[Federal Register Volume 85, Number 137 (Thursday, July 16, 2020)]
[Rules and Regulations]
[Pages 43119-43121]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15367]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 85, No. 137 / Thursday, July 16, 2020 / Rules
and Regulations
[[Page 43119]]
FEDERAL RESERVE SYSTEM
12 CFR Part 215
[Docket No. R-1722 and RIN 7100-AF93]
Loans to Executive Officers, Directors, and Principal
Shareholders of Member Banks; Regulation O
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Interim final rule with request for comments.
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SUMMARY: On April 17, 2020, the Board issued an interim final rule to
except certain loans made by June 30, 2020, that are guaranteed under
the Small Business Administration's Paycheck Protection Program from
the requirements of the Federal Reserve Act and the corresponding
provisions of the Board's Regulation O. The Board is issuing this
interim final rule to expand the exception to apply to PPP loans made
through August 8, 2020.
DATES: This interim final rule is effective on July 16, 2020. Comments
on the interim final rule must be received no later than August 31,
2020.
ADDRESSES: You may submit comments, identified by Docket No. R-1722 and
RIN 7100 AF93, by any of the following methods:
Agency Website: http://www.federalreserve.gov. Follow the
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Email: [email protected]. Include docket
and RIN numbers in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Ann E. Misback, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
All public comments will be made available on the Board's website
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons or to remove
personally identifiable information at the commenter's request.
Accordingly, comments will not be edited to remove any identifying or
contact information. Public comments also may be viewed electronically
or in paper form in Room 146, 1709 New York Avenue NW, Washington, DC
20006, between 9:00 a.m. and 5:00 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Laurie Schaffer, Deputy General
Counsel, (202) 452-2272, Alison Thro, Deputy Associate General Counsel,
(202) 452-3236, Benjamin McDonough, Assistant General Counsel, (202)
452-2036, Dan Hickman, Senior Counsel, (202) 973-7432, Josh Strazanac,
Senior Attorney, (202) 452-2457, Jasmin Keskinen, Legal Assistant,
(202) 475-6650, Legal Division; or Anna Lee Hewko, Associate Director,
(202) 530-6360, Constance Horsley, Deputy Associate Director, Juan
Climent, Assistant Director, (202) 872-7526, (202) 452-5239, Kathryn
Ballintine, Manager, (202) 452-2555, Rebecca Zak, Lead Financial
Institution Policy Analyst, (202) 912-7995, Eusebius Luk, Senior
Financial Policy Analyst I, (202) 452-2874, Division of Supervision and
Regulation; Board of Governors of the Federal Reserve System, 20th
Street and Constitution Avenue NW, Washington, DC 20551. Users of
Telecommunication Device for Deaf (TDD) only, call (202) 263-4869.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. The Interim Final Rule
III. Administrative Law Matters
A. Administrative Procedure Act
B. Congressional Review Act
C. Paperwork Reduction Act
D. Regulatory Flexibility Act
E. Riegle Community Development and Regulatory Improvement Act
of 1994
F. Use of Plain Language
I. Background
On March 27, 2020, the President signed into law the Coronavirus
Aid, Relief, and Economic Security (CARES) Act which, among other
things, created the Paycheck Protection Program (PPP) to facilitate
lending to small businesses affected by COVID-19. The CARES Act
specified that the PPP would end on June 30, 2020. On July 4, 2020, the
President signed into law the Prioritized Paycheck Protection Program
Act (PPPP Act), which extends the PPP to August 8, 2020.\1\
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\1\ Prioritized Paycheck Protection Program Act, S. 4116, 116th
Cong. section 1 (2020).
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On April 17, 2020, the Board issued an exception to section 22(h)
and the corresponding provisions of Regulation O for PPP loans made to
insiders that would not be prohibited from receiving a PPP loan under
the Small Business Administration (SBA) lending restrictions (original
IFR).\2\ The exception was intended to facilitate lending by banks to a
broad range of small businesses within their communities, consistent
with applicable law and safe and sound banking practices. The exception
applied only to PPP loans made by June 30, 2020, the original date on
which the PPP was set to expire.
