[Federal Register Volume 84, Number 230 (Friday, November 29, 2019)]
[Notices]
[Pages 65808-65814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25928]


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FEDERAL DEPOSIT INSURANCE CORPORATION

RIN 3064-ZA13


Request for Information on a Framework for Analyzing the Effects 
of FDIC Regulatory Actions

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice and request for information (RFI).

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is seeking 
comment on approaches it is considering to analyze the effects of its 
regulatory actions. The FDIC views analysis of the effects of 
regulatory actions and alternatives as an important part of a credible 
and transparent rulemaking process. The comments received will help the 
FDIC to strengthen its analysis of regulatory actions.

DATES: Comments must be received by January 28, 2020.

ADDRESSES: You may submit comments, identified by RIN 3064-ZA13, by any 
of the following methods:
     Agency Website: http://www.fdic.gov/regulations/laws/federal/. Follow the instructions for submitting comments on the Agency 
website.
     Email: [email protected]. Include the RIN 3064-ZA13 in the 
subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW, 
Washington, DC 20429.
     Hand Delivery: Comments may be hand-delivered to the guard 
station at the rear of the 550 17th Street Building (located on F 
Street) on business days between 7:00 a.m. and 5:00 p.m.
     Public Inspection: All comments received must include the 
agency name and RIN for this rulemaking. All comments received will be 
posted without change to http://www.fdic.gov/regulations/laws/federal/
--including any personal information provided--for public inspection. 
Paper copies of public comments may be ordered from the FDIC Public 
Information Center, 3501 North Fairfax Drive, Room E-1002, Arlington, 
VA 22226 by telephone at (877) 275-3342 or (703) 562-2200.

FOR FURTHER INFORMATION CONTACT: For further information about this 
request for comments, contact George French (202-898-3929), or Ryan 
Singer (202-898-7352), Federal Deposit Insurance Corporation, 550 17th 
Street NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION: The FDIC has had a longstanding commitment 
to improving the quality of its regulations and policies, to minimizing 
regulatory burdens on the public and the banking industry, and 
generally to ensuring that its regulations and policies achieve 
legislative goals efficiently and effectively.\1\ An objective and 
transparent analysis of the effects of regulatory actions and 
alternatives supports both good policy decisions and the meaningful 
involvement and trust of the public in the rulemaking process.
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    \1\ See the FDIC's revised ``Statement of Policy on the 
Development and Review of Regulations'' at 63 FR 25157 May 7, 1998, 
and further revised at 77 FR 22771 April 17, 2013.
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    The FDIC is considering ways to improve the quality of its analysis 
of regulatory actions. The approaches being considered are consistent 
with, and supportive of, efforts to apply the FDIC's ``Statement of 
Policy on the Development and Review of Regulations.'' In broad terms, 
the FDIC is considering a more structured approach to regulatory 
analysis and one that incorporates a number of analytical practices 
identified in standard references. Comments received on this RFI will 
be of assistance to the FDIC in strengthening its analysis of the 
effects of regulatory actions.
    As background, the FDIC is subject to a number of statutory 
mandates relevant to the effects of regulations. The Administrative 
Procedures Act (APA) governs the procedural requirements for all 
federal government rulemakings. The Regulatory Flexibility Act (RFA) 
requires the FDIC and other agencies to review the effects of 
regulatory actions on small entities, identify whether the actions 
would have a significant economic effect on a substantial number of 
small entities, and if so, consider whether the purpose of the rule 
could be achieved in a way that mitigates adverse impacts on small 
entities. The Paperwork Reduction Act requires the FDIC and other 
agencies to identify the

[[Page 65809]]

