[Federal Register Volume 86, Number 97 (Friday, May 21, 2021)]
[Rules and Regulations]
[Pages 27507-27509]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10711]
========================================================================
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.
========================================================================
Federal Register / Vol. 86, No. 97 / Friday, May 21, 2021 / Rules and
Regulations
[[Page 27507]]
FEDERAL RESERVE SYSTEM
12 CFR Part 215
[Regulation O; Docket No. R-1740]
RIN 7100-AG 10
Loans to Executive Officers, Directors, and Principal
Shareholders of Member Banks
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Interim final rule with request for comment.
-----------------------------------------------------------------------
SUMMARY: On April 17, 2020, the Board issued an interim final rule to
except certain loans made through 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 associated
provisions of the Board's Regulation O. The Board issued two additional
interim final rules to extend the exception when Congress approved
extensions to the Paycheck Protection Program. To reflect a further
extension approved by Congress and to automatically capture any further
extensions, the Board is issuing this interim final rule to extend this
exception to such loans made through March 31, 2022.
DATES: This interim final rule is effective May 21, 2021. Comments on
the interim final rule must be received no later than July 6, 2021.
ADDRESSES: You may submit comments, identified by Docket No. R-1740 and
RIN 7100 AG 10, 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: Benjamin McDonough, Associate General
Counsel, (202) 452-2036, Alison Thro, Deputy Associate General Counsel,
(202) 452-3236, Daniel Hickman, Senior Counsel, (202) 973-7432, Josh
Strazanac, Senior Attorney, (202) 452-2457, Jasmin Keskinen, Attorney,
(202) 475-6650, Legal Division; or Anna Lee Hewko, Associate Director,
(202) 530-6360, 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. Paperwork Reduction Act
C. Regulatory Flexibility Act
D. Riegle Community Development and Regulatory Improvement Act
of 1994
E. 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 the outbreak of COVID-19 and
the imposition of associated containment measures (COVID event).
Although the CARES Act specified that the PPP would end on June 30,
2020, Congress later extended the program to August 8, 2020, and again
to March 31, 2021.\1\ On March 30, 2021, the President signed into law
the PPP Extension Act of 2021 (PPP Extension Act), which further
extended the PPP to June 30, 2021.\2\
---------------------------------------------------------------------------
\1\ Prioritized Paycheck Protection Program Act, S. 4116, 116th
Cong. section 1 (2020); Economic Aid to Hard-Hit Small Businesses,
Nonprofits, and Venues Act, H.R. 133, 116th Cong. section 311
(2020).
\2\ PPP Extension Act of 2021, H.R. 1799, 117th Cong. section 2
(2021).
---------------------------------------------------------------------------
Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation
O set forth quantitative and qualitative requirements for loans made by
a bank \3\ to its directors, executive officers, and principal
shareholders, as well as to any companies owned by such persons
(collectively, insiders).\4\ Regulation O also sets forth procedural
and recordkeeping requirements for loans by banks to their insiders.
These requirements normally would apply to PPP loans made by banks to
the small businesses owned by their insiders. In some cases, the
restrictions in Regulation O could delay or entirely prohibit a bank
from making a PPP loan to such a business. This could be particularly
challenging in small communities where bank insiders often own small
businesses and there are few alternative lenders.
---------------------------------------------------------------------------
\3\ Sections 22(g) and 22(h), and Regulation O, apply to all
banks that are members of the Federal Reserve System. Other federal
law subjects federally insured state non-member banks and insured
savings associations to sections 22(g) and 22(h) in the same manner
and to the same extent as if they were member banks. 12 U.S.C.
1828(j) (non-member banks); 12 U.S.C. 1468(b) (savings
associations); 12 CFR 337.3 (state non-member banks and state
savings associations); 12 CFR 31.2 (national banks and federal
savings associations). Accordingly, any reference to ``bank'' in
this notice applies to all member banks and institutions subject to
sections 22(g) and 22(h) in the same manner and to the same extent
as member banks.
\4\ See generally 12 U.S.C. 375a and 375b; 12 CFR part 215.