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\2\ ``Loans to Executive Officers, Directors, and Principal
Shareholders of Member Banks,'' 85 FR 22345 (April 22, 2020),
https://www.govinfo.gov/content/pkg/FR-2020-04-22/pdf/2020-08574.pdf.
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The Board is issuing this interim final rule to extend the
exception in the original IFR to August 8, 2020, the new date on which
the PPP will expire.
II. The Interim Final Rule
Section 22(h) authorizes the Board to adopt, by regulation,
exceptions to the definition of ``extension of credit'' in section
22(h) for transactions that ``pose minimal risk.'' \3\ Therefore, the
Board may except PPP loans from the restrictions imposed by section
22(h) and the corresponding provisions of Regulation O upon a
determination that such loans pose minimal risk.
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\3\ 12 U.S.C. 375b(9)(D)(ii).
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The Board determined in the original IFR that PPP loans pose
minimal risk.\4\ The PPPP Act does not change any of the features of
PPP loans on which the Board relied in the original IFR to determine
that PPP loans pose minimal risk. Accordingly, the Board has determined
that PPP loans continue to pose minimal risk for the reasons cited in
the original IFR.
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\4\ 85 FR 22346.
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SBA lending restrictions continue to apply to certain PPP loans
that also would be subject to section 22(h) and the corresponding
provisions of Regulation O.\5\ Excepting PPP loans that
[[Page 43120]]
would be prohibited by the SBA lending restrictions from the
requirements of section 22(h) and the corresponding provisions in
Regulation O would not achieve any meaningful regulatory purpose.
Excepting these loans from one regime and not the other also may create
confusion because some lenders may mistakenly interpret an exception
under one regime to extend to both regimes. Accordingly, the exception
continues to apply only for insiders that would not be prohibited from
receiving a PPP loan by the SBA lending restrictions.
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\5\ SBA regulations normally would prohibit a PPP lender from
making a PPP loan to ``[b]usinesses in which the [PPP lender] or any
of its Associates owns an equity interest.'' 13 CFR 120.110(o). SBA
regulations define an ``Associate'' of a PPP lender to be ``[a]n
officer, director, key employee, or holder of 20 percent or more of
the value of the [PPP] [l]ender's . . . stock or debt instruments''
and any entity in which one of these individuals or certain
relatives ``own or controls at least 20 percent.'' 13 CFR 120.10. On
April 14, 2020, the SBA issued an interim final rule stating, among
other things, that SBA lending restrictions ``shall not apply to
prohibit an otherwise eligible business owned (in whole or part) by
an outside director or holder of less than 30 percent equity
interest in a PPP [l]ender from obtaining a PPP loan from the PPP
[l]ender on whose board the director serves or in which the equity
owner holders an interest, provided that the eligible business owned
by the director or equity holder follows the same process as
similarly situated customer or account holder of the [l]ender.'' The
interim final rule also stated that SBA lending restrictions would
continue to apply to officers and key employees of a PPP lender.
Interim Final Rule: ``Business Loan Program Temporary Changes;
Paycheck Protection Program--Additional Eligibility Criteria and
Requirements for Certain Pledges of Loans'' (April 14, 2020),
https://home.treasury.gov/system/files/136/Interim-Final-Rule-Additional-Eligibility-Criteria-and-Requirements-for-Certain-Pledges-of-Loans.pdf.
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This interim final rule does not except a PPP loan from other
restrictions that may apply to the loan, including section 22(g) of the
Federal Reserve Act or section 215.5 of Regulation O.\6\ This
determination also does not affect application of SBA lending
restrictions to a PPP loan. The SBA has stated that ``[f]avoritism by
[a PPP] [l]ender in processing time or prioritization of [a] director's
or equity holder's PPP application is prohibited.'' \7\ The Board will
administer the interim final rule accordingly.
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\6\ 12 U.S.C. 375a; 12 CFR 215.5.
\7\ Id. at 14-15.
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Question 1: What are the advantages and disadvantages of extending
the exception to PPP loans made through August 8, 2020?
Question 2: Are there any additional terms or conditions that
should apply? Why?