paperwork burdens of regulatory actions. The Congressional Review Act 
(CRA) requires the FDIC, or any agency promulgating a rule covered by 
that Act, to submit a report to each House of Congress and to the 
Comptroller General, that contains a copy of the rule, a concise 
general statement describing the rule (including whether it is a major 
rule), and the proposed effective date of the rule. Congress has the 
ability to review the rule, and potentially disapprove it. The Office 
of Management and Budget (OMB) determines whether regulatory actions 
are ``major rules'' for purposes of the CRA. The FDIC assists the OMB 
by providing, for each final rule, analysis and recommendations 
regarding whether that rule should be deemed major.
    The FDIC performs all statutorily required analyses in connection 
with its rulemakings. The FDIC's intention to improve the quality of 
its analysis of regulatory actions is not in response to any specific 
statutory mandate, but in the belief that robust analysis can enhance 
decision making and regulatory transparency. While this RFI is 
primarily directed toward issues of analytical content, the FDIC also 
is considering improvements to its internal approaches to developing 
the analysis. Issues under consideration include procedures for 
inclusion of regulatory analysis staff on rule teams at a sufficiently 
early stage of the rulemaking process, procedures for reviewing the 
analysis, processes for seeking information from stakeholders, as 
appropriate, prior to the proposed rule stage, and processes for 
retrospective analysis of the effects of regulations.
    While the FDIC is an independent regulatory agency and is not 
required to follow OMB's guidance with regard to regulatory analysis, 
the FDIC nonetheless views OMB Circular A-4 (henceforth, A-4 or 
Circular A-4) as a useful set of general principles regarding 
regulatory analysis.\2\ The approaches the FDIC is considering draw in 
part on principles set forth in A-4, as well as other published 
discussions of regulatory analysis.\3\ It is noted, however, that A-4 
draws its examples generally from health, safety and environmental 
regulation, and does not explicitly address banking or financial 
regulation. Professional judgment is needed to apply A-4's principles 
to the analysis of bank regulation.
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    \2\ Office of Management and Budget, Circular A-4, ``Regulatory 
Analysis,'' September 17, 2003.
    \3\ See also ``Current Guidance on Economic Analysis in SEC 
Rulemaking'' available at https://www.sec.gov/page/dera_economicanalysis; and U.S. Commodity Futures Trading 
Commission, Staff Guidance on Cost-Benefit Considerations for Final 
Rulemakings under the Dodd Frank Act, (May 13, 2011) in U.S. 
Commodity Futures Trading Commission Office of the Inspector 
General, A Review of Cost-Benefit Analyses Performed by the 
Commodity Futures Trading Commission in Connection with Rulemakings 
Undertaken Pursuant to the Dodd Frank Act, June 13, 2011 at 34-45, 
available at http://www.cftc.gov/ucm/groups/public/@aboutcftc/documents/file/oig_investigation_061311.pdf.
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    A unique feature of the notices of rulemaking for banking 
regulations is that some are published by individual agencies and 
others are published jointly by multiple agencies. For joint rules, the 
statutorily required analyses contained in the ``administrative law 
matters'' (or similarly titled) section of the preamble are conducted 
by each participating agency in satisfaction of its legal mandates and 
labeled as such, while the common preamble represents the participating 
agencies' agreed joint statement about the rule. The analysis presented 
in the common preambles of interagency rules accordingly reflects 
interagency agreement.
    The remainder of this RFI describes a conceptual template for 
organizing the issues typically arising in bank regulation, and 
analyzing effects in a manner consistent with general principles for 
regulatory analysis. The conceptual template is a guide to analysis 
only in the sense of discussing the types of issues that ought to be 
considered in any regulatory analysis: It is difficult to be more 
specific in advance given the diversity of regulatory actions the FDIC 
undertakes. Moreover, the ability to quantify the costs, benefits and 
effects of regulations can be limited both by a lack of data, and by a 
lack of knowledge or agreement among economists about relevant channels 
of cause and effect or future behavioral responses. The remainder of 
the document should thus be understood as outlining a view of the type 
of regulatory analysis that should be conducted to the extent feasible. 
Comments are solicited on the conceptual framework in general and its 
individual elements.

Economic Analysis of FDIC Rulemakings

    The FDIC is considering including the following in its rulemaking 
actions: A statement of the need for the proposed action; the 
identification of a baseline against which the effects of the action 
are compared; the identification of alternative regulatory approaches; 
and an evaluation of the benefits and costs from all major stakeholder 
perspectives, that includes qualitative discussion, and quantitative 
analysis where relevant and practicable, of the proposed action and the 
main alternatives identified by the analysis. Moreover, the analysis 
should be transparent about its assumptions and significant 
uncertainties.\4\
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    \4\ This broad organizational outline is consistent with 
approaches described in OMB Circular A-4.
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The Need for an Action

