[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
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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