Question 3: The Board may want to extend the exception again to
match any further extension of the PPP by Congress and the President,
if the material terms of PPP loans do not change. What are the
advantages and disadvantages of doing so?
III. Administrative Law Matters
A. Administrative Procedure Act
The Board is issuing the interim final rule without prior notice
and the opportunity for public comment and the delayed effective date
ordinarily prescribed by the Administrative Procedure Act (APA).\8\
Pursuant to section 553(b)(B) of the APA, general notice and the
opportunity for public comment are not required with respect to a
rulemaking when an ``agency for good cause finds (and incorporates the
finding and a brief statement of reasons therefor in the rules issued)
that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest.'' \9\
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\8\ 5 U.S.C. 553.
\9\ 5 U.S.C. 553(b)(B).
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The Board believes that the public interest is best served by
implementing the interim final rule immediately. As discussed in the
original IFR, the spread of COVID-19 has disrupted economic activity in
the United States and other countries. In addition, U.S. financial
markets have featured substantial levels of volatility. The magnitude
and persistence of COVID-19 on the economy remain uncertain. In light
of the substantial disruptions in the economy, and the likelihood that
this interim final rule would help ameliorate those disruptions by
promoting lending to small businesses, the Board finds that there is
good cause consistent with the public interest to issue the rule
without advance notice and comment.\10\
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\10\ 5 U.S.C. 553(b)(B); 553(d)(3).
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The APA also requires a 30-day delayed effective date, except for
(1) substantive rules which grant or recognize an exemption or relieve
a restriction; (2) interpretative rules and statements of policy; or
(3) as otherwise provided by the agency for good cause.\11\ Because the
rules relieve a restriction by providing an exception to the definition
of ``extension of credit'' in section 22(h) and Regulation O, the
interim final rule is exempt from the APA's delayed effective date
requirement.\12\
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\11\ 5 U.S.C. 553(d).
\12\ 5 U.S.C. 553(d)(1).
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While the Board believes that there is good cause to issue the rule
without advance notice and comment and with an immediate effective
date, the Board is interested in the views of the public and requests
comment on all aspects of the interim final rule.
B. Congressional Review Act
For purposes of the Congressional Review Act, the Office of
Management and Budget (OMB) makes a determination as to whether a final
rule constitutes a ``major'' rule.\13\ If a rule is deemed a ``major
rule'' by the OMB, the Congressional Review Act generally provides that
the rule may not take effect until at least 60 days following its
publication.\14\
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\13\ 5 U.S.C. 801 et seq.
\14\ 5 U.S.C. 801(a)(3).
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The Congressional Review Act defines a ``major rule'' as any rule
that the Administrator of the Office of Information and Regulatory
Affairs of the OMB finds has resulted in or is likely to result in (A)
an annual effect on the economy of $100,000,000 or more; (B) a major
increase in costs or prices for consumers, individual industries,
Federal, State, or local government agencies or geographic regions, or
(C) significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.\15\
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\15\ 5 U.S.C. 804(2).
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For the same reasons set forth above, the Board is adopting the
interim final rule without the delayed effective date generally
prescribed under the Congressional Review Act. The delayed effective
date required by the Congressional Review Act does not apply to any
rule for which an agency for good cause finds (and incorporates the
finding and a brief statement of reasons therefor in the rule issued)
that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest.\16\ In light of
disruption in economic activity due to COVID-19, the Board believes
that delaying the effective date of the rule would be contrary to the
public interest.
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\16\ 5 U.S.C. 808.
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As required by the Congressional Review Act, the Board will submit
the final rule and other appropriate reports to Congress and the
Government Accountability Office for review.
C. Paperwork Reduction Act
The Paperwork Reduction Act (44 U.S.C. 3501-3521) (PRA) states that
no agency may conduct or sponsor, nor is the respondent required to
respond to, an information collection unless it displays a currently
valid Office of Management and Budget (OMB) control number. On June 15,
1984, OMB delegated to the Board authority under the PRA to approve and
assign OMB
[[Page 43121]]
control numbers to collections of information conducted or sponsored by
the Board, as well as the authority to temporarily approve a new
collection of information without providing opportunity for public
comment if the Board determines that a change in an existing collection
must be instituted quickly and that public participation in the
approval process would defeat the purpose of the collection or
substantially interfere with the Board's ability to perform its
statutory obligation.