    The need for regulatory actions can arise from the need to 
implement or interpret statutory mandates, improve government 
processes, address market failures,\5\ or otherwise address specific 
problems that have become evident and suggest the need to change, add 
or remove specific regulations. For discretionary actions, an agency's 
determination that it needs to take that action is a judgment it has 
arrived at based on the totality of the available information. A 
rulemaking action should include a concise summary of why the agency 
believes that the action is needed.
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    \5\ ``Market failure'' is an economics term that refers to 
situations where the operation of a free market leads to an 
inefficient allocation of goods and services, or put another way, 
where individually rational decisions lead to irrational outcomes 
for a group. For example, deposit insurance can be viewed as a 
response to the market failure of bank runs, in which individually 
rational decisions to withdraw funds can cascade and lead to the 
collectively suboptimal outcome of large numbers of liquidity 
failures.
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Defining a Baseline

    The analysis of a regulatory action should be explicit about the 
baseline against which the effects of the rule are compared. Broadly 
speaking, the appropriate question for the analysis is how the ``world 
with the rule'' would compare to the ``world without the rule.'' For 
the analysis or evaluation of an alternative, comparisons should 
generally be between that alternative and the proposed or adopted 
regulatory action. The body of extant banking and financial 
regulation--but as discussed below, generally not including proposed 
rules--should be part of the baseline. Also, since any comparisons 
between the rule and the baseline will be relevant only for entities 
that are affected by the action, the analysis of every regulatory 
action should identify the set of regulated entities and other affected 
parties.
    Questions can arise when selecting a baseline for rules that 
implement statutory requirements. It is sometimes noted that the 
``world without the rule'' would still include the statute that the 
rule is implementing. By this reasoning, the rule itself could be 
viewed as having minimal effects even when the statute

[[Page 65810]]

has large effects. Circular A-4 states that to facilitate a more 
comprehensive understanding of the effects of rules, analysis should 
include a pre-statute baseline.\6\ While potentially more 
comprehensive, analyzing pre-statute baselines may also involve 
implicitly evaluating the merits of statutes. Moreover, since the 
agency does not have the option of not implementing statutes, pre-
statute baselines may not always produce results that inform the 
decisions actually available to the agency. The FDIC is interested in 
commenters' views on the appropriate baseline for rules that implement 
statutory requirements.
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    \6\ Since the ``world without the rule'' includes existing law, 
Circular A-4 can also be viewed as supporting a post-statute 
baseline, and in fact it suggests that multiple baselines may be 
useful.
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    Other issues can arise when analyzing rules that finalize or 
propose rules that have been previously proposed. For some such 
rulemakings, it might be argued that affected entities have already 
adjusted their activities as a result of the previously proposed rule. 
Using this reasoning, if the analyst selects as a baseline the 
situation that includes regulated entities' adjustments made as a 
result of the earlier proposal, the action that is the subject of 
analysis might be viewed as having little effect in itself.
    To provide for meaningful consideration of alternatives other than 
simply finalizing the original proposal, analysis should include a 
baseline that compares the current action to a situation without the 
original proposal. When much time has passed between the proposal and 
the action being analyzed, there may be uncertainties about whether 
actions regulated entities took in the intervening time were in 
response to the proposal, or would have been taken without the 
proposal. Such uncertainties should be acknowledged as part of the 
analysis.

Identification and Discussion of Alternatives

    Rulemaking actions should include discussion of reasonable and 
possible alternatives considered by the FDIC or proposed by commenters. 
All reasonable alternatives raised by commenters should be discussed, 
or reasons offered for why such alternatives were not considered. 
Otherwise, the extent of discussion of alternatives is a matter for 
judgment. Some rules may have dozens or hundreds of individual 
provisions and discussing alternatives to all of them may not be 
practicable. Nonetheless, important rule provisions for which there was 
serious discussion of alternatives during the rulemaking process should 
be identified, along with the reasons for the course of action chosen. 
Finally, the FDIC believes that while it is useful to state and 
evaluate the main alternatives considered in a separate and 
identifiable section of the preamble, issues raised by commenters that 
are identified and discussed in other sections of the preamble do not 
necessarily need to be restated in an ``alternatives'' section.

