforce CMPs to evaluate and adjust, if necessary, those CMPs each year to ensure that they continue to maintain their deterrent value and promote compliance with the law. Section 3(2) of the 1990 Act, as amended, defines a civil monetary penalty  1 as any penalty, fine, or other sanction that: (1) Either is for a specific monetary amount as provided by Federal law or has a maximum amount provided for by Federal law; (2) is assessed or enforced by an agency pursuant to Federal law; and (3) is assessed or enforced pursuant to an administrative proceeding or a civil action in the Federal courts. 2

The FCA imposes and enforces CMPs through the Farm Credit Act  3 and the Flood Disaster Protection Act of 1973, as amended. FCA's regulations governing CMPs are found in 12 CFR parts 622 and 623. Part 622 establishes rules of practice and procedure applicable to formal and informal hearings held before the FCA, and to formal investigations conducted under the Farm Credit Act. Part 623 prescribes rules regarding persons who may practice before the FCA and the circumstances under which such persons may be suspended or debarred from practice before the FCA.

The Farm Credit Act provides that any Farm Credit System (System) institution or any officer, director, employee, agent, or other person participating in the conduct of the affairs of a System institution who violates the terms of a cease-and-desist order that has become final pursuant to section 5.25 or 5.26 of the Farm Credit Act must pay up to a maximum daily amount of $1,000  4 during which such violation continues. This CMP maximum was set by the Farm Credit Amendments Act of 1985, which amended the Farm Credit Act. Orders issued by the FCA under section 5.25 or 5.26 of the Farm Credit Act include temporary and permanent cease-and-desist orders. In addition, section 5.32(h) of the Farm Credit Act provides that any directive issued under sections 4.3(b)(2), 4.3A(e), or 4.14A(i) of the Farm Credit Act “shall be treated” as a final order issued under section 5.25 of the Farm Credit Act for purposes of assessing a CMP.

Section 5.32(a) of the Farm Credit Act also states that “[a]ny such institution or person who violates any provision of the [Farm Credit] Act or any regulation issued under this Act shall forfeit and pay a civil penalty of not more than $500  5 per day for each day during which such violation continues.” This CMP maximum was set by the Agricultural Credit Act of 1987, which was enacted in 1988, and amends the Farm Credit Act. Current, inflation-adjusted CMP maximums are set forth in existing § 622.61 of FCA regulations. 6

The FCA also enforces the Flood Disaster Protection Act of 1973, 7 as amended by the National Flood Insurance Reform Act of 1994, 8 which requires FCA to assess CMPs for a pattern or practice of committing certain specific actions in violation of the National Flood Insurance Program. The existing maximum CMP for a violation under the Flood Disaster Protection Act of 1973 is $2,000. 9 10

The 2015 Act required all Federal agencies to adjust the CMPs yearly, starting January 15, 2017.

Under Section 4(b) of the 1990 Act, as amended, annual adjustments are to be made yearly no later than January 15 of each year. 11 Section 6 of the 1990 Act, as amended, states that any increase to a civil monetary penalty under this 1990 Act applies only to civil monetary penalties, including those whose associated violation predated such increase, which are assessed after the date the increase takes effect.

Section 5(b) of the 1990 Act, as amended, defines the term “cost-of-living adjustment” as the percentage (if any) for each civil monetary penalty by which (1) the Consumer Price Index (CPI) for the month of October of the calendar year preceding the adjustment, exceeds (2) the CPI for the month of October 1 year before the month of October referred to in (1) of the calendar year in which the amount of such civil monetary penalty was last set or adjusted pursuant to law. 12

The increase for each CMP adjusted for inflation must be rounded using a method prescribed by section 5(a) of the 1990 Act, as amended, by the 2015 Act. 13

If a civil monetary penalty is subject to a cost-of-living adjustment under the 1990 Act, as amended, but is adjusted to an amount greater than the amount of the adjustment required under the Act within the 12 months preceding a required cost-of-living adjustment, the agency is not required to make the cost-of-living adjustment to that CMP in that calendar year. 14

The adjustment requirement affects two provisions of section 5.32(a) of the Farm Credit Act. For the 2019 yearly adjustments to the CMPs set forth by the Farm Credit Act, the calculation required by the 2018 White House Office of Management and Budget (OMB) guidance  15 is based on the percentage by which the CPI for October 2018 exceeds the CPIs for October 2017. The OMB set forth guidance, as required by the 2015 Act, 16 with a multiplier for calculating the new CMP values. 17 The OMB multiplier for the 2019 CMPs is 1.02522.

