Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks, 30470-30472 [E7-10402]

Download as PDF 30470 Federal Register / Vol. 72, No. 105 / Friday, June 1, 2007 / Rules and Regulations and pig farms in the United States in that year, of which 93 percent received $750,000 or less in annual revenues. Agricultural operations with $750,000 or less in annual receipts are considered small entities, according to the Small Business Administration size criteria. We do not expect that U.S. hog producers, U.S. exporters of live hogs, or U.S. exporters of pork and pork products, small or otherwise, will be affected significantly by this rule. This is because, for the reasons discussed above, the amount of live swine, pork, and other pork products imported into the United States from the Mexican State of Nayarit is likely to be small. Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action will not have a significant economic impact on a substantial number of small entities. The environmental assessment and finding of no significant impact may be viewed on the Regulations.gov Web site.4 Copies of the environmental assessment and finding of no significant impact are also available for public inspection at USDA, room 1141, South Building, 14th Street and Independence Avenue, SW., Washington, DC, between 8 a.m. and 4:30 p.m., Monday through Friday, except holidays. Persons wishing to inspect copies are requested to call ahead on (202) 690–2817 to facilitate entry into the reading room. In addition, copies may be obtained by writing to the individual listed under FOR FURTHER INFORMATION CONTACT. Done in Washington, DC, this 25th day of May 2007. Kevin Shea, Acting Administrator, Animal and Plant Health Inspection Service. [FR Doc. E7–10641 Filed 5–31–07; 8:45 am] Paperwork Reduction Act This final rule contains no new information collection or recordkeeping requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). AGENCY: Executive Order 12988 List of Subjects in 9 CFR Part 94 Animal diseases, Imports, Livestock, Meat and meat products, Milk, Poultry and poultry products, Reporting and recordkeeping requirements. I Accordingly, we are amending 9 CFR part 94 as follows: This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule: (1) Preempts all State and local laws and regulations that are inconsistent with this rule; (2) has no retroactive effect; and (3) does not require administrative proceedings before parties may file suit in court challenging this rule. jlentini on PROD1PC65 with RULES National Environmental Policy Act An environmental assessment and finding of no significant impact have been prepared for this final rule. The environmental assessment provides a basis for the conclusion that adding the Mexican State of Nayarit to the list of regions considered free of CSF, and to the list of CSF-free regions whose exports of live swine, pork, and pork products to the United States must meet certain certification requirements to ensure their freedom from CSF, will not have a significant impact on the quality of the human environment. Based on the finding of no significant impact, the Administrator of the Animal and Plant Health Inspection Service has determined that an environmental impact statement need not be prepared. The environmental assessment and finding of no significant impact were prepared in accordance with: (1) The National Environmental Policy Act of 1969 (NEPA), as amended (42 U.S.C. 4321 et seq.), (2) regulations of the Council on Environmental Quality for implementing the procedural provisions of NEPA (40 CFR parts 1500–1508), (3) USDA regulations implementing NEPA (7 CFR part 1b), and (4) APHIS’ NEPA Implementing Procedures (7 CFR part 372). VerDate Aug<31>2005 15:51 May 31, 2007 Jkt 211001 PART 94—RINDERPEST, FOOT-ANDMOUTH DISEASE, FOWL PEST (FOWL PLAGUE), EXOTIC NEWCASTLE DISEASE, AFRICAN SWINE FEVER, CLASSICAL SWINE FEVER, AND BOVINE SPONGIFORM ENCEPHALOPATHY: PROHIBITED AND RESTRICTED IMPORTATIONS 1. The authority citation for part 94 continues to read as follows: I Authority: 7 U.S.C. 450, 7701–7772, 7781– 7786, and 8301–8317; 21 U.S.C. 136 and 136a; 31 U.S.C. 9701; 7 CFR 2.22, 2.80, and 371.4. § 94.9 [Amended] 2. In § 94.9, paragraph (a) is amended by adding the word ‘‘Nayarit,’’ after the word ‘‘Chihuahua,’’. I § 94.10 [Amended] 3. In § 94.10, paragraph (a) is amended by adding the word ‘‘Nayarit,’’ after the word ‘‘Chihuahua,’’. I § 94.25 [Amended] 4. In § 94.25, paragraph (a) is amended by adding the word ‘‘Nayarit,’’ after the word ‘‘Chihuahua,’’. I 4 Go to http://www.regulations.gov, click on the ‘‘Advanced Search’’ tab and select ‘‘Docket Search.’’ In the Docket ID field, enter APHIS–2006–0104, click ‘‘Submit,’’ then click on the Docket ID link in the search results page. The environmental assessment and finding of no significant impact will appear in the resulting list of documents. PO 00000 Frm 00014 Fmt 4700 Sfmt 4700 BILLING CODE 3410–34–P FEDERAL RESERVE SYSTEM 12 CFR Part 215 [Regulation O; Docket No. R–1271] Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks Board of Governors of the Federal Reserve System (‘‘Board’’). ACTION: Final rule. SUMMARY: The Board is adopting amendments to the Board’s Regulation O to eliminate certain reporting requirements. These amendments implement section 601 of the Financial Services Regulatory Relief Act of 2006. DATES: Effective July 2, 2007 the interim rule published December 11, 2006 ( 71 FR 71472, Dec. 11, 2006), is adopted as final without change. FOR FURTHER INFORMATION CONTACT: Mark E. Van Der Weide, Senior Counsel (202–452–2263), or Amanda K. Allexon, Attorney (202–452–3818), Legal Division. Users of Telecommunication Device for the Deaf (TTD) only, contact (202) 263–4869. SUPPLEMENTARY INFORMATION: Background Section 22(h) of the Federal Reserve Act (‘‘FRA’’) restricts the ability of member banks to extend credit to their executive officers, directors, principal shareholders, and to related interests of such persons.1 Section 22(g) of the FRA imposes some additional limitations on extensions of credit made by member banks to their executive officers.2 Section 106(b)(2) of the Bank Holding Company Act Amendments of 1970 (‘‘BHC Act Amendments’’) adds further restrictions on extensions of credit to an executive officer, director, or principal shareholder of a bank from a correspondent bank.3 The Board’s Regulation O implements sections 22(g) and 22(h) of the FRA, as well as section 106(b)(2) of the BHC Act