Benefits and Costs of the Action and Alternatives

    In reaching decisions about rules, agencies consider the effects on 
the public, on regulated entities, and on the achievement of statutory 
objectives. Decision-makers consider all these perspectives in order to 
arrive at a regulatory action that is in the public interest. This 
description of decision making corresponds to two principles that the 
FDIC believes are important to incorporate in its regulatory analysis: 
First, to consider costs and benefits from all major stakeholder and 
policy perspectives; and second, to attempt to identify costs and 
benefits relative to the concept of broad economic welfare.\7\
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    \7\ A-4 does not state these principles directly, but they 
fairly capture important aspects of A-4. For example, in stating 
that non-quantified effects may be important (page 2), that analysis 
should focus on benefits and costs accruing to citizens and 
residents of the United States (page 15), that distributional 
effects and transfers should be clearly identified (pages 13 and 38) 
and that analysis should look beyond direct effects to ancillary 
costs and benefits (page 26), A-4 recognizes the importance of 
considering all perspectives on rules. In stating that analysis 
should focus on benefits and costs accruing to citizens and 
residents of the United States (again, page 15), in measuring costs 
and benefits by reference to the sum of consumer and producer 
surplus (pages 19 and 38), and in specifically excluding transfers 
from costs and benefits (page 38), A-4 articulates a vision of 
regulatory analysis as an attempt to measure net economic effects to 
society and not just to individual stakeholder groups.
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    Systematic consideration of the stakeholders and policy interests 
that can benefit from, or be burdened by, a rule is a prerequisite to 
analyzing its effects. Bank regulations can be complex and have a broad 
range of effects on the achievement of statutory objectives, the manner 
in which banks interact with customers and the type and level of credit 
and other financial intermediation services, which in turn can affect 
the broader economy and the safety and soundness of the banking system.
    Identifying costs and benefits accruing to specific stakeholder 
groups is not the same as identifying broad economic costs and 
benefits. For example, whether a reduction in banks' compliance expense 
provides broad economic benefits is a nuanced question. As one extreme, 
if banks' reduced compliance spending is matched by reduced revenue or 
wages to compliance professionals with no change in the cost or 
availability of banking services, it could reasonably be said that 
broad economic effects are zero. If banks' reduced cost structure 
results in lower costs to bank customers or greater availability of 
financial services, the result could be increased economic output, 
which could reasonably be said to reflect broad economic benefits. If 
reduced compliance expense results in statutory goals not being 
achieved, a material increase in future bank failures or other adverse 
effects, one could reasonably classify the results as broad economic 
costs.
    While there is no universally agreed-upon measure of broad economic 
welfare to use in tallying the effects of bank regulations as economic 
costs or benefits, the approach described in this document generally is 
that a goal of maximizing long-term, sustainable U.S. economic output 
supported by the banking industry, subject to the achievement of 
statutory goals and avoidance of significant adverse unintended 
consequences, is an appropriate concept by which to evaluate the broad 
economic effects of regulation.
    To ensure adequate consideration of the broad range of interests 
that may be affected by FDIC rules, the FDIC believes it would be 
useful for analysts to consider the relevance of a rule from each of 
the perspectives listed in Table 1. These are stakeholder and policy 
perspectives potentially relevant to any FDIC rulemaking. For the first 
five topics listed in Table 1, the stakeholder or policy perspective 
may be viewed in an abstract sense as the public interest in the 
satisfaction of the FDIC's statutory mandates. The remaining topics 
reflect broader effects FDIC rules can have on banks and the public.

[[Page 65811]]