The adjustment also affects the CMPs set by the Flood Disaster Protection Act of 1973, as amended. The adjustment multiplier is the same for all FCA enforced CMPs, set at 1.02522. The maximum CMPs for violations were created in 2012 by the Biggert-Waters Act, which amended the Flood Disaster Protection Act of 1973.

The inflation-adjusted CMP currently in effect for violations of a final order occurring on or after January 15, 2017, is a maximum daily amount of $2,269. 18 Multiplying the $2,269 CMP by the 2018 OMB multiplier, 1.02522, yields a total of $2,326.22. When that number is rounded as required by section 5(a) of the 1990 Act, as amended, the inflation-adjusted maximum increases to $2,326. Thus, the new CMP maximum is $2,326.

The inflation-adjusted CMP currently in effect for violations of the Farm Credit Act or regulations issued under the Farm Credit Act occurring on or after January 15, 2018, is a maximum daily amount of $1,026. 19 Multiplying the $1,026 CMP maximum by the 2018 OMB multiplier, 1.02522, yields a total of $1,051.88. When that number is rounded as required by section 5(a) of the 1990 Act, as amended the inflation-adjusted maximum increases to $1,052. Thus, the new CMP maximum is $1,052.

The existing maximum CMP for a pattern or practice of flood insurance violations pursuant to 42 U.S.C. 4012a(f)(5) is $2,133. Multiplying $2,133 by the 2018 OMB multiplier, 1.02522, yields a total of $2,186.79. When that number is rounded as required by section 5(a) of the 1990 Act, as amended, the new maximum assessment of the CMP for violating 42 U.S.C. 4012a(f)(5) is $2,187. Thus, the new CMP maximum is $2,187.

The 1990 Act, as amended, gives Federal agencies no discretion in the adjustment of CMPs for the rate of inflation. Further, these revisions are ministerial, technical, and noncontroversial. For these reasons, the FCA finds good cause to determine that public notice and an opportunity to comment are impracticable, unnecessary, and contrary to the public interest pursuant to the Administrative Procedure Act, 5 U.S.C. 553(b)(B), and adopts this rule in final form.

Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ), the FCA hereby certifies that this final rule will not have a significant economic impact on a substantial number of small entities. Each of the banks in the System, considered together with its affiliated associations, has assets and annual income in excess of the amounts that would qualify them as small entities. Therefore, System institutions are not “small entities” as defined in the Regulatory Flexibility Act.

For the reasons stated in the preamble, part 622 of chapter VI, title 12 of the Code of Federal Regulations is amended as follows:

I. Background

Section 129D of the Truth in Lending Act (TILA) contains a general requirement that an escrow account be established by a creditor to pay for property taxes and insurance premiums for certain first-lien higher-priced mortgage loan transactions. TILA section 129D also generally permits an exemption from the higher-priced mortgage loan escrow requirement for a creditor that meets certain requirements, including any asset-size threshold the Bureau may establish.

In the 2013 Escrows Final Rule, 1 the Bureau established such an asset-size threshold of $2 billion, which would adjust automatically each year, based on the year-to-year change in the average of the CPI-W for each 12-month period ending in November, with rounding to the nearest million dollars. 2 In 2015, the Bureau revised the asset-size threshold for small creditors and how it applies. The Bureau included in the calculation of the asset-size threshold the assets of the creditor's affiliates that regularly extended covered transactions secured by first liens during the applicable period and added a grace period to allow an otherwise eligible creditor that exceeded the asset limit in the preceding calendar year (but not in the calendar year before the preceding year) to continue to operate as a small creditor with respect to transactions with applications received before April 1 of the current calendar year. 3 For 2018, the threshold was $2.112 billion.