---------------------------------------------------------------------------
On April 17, 2020, the Board issued an exception to section 22(h)
and amended the corresponding provisions of Regulation O for PPP loans
made to insiders that would not be prohibited
[[Page 27508]]
from receiving a PPP loan under the Small Business Administration (SBA)
lending restrictions (original IFR).\5\ 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. The
Board has extended the exception each time that Congress has extended
the PPP.\6\ The Board responded to the dozen comments it received in
response to the interim final rules issued in April and July in the
interim final rule issued on February 17, 2021.\7\ Since issuing its
last interim final rule, the Board received two comments, neither of
which discussed the interim final rules, sections 22(g) and 22(h), or
Regulation O.
---------------------------------------------------------------------------
\5\ ``Loans to Executive Officers, Directors, and Principal
Shareholders of Member Banks,'' 85 FR 22345 (Apr. 22, 2020)).
\6\ ``Loans to Executive Officers, Directors, and Principal
Shareholders of Member Banks,'' 85 FR 43119 (July 16, 2020); ``Loans
to Executive Officers, Directors, and Principal Shareholders of
Member Bank,'' 86 FR 9837 (Feb. 17, 2021).
\7\ Id. at 9839.
---------------------------------------------------------------------------
The Board is issuing this interim final rule to extend the
exception to PPP loans made through June 30, 2021.\8\ The exception
will continue to apply if Congress and the President extend the PPP
further, but will sunset on March 31, 2022.
---------------------------------------------------------------------------
\8\ References in this IFR to ``PPP loans'' include ``PPP second
draw loans,'' which are PPP loans that that can be made to borrowers
who already have received a first PPP loan. PPP second draw loans
have the same features as PPP loans, except that fewer borrower are
eligible for PPP second draw loans. For example, only borrowers with
300 or fewer employees may obtain a PPP second draw loan. See
Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues
Act, H.R. 133, 116th Cong. section 311 (2020).
---------------------------------------------------------------------------
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.'' \9\ Therefore, the
Board may except PPP loans from the restrictions in section 22(h) and
the corresponding provisions of Regulation O upon a determination that
such loans pose minimal risk.
---------------------------------------------------------------------------
\9\ 12 U.S.C. 375b(9)(D)(ii).
---------------------------------------------------------------------------
The Board determined in the original IFR that PPP loans pose
minimal risk.\10\ Among other things, this determination relieved
member banks from ensuring that PPP loans made to certain insiders
complied with the qualitative, quantitative, and procedural
requirements set forth in section 22(h) and Regulation O. The PPP
Extension Act did 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, for the same reasons cited in the original
IFR, the Board has determined that PPP loans appear to pose minimal
risk to bank safety and soundness.\11\
---------------------------------------------------------------------------
\10\ 85 FR 22345, 22346.
\11\ 85 FR 22345, 22346 (Apr. 22, 2020); 85 FR 43119, 43119-20
(July 16, 2020); 86 FR 9837, 9838 (Feb. 17, 2021).
---------------------------------------------------------------------------
The exception will continue to apply if Congress and the President
further extend the PPP, provided that the material terms of the PPP on
which the Board has justified the exception remain the same.
Specifically, the exception will continue to apply to PPP loans made
under an extended program as long as the SBA continues to fully
guarantee the loans and the material terms of the loan, including the
interest rate and term, are set by the SBA. The exception will not
apply for any loans made after March 31, 2022. The duration of the
sunset provision is consistent with other exceptions the Board has made
in response to the COVID event.\12\
---------------------------------------------------------------------------
\12\ E.g., Temporary Exclusions of U.S. Treasury Securities and
Deposits at Federal Reserve Banks From the Supplementary Leverage
Ratio, 85 FR 20578 (Apr. 14, 2020).
---------------------------------------------------------------------------
SBA lending restrictions continue to apply to PPP loans that are
subject to section 22(h) and the corresponding provisions of Regulation
O.\13\ Excepting loans that 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.
---------------------------------------------------------------------------
\13\ Business Loan Program Temporary Changes; Paycheck
Protection Program as Amended by the Economic Aid Act, 86 FR 3712
(Jan. 6, 2021).
---------------------------------------------------------------------------
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.\14\ 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.'' \15\ The Board will
administer the interim final rule accordingly.