        Table 1--Major Stakeholder and Policy Perspectives To Be Considered in the Analysis of FDIC Rules
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                       Issue                                              Relevance of rule
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Effects on bank safety and soundness and public     Direct effects/indirect effects/no identified effects.
 confidence.
Effects on the treatment of bank customers or
 financially underserved communities..
Effects on the potential for illicit use of the
 financial system.
Effects on the FDIC's statutory resolution
 functions.
Effects on the FDIC's Deposit Insurance Fund (DIF)
Effects on the availability of bank credit and
 other financial services.
Compliance costs or profitability effects on banks
 or the public.
Effects on U.S. economic performance..............
Distributional effects............................
Other significant issues, if identified...........
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    Much of the regulatory analysis of any rule will consist of 
describing the expected or potential effects of the rule, including 
potential costs and benefits, from each of the relevant perspectives 
listed in Table 1. The first five rows of the table relate to broad 
categories of statutory goals. Most regulatory actions would be 
expected to have effects related to one or more of these categories. 
For any regulatory action, the analysis should consider whether and how 
the proposed action might affect the achievement of the relevant 
statutory goals. Topics of interest for such an analysis could include 
the effectiveness and efficiency of different ways to meet statutory 
goals, and anticipating potential unintended consequences.
    Note that no single stakeholder perspective or policy consideration 
listed in Table 1 is the most important in all cases. All of the issues 
identified in Table 1 could be relevant to reaching a decision that is 
in the public interest. A general discussion of each of these issues 
and the goals of the analysis follows.
(a) Effects on Bank Safety and Soundness and Public Confidence
    The FDIC has statutory responsibilities to promote the safety and 
soundness of FDIC-insured institutions, and to ensure that problems at 
troubled institutions are resolved promptly and at minimum long-term 
cost to the DIF. For any regulatory action, the analysis should 
consider explicitly whether the action has the potential to affect bank 
safety and soundness, describe the nature of the potential effects if 
any, and bring to bear evidence, to the extent available, on the 
potential likelihood and magnitude of the safety and soundness effects. 
If applicable, the analysis should discuss, and quantify to the extent 
practicable, potential effects on the frequency or severity of bank 
failures or other FDIC resolution activities. The universe of banks 
considered may be FDIC-supervised banks, or all insured banks, 
depending on the context. Historical experience with troubled or failed 
banks may, depending on the specific issue at hand, provide evidence on 
potential effects of regulatory actions. For other issues, historical 
experience may be of limited usefulness and the analysis would be more 
qualitative in nature.
(b) Effects on the Treatment of Bank Customers or Financially 
Underserved Communities
    Evaluating the effects of rules on bank customers or underserved 
communities is an important part of the rulemaking process. Many types 
of rules affect bank customers. Just as potential safety and soundness 
effects should be evaluated for any rule, so should the potential 
effects on bank customers.
    For example, consumer protection rules generally reflect statutory 
goals regarding how banks should interact with customers, 
counterparties and the general public. Many of these rules are under 
the exclusive jurisdiction of other agencies, with the FDIC having 
enforcement authority for the banks it supervises. Some, such as the 
rules implementing the Community Reinvestment Act, flood insurance 
requirements, management interlocks rules (designed to limit potential 
anti-competitive practices) and rules regarding securities issued by 
banks that are not required to register their securities with the SEC 
(designed to ensure adequate information is provided to investors), are 
promulgated by the FDIC and other banking agencies for institutions 
under their respective supervision. Consumer protection rules that are 
unique to the FDIC include regulations designed to ensure that 
depositors have accurate information about the insured status of their 
deposits.
    There are two broad types of effects on consumers that are of 
interest for the analysis. One is how the rule may affect the potential 
for consumer harm, and the other is how the rule may affect the 
availability and cost of financial services. Just as with the 
evaluation of safety and soundness issues, historical or other evidence 
may sometimes help shed light on the potential effects of rules on 
consumers, although often the analysis will be qualitative.
    It also is worth emphasizing that bank customers can be affected by 
any rules that affect the availability and cost of financial services. 
In the absence of consumer harm issues, a lower cost and higher 
quantity of financial services would generally be viewed as a benefit 
to bank customers, while a higher cost and lower quantity of financial 
services would generally be viewed as a cost to them. The analysis 
should consider these types of costs and benefits. For purposes of 
clearly delineating distinct issues in the analysis, under the approach 
described in this document these types of benefits and costs would be 
considered under other headings in Table 1, specifically, ``Effects on 
availability of bank credit and financial services,'' and ``Effects on 
economic performance.''
(c) Effects on the Potential for Illicit Use of the Financial System
    In its examination program, the FDIC enforces compliance with the 
Bank Secrecy Act and other mandates designed to guard against illicit 
use of the financial system, and some FDIC regulations (part 326, part 
353) directly support the achievement of these mandates. It also is 
possible that some regulatory actions in the area of cyber-security, or 
other regulations designed to limit operational risks, could have 
indirect effects on the potential for illicit use of the financial 
system. The analysis should consider such issues to the extent they are 
applicable.
(d) Effects on the FDIC's Statutory Resolution Functions
    Some FDIC rules relate to the resolution process for failing banks. 
Examples include rules governing the