During the 12-month period ending in November 2018, the average of the CPI-W increased by 2.6 percent. As a result, the exemption threshold is increased to $2.167 billion for 2019. Thus, if the creditor's assets together with the assets of its affiliates that regularly extended first-lien covered transactions during calendar year 2018 are less than $2.167 billion on December 31, 2018, and it meets the other requirements of § 1026.35(b)(2)(iii), it will be exempt from the escrow-accounts requirement for higher-priced mortgage loans in 2019 and will also be exempt from the escrow-accounts requirement for higher-priced mortgage loans for purposes of any loan consummated in 2020 with applications received before April 1, 2020. The adjustment to the escrows asset-size exemption threshold will also increase the threshold for small-creditor portfolio and balloon-payment qualified mortgages under Regulation Z. The requirements for small-creditor portfolio qualified mortgages at § 1026.43(e)(5)(i)(D) reference the asset threshold in § 1026.35(b)(2)(iii)(C). Likewise, the requirements for balloon-payment qualified mortgages at § 1026.43(f)(1)(vi) reference the asset threshold in § 1026.35(b)(2)(iii)(C). Under § 1026.32(d)(1)(ii)(C), balloon-payment qualified mortgages that satisfy all applicable criteria in § 1026.43(f)(1)(i) through (vi) and (f)(2), including being made by creditors that have (together with certain affiliates) total assets below the threshold in § 1026.35(b)(2)(iii)(C), are also excepted from the prohibition on balloon payments for high-cost mortgages.

Under the Administrative Procedure Act (APA), notice and opportunity for public comment are not required if the Bureau finds that notice and public comment are impracticable, unnecessary, or contrary to the public interest. 5 U.S.C. 553(b)(B). Pursuant to this final rule, comment 35(b)(2)(iii)-1 in Regulation Z is amended to update the exemption threshold. The amendment in this final rule is technical and merely applies the formula previously established in Regulation Z for determining any adjustments to the exemption threshold. For these reasons, the Bureau has determined that publishing a notice of proposed rulemaking and providing opportunity for public comment are unnecessary. Therefore, the amendment is adopted in final form.

Section 553(d) of the APA generally requires publication of a final rule not less than 30 days before its effective date, except (1) a substantive rule which grants or recognizes an exemption or relieves a restriction; (2) interpretive rules and statements of policy; or (3) as otherwise provided by the agency for good cause found and published with the rule. 5 U.S.C. 553(d). At a minimum, the Bureau believes the amendments fall under the third exception to section 553(d). The Bureau finds that there is good cause to make the amendments effective on February 4, 2019. The amendment in this final rule is technical and non-discretionary, and it applies the method previously established in the agency's regulations for automatic adjustments to the threshold.

Because no notice of proposed rulemaking is required, the Regulatory Flexibility Act does not require an initial or final regulatory flexibility analysis. 4

In accordance with the Paperwork Reduction Act of 1995, 5 the agency reviewed this final rule. No collections of information pursuant to the Paperwork Reduction Act are contained in the final rule.

Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq. ), the Bureau will submit a report containing this rule and other required information to the United States Senate, the United States House of Representatives, and the Comptroller General of the United States prior to the rule taking effect. The Office of Information and Regulatory Affairs (OIRA) has designated this rule as not a “major rule” as defined by 5 U.S.C. 804(2).

For the reasons set forth above, the Bureau amends Regulation Z, 12 CFR part 1026, as set forth below:

Annual Update to Fee Schedule (Issued January 18, 2019)

Section 11.2 of the Commission's regulations provides a method for computing reasonable annual charges for recompensing the United States for the use, occupancy, and enjoyment of its lands by hydropower licensees. 1 Annual charges for the use of government lands are payable in advance, and are based on an annual schedule of per-acre rental fees published in Appendix A to Part 11 of the Commission's regulations. 2 This document updates the fee schedule in Appendix A to Part 11 for fiscal year 2019 (October 1, 2018, through September 30, 2019).

This Final Rule is effective February 4, 2019. The provisions of 5 U.S.C. 804, regarding Congressional review of final rules, do not apply to this Final Rule because the rule concerns agency procedure and practice and will not substantially affect the rights or obligations of non-agency parties. This Final Rule merely updates the fee schedule published in the Code of Federal Regulations to reflect scheduled adjustments, as provided for in section 11.2 of the Commission's regulations.

In consideration of the foregoing, the Commission amends part 11, chapter I, title 18, Code of Federal Regulations, as follows.