---------------------------------------------------------------------------
\14\ 12 U.S.C. 375a; 12 CFR 215.5.
\15\ 86 FR 3712, 3696.
---------------------------------------------------------------------------
Question 1: Please describe any additional terms or conditions that
should apply to the exception.
Question 2: What are the advantages and disadvantages for the
exception to automatically extend if the PPP is again extended?
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).\16\
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.'' \17\
---------------------------------------------------------------------------
\16\ 5 U.S.C. 553.
\17\ 5 U.S.C. 553(b)(B).
---------------------------------------------------------------------------
The Board believes that the public interest is best served by
implementing the interim final rule immediately in light of the short
timeframe for execution of the renewed PPP mandated by the PPP
Extension Act. Accordingly, the Board finds that there is good cause
consistent with the public interest to issue the rule without advance
notice and comment.\18\
---------------------------------------------------------------------------
\18\ 5 U.S.C. 553(b)(B); 553(d)(3).
---------------------------------------------------------------------------
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.\19\ 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.\20\
---------------------------------------------------------------------------
\19\ 5 U.S.C. 553(d).
\20\ 5 U.S.C. 553(d)(1).
---------------------------------------------------------------------------
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. Paperwork Reduction Act
The Paperwork Reduction Act (44 U.S.C. 3501-3521) (PRA) states that
no
[[Page 27509]]
agency may conduct or sponsor, nor is the respondent required to
respond to, an information collection unless it displays a currently
valid OMB control number. On June 15, 1984, OMB delegated to the Board
authority under the PRA to approve and assign OMB 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 obligations.
This interim final rule does not contain any collections of
information subject to the PRA.
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) \21\ requires an agency to
consider whether the rules it proposes will have a significant economic
impact on a substantial number of small entities.\22\ 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.
---------------------------------------------------------------------------
\21\ 5 U.S.C. 601 et seq.
\22\ 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.
---------------------------------------------------------------------------
Nevertheless, the Board seeks comment on whether, and the extent to
which, the interim final rule affects a significant number of small
entities.
D. Riegle Community Development and Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act (RCDRIA),\23\ 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.\24\
The Board believes that the public interest is best served by
implementing the interim final rule immediately. As discussed in the
original IFR, the COVID event has disrupted economic activity in the
United States and other countries. The magnitude and persistence of the
COVID event on the economy continue to present some uncertainty. In
light of the substantial disruptions in the economy, and the likelihood
that this interim final rule will help ameliorate those disruptions by
promoting lending to small businesses, the Board finds good cause
exists under section 302 of RCDRIA to publish this interim final rule
with an immediate effective date.
---------------------------------------------------------------------------
\23\ 12 U.S.C. 4802(a).
\24\ 12 U.S.C. 4802.
---------------------------------------------------------------------------
As such, the interim final rule will be effective immediately on
publication. Nevertheless, the Board seeks comment on RCDRIA.
E. Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act \25\ 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:
---------------------------------------------------------------------------
\25\ 12 U.S.C. 4809.
---------------------------------------------------------------------------
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; and Pub. L. 102-242, 105 Stat. 2236 (1991) (12 U.S.C.
1811 note).
0
2. In Sec. 215.3, revise paragraphs (b)(8)(i) through (iii) and add
paragraph (b)(8)(iv) to read as follows:
Sec. 215.3 Extension of credit.
* * * * *
(b) * * *
(8) * * *
(i) Made pursuant to the ``Paycheck Protection Program'' in which
the participation by the Small Business Administration on a deferred
basis is 100 percent;
(ii) For which material terms, including the maturity and the
interest rate, are set by the Small Business Administration;
(iii) That is made during the ``covered period,'' as that term is
defined in 15 U.S.C. 636(a)(36)(A)(iii), but in no case later than
March 31, 2022; and
(iv) That would not be prohibited by 13 CFR 120.110(o) or rules or
interpretations thereof issued by the Small Business Administration.
* * * * *
By order of the Board of Governors of the Federal Reserve
System.
Ann Misback,
Secretary of the Board.
[FR Doc. 2021-10711 Filed 5-20-21; 8:45 am]
BILLING CODE P