[[Page 65812]]

insurance coverage of various types of deposits, recordkeeping 
requirements, resolution plan requirements, rules for the treatment of 
qualified financial contracts, rules governing the use of the FDIC's 
orderly liquidation authority, customer notifications in the event a 
bank assumes another bank's deposits or voluntarily relinquishes its 
deposit insurance coverage, and other matters.
    Changes to these rules could bring various types of costs and 
benefits. Generally speaking, changes that would increase insurance 
coverage would tend to reduce the likelihood of panic deposit 
withdrawals. This would reduce the risk of bank runs but could also be 
associated with greater moral hazard, and the transfer of risk to the 
FDIC. Changes to record keeping requirements or resolution plan 
requirements could increase (or decrease) information available to the 
FDIC to effect non-disruptive, cost-effective resolutions, while 
increasing (or decreasing) costs to institutions required to comply 
with such requirements. Rule changes that affected the type of 
resolution selected could affect the gross cash flows associated with 
resolutions as well as their net cost. The importance and relative 
magnitudes of all such effects would depend on the specifics of the 
rule change under consideration. The analysis should consider such 
issues to the extent they are applicable.
(e) Effects on the FDIC's DIF
    Maintaining an adequate DIF and a system of assessments to ensure 
that the cost of bank failures is not borne by taxpayers is a core 
mission of the FDIC. Rules directly related to assessments and the DIF 
can have important effects that should be analyzed, as noted below. 
Other rules, particularly in the safety and soundness area, could 
indirectly affect insurance fund losses and hence the size and adequacy 
of the DIF. Consequently, the analysis of any rule should consider 
whether there are potential effects on the DIF.
    Part 327 of the FDIC's regulations governs the calculation and 
collection of deposit insurance assessments and the FDIC's management 
of the DIF. In principle, changes to these rules could have a variety 
of effects. For example, changes in the target size of the DIF might 
affect the volatility of assessment expenses over time, with lower fund 
sizes expected to increase the need for large premium increases, FDIC 
borrowings from Treasury, or both, during periods of economic stress. 
Changes in the method of assessing premiums could affect the 
distribution of assessments paid by different types of banks, and 
potentially could affect incentives for banks to hold certain types of 
assets or incur certain types of liabilities, depending upon the 
specific risk gradations reflected in the assessment system. Changes in 
regulatory definitions of Consolidated Reports of Condition and Income 
(Call Report) entries used to calculate assessments could have indirect 
effects on assessments collected, absent offsetting changes to the 
assessment system. Analysis of the effects of rules should identify 
such assessments-related effects and evaluate their significance.
(f) Effects on the Availability of Bank Credit and Other Financial 
Services
    The ability to provide credit and other financial services to the 
U.S. economy is one of the hallmarks of a healthy banking system. In 
turn, many regulations can directly or indirectly affect the cost and 
availability of credit and other financial services. Thus, 
consideration of the potential effects of changes in regulations on the 
supply of credit and other financial services should be part of any 
analysis of the costs and benefits of regulations (henceforth, 
``credit'' will be used as a shorthand for ``credit and other financial 
services'' unless otherwise clear from the context).
    An illustrative but incomplete list of regulations that could 
potentially affect the cost, availability and characteristics of credit 
include requirements regarding capital, liquidity, proprietary trading 
and stress testing; real estate, appraisal and mortgage underwriting 
regulations; loan-to-one-borrower and other concentration limits; data 
collection and disclosure requirements; flood insurance; the Community 
Reinvestment Act; and many others.
    The analysis should consider the potential links between changes in 
the regulation and changes in the amount or nature of credit that might 
reasonably be expected to result. Rules that reduce the cost of 
providing credit would generally be expected to increase its 
availability, and conversely. As noted in the section titled ``Effects 
on U.S. economic performance,'' the analysis also should consider 
whether such rules give rise to countervailing safety and soundness or 
consumer harm effects. For some types of rules, historical experience 
or other analysis may provide insight into potential effects. 
Sometimes, however, there may be little in the way of historical 
experience or other evidence to guide the analysis, and the discussion 
will primarily be qualitative.
(g) Compliance Costs or Profitability Effects on Banks or the Public
    The analysis of rules should consider effects on banks' regulatory 
compliance costs and their profitability. This will facilitate 
identifying the effects of rules on an important class of stakeholders, 
and is necessary to satisfy specific statutory mandates to identify the 
effects of rules on small banks. The identification of costs and 
profitability effects on banks, along with lending effects as discussed 
earlier, are closely connected to evaluating the effects of rules on 
broader economic performance.
    The analysis of compliance costs should include the identification, 
and quantification if possible, of: (i) Direct costs of compliance; 
(ii) opportunity costs of resources used to comply with the action; and 
(iii) effects that may arise from behavioral changes induced or 
incentivized by the action. Bank profitability may be affected by these 
changes in compliance costs, and also by changes in the volume of 
lending or other activities, or changes in the composition of assets or 
liabilities.
    It may be difficult to estimate potential changes in bank 
compliance costs or profitability resulting from regulatory actions. 
Call Report-based analysis of cost and revenue trends may sometimes 
shed light on the potential range of effects of some rules, and the 
insights of subject matter experts and commenters may also be 
informative. For some regulatory actions, it may be beneficial to 
gather information from banks or other stakeholders prior to the 
proposal stage.
    The analysis should consider the potential for changes in 
compliance costs or bank profitability to interact with other policy 
considerations in ways that affect the public interest. For example, 
rule changes that reduce banks' compliance expense or increase their 
profitability should also be analyzed from the perspective of whether 
there are accompanying issues of consumer harm or adverse changes in 
bank safety and soundness. To ensure clear delineation of distinct 
issues in the analysis, these issues should be addressed under separate 
headings regarding safety and soundness effects and effects on 
consumers.
(h) Effects on U.S. Economic Performance
    The analysis should consider how the various individual effects 
discussed in other headings might interact to affect economic 
performance over time. This roughly corresponds to Circular A-4's 
guidance that costs and benefits should be considered from a broad 
economic