This interim final rule does not contain any collections of
information subject to the PRA.
D. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) \17\ requires an agency to
consider whether the rules it proposes will have a significant economic
impact on a substantial number of small entities.\18\ The RFA applies
only to rules for which an agency publishes a general notice of
proposed rulemaking pursuant to 5 U.S.C. 553(b). As discussed
previously, consistent with section 553(b)(B) of the APA, the Board has
determined for good cause that general notice and opportunity for
public comment are unnecessary, and therefore the Board is not issuing
a notice of proposed rulemaking. Accordingly, the Board has concluded
that the RFA's requirements relating to initial and final regulatory
flexibility analysis do not apply.
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\17\ 5 U.S.C. 601 et seq.
\18\ Under regulations issued by the SBA, a small entity
includes a depository institution, bank holding company, or savings
and loan holding company with total assets of $600 million or less
and trust companies with total assets of $41.5 million or less. See
13 CFR 121.201.
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Nevertheless, the Board seeks comment on whether, and the extent to
which, the interim final rule would affect a significant number of
small entities.
E. Riegle Community Development and Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act (RCDRIA),\19\ in determining the effective
date and administrative compliance requirements for new regulations
that impose additional reporting, disclosure, or other requirements on
insured depository institutions (IDIs), the federal banking agencies
must consider, consistent with the principle of safety and soundness
and the public interest, any administrative burdens that such
regulations would place on depository institutions, including small
depository institutions, and customers of depository institutions, as
well as the benefits of such regulations. In addition, section 302(b)
of RCDRIA requires new regulations and amendments to regulations that
impose additional reporting, disclosures, or other new requirements on
IDIs generally to take effect on the first day of a calendar quarter
that begins on or after the date on which the regulations are published
in final form, with certain exceptions, including for good cause.\20\
For the reasons described above, the Board finds good cause exists
under section 302 of RCDRIA to publish this interim final rule with an
immediate effective date.
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\19\ 12 U.S.C. 4802(a).
\20\ 12 U.S.C. 4802.
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As such, the final rule will be effective immediately on
publication. Nevertheless, the Board seeks comment on RCDRIA.
F. Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act \21\ requires the federal
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000. The Board has sought to present the
interim final rule in a simple and straightforward manner. The Board
invites comments on whether there are additional steps it could take to
make the rule easier to understand. For example:
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\21\ 12 U.S.C. 4809.
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Have we organized the material to suit your needs? If not,
how could this material be better organized?
Are the requirements in the regulation clearly stated? If
not, how could the regulation be more clearly stated?
Does the regulation contain language or jargon that is not
clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes to the format would make the regulation
easier to understand?
What else could we do to make the regulation easier to
understand?
List of Subjects in 12 CFR Part 215
Credit, Penalties, Reporting and recordkeeping requirements.
Authority and Issuance
For the reasons stated in the preamble, the Board of Governors of
the Federal Reserve System amends 12 CFR chapter II as follows:
PART 215--LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL
SHAREHOLDERS OF MEMBER BANKS (REGULATION O)
0
1. The authority citation for part 215 continues to read as follows:
Authority: 12 U.S.C. 248(a), 375a(10), 375b(9) and (10), 1468,
1817(k), 5412; Pub. L. 102-242, 105 Stat. 2236 (1991) (12 U.S.C.
1811 note) and Pub. L. 116-136, 134 Stat. 281.
0
2. In Sec. 215.3, revise paragraphs (b)(8) introductory text and
(b)(8)(ii) to read as follows:
Sec. 215.3 Extension of credit.
* * * * *
(b) * * *
(8) Except for purposes of Sec. 215.5 of this part, a loan:
* * * * *
(ii) That is made during the period beginning on February 15, 2020,
and ending on August 8, 2020; and
* * * * *
By order of the Board of Governors of the Federal Reserve
System, July 13, 2020.
Michele Taylor Fennell,
Assistant Secretary of the Board.
[FR Doc. 2020-15367 Filed 7-15-20; 8:45 am]
BILLING CODE P