[[Page 65813]]

perspective.\8\ This is not to suggest that short-term maximization of 
economic activity is the goal of bank regulation. Nonetheless, some 
concept of how rules might affect economic output through time, if this 
were estimable, would be a relevant consideration in evaluating the 
effects of rules.
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    \8\ See, for example, the A-4 discussions on pages 15, 19 and 
38, to the general effect that the goal of analysis is to identify 
effects on all U.S. citizens and residents, that the proper measure 
of net benefits is the sum of producer surplus and consumer surplus, 
and that costs or benefits to individual groups in the form of 
transfers are to be viewed as distinct from, for example, ``costs to 
society'' (page 38, emphasis added) and therefore not to be included 
in costs and benefits identified as such by the analysis.
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    If a rule results in some expansion or contraction in bank lending 
or other financial services, it is reasonable to expect some 
corresponding effect on measured U.S. economic output. For most rules 
such effects are likely negligible, but some rules could have effects 
that are important enough to warrant notice, and the analysis should 
consider whether this might be the case.
    Next, if a rule has potentially material safety and soundness 
effects such that the likely frequency or severity of troubled or 
failed banks is affected, effects on economic output would also be 
expected. An increase in the volume of troubled and failed banks would 
be expected to have negative effects on economic output. In the 
extreme, banking crises may have substantially adverse spillover 
effects on economic output. Conversely, avoiding the adverse effects on 
economic output of bank failures might, all else equal, result in a 
steadier level of output through time. Some rules may present a 
tradeoff in which some potentially stimulative effects need to be 
evaluated relative to the possibility of longer-term adverse effects on 
safety and soundness, or in which some potential long-term safety and 
soundness benefit needs to be evaluated relative to some possible 
dampening of bank activity.
    Similar considerations apply to rules that strengthen or weaken 
consumer protections. Removal of restrictions, or reductions in 
compliance expenses, for example, could be expected to reduce the cost 
of affected financial products and increase their dollar volume, with a 
resulting increase in economic activity. If the result could include an 
eventual increase in the frequency or severity of consumer harm, 
however, there could be ramifications to the affected consumers and 
thus the broader economy.
    Effects on economic output of rules are inherently difficult to 
quantify, and even more so when there are tradeoffs involving potential 
future safety and soundness or consumer harm effects. Quantified 
estimates would generally be obtainable only by making a number of 
assumptions, each of which is subject to uncertainty. Transparency 
requires that decision makers and commenters should be informed about 
the assumptions, and the nature of the uncertainty surrounding such 
assumptions and the analysis in general.
(i) Distributional Effects
    Changes in rules can cause a variety of distributional effects. 
Some rules can increase, or decrease, incomes of entities that provide 
services to banks. Capital requirements, by affecting the mix of debt 
and equity at banks, can affect the portion of bank funding costs that 
is tax-deductible interest. This can change banks' tax obligations, 
resulting in a transfer between banks and the Treasury. Changes in 
deposit insurance premiums can affect the distribution across banks of 
the cost of funding the deposit insurance system. Consumer protection 
rules can potentially have distributional effects as between banks and 
their customers. Safety and soundness rules can increase or decrease 
the assessments cost to well-run banks of paying for future bank 
failures, and can affect the cash needed to resolve financial system 
stress.
    Distributional effects by their nature may not be associated with 
any change in economic output, and it might be said of such effects 
that one person's benefit is another person's cost. Distributional 
effects nonetheless are often of great interest and concern to the 
parties affected by rules, decision makers need to be aware of them, 
and accordingly they should be identified as part of the analysis.
(j) Other Significant Issues, if Identified
    Some rules may give rise to issues not covered by the list in Table 
1. Examples could include rules that could have effects on wages or on 
state, local and tribal governments--effects that are required to be 
identified as part of major rule recommendations. The analysis should 
address these issues as applicable.

Request for Comment

    The FDIC seeks comment on all aspects of this RFI. With regard to 
the substance of regulatory analysis, the FDIC is interested both in 
commenters' broad views, and in examples of analytical approaches, or 
sources of data or other information, that may assist in the analysis 
of specific rules or classes of rules. Topics of interest include but 
are not limited to the following.
     Appropriate concepts for identifying the broad economic 
benefits and costs of changes in bank regulation;
     Effects of changes in regulations on the safety and 
soundness of banks;
     Effects of changes in regulations on the incidence of 
consumer harm;
     Effects of changes in regulations on the achievement of 
the FDIC's statutory objectives regarding failure resolution or the 
deposit insurance system;
     Ways to achieve statutory mandates in the most efficient 
and effective manner;
     Approaches to anticipating potential unintended 
consequences of regulatory changes;
     Effects of changes in regulations on the cost and 
availability of bank credit or other financial services;
     Effects of changes in regulations on the direct and 
indirect costs banks incur to comply with these regulations;
     How to evaluate the effects of changes in banks' 
compliance responsibilities on the achievement of statutory objectives 
regarding safety and soundness, consumer protection or other matters;
     Effects of changes in the cost and availability of bank 
financial services on U.S. economic output;
     Effects of changes in bank regulation on the frequency or 
severity of bank failures or banking crises, and consequent effects on 
U.S. economic output; and
     Distributional effects of changes in bank regulation.
    The FDIC is also seeking comment on an issue regarding the format 
and presentation of regulatory analysis. Specifically, Circular A-4 
recommends the use of accounting tables to summarize the analysis.\9\ 
Such tables are intended to identify key costs and benefits of rules, 
including costs and benefits that are monetized, quantified but not 
monetized, and not quantified.
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    \9\ See Circular A-4, pages 44-47.
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    The FDIC believes there are arguments for and against the use of 
such tables to summarize the analysis of bank regulations. On the one 
hand, there often may be an insufficient basis for quantifying key 
costs and benefits associated with banking rules. The result may be 
that such tables could tend to be sparse, in the sense of containing 
few or no numbers. Comparisons between quantified and non-quantified 
benefits and costs in such tables could be misleading, and quantified 
estimates could only be understood relative to a clear discussion of 
underlying assumptions and uncertainties. There also may be costs or 
benefits that do not easily fit into a

[[Page 65814]]

standardized tabular format, so that the rigidity of the table might 
make it more difficult to present the analysis than in a textual 
narrative.
    On the other hand, including such tables in a regulatory analysis 
could potentially provide a high-level snapshot of how the FDIC viewed 
key costs and benefits of the rule in one place. Completing such tables 
may also serve to encourage a more systematic consideration of the 
effects of rules, including drawing distinctions between effects on 
specific stakeholder groups, distributional effects and transfers, and 
broad economic benefits and costs.
    The FDIC is interested in commenters' views on the usefulness of 
accounting tables such as those found in OMB Circular A-4 for 
presenting the results of the analysis of changes in bank regulations.

Federal Deposit Insurance Corporation.

    Dated at Washington, DC, on November 19, 2019.
Annmarie H. Boyd,
Assistant Executive Secretary.
[FR Doc. 2019-25928 Filed 11-27-19; 8:45 am]
 BILLING CODE 6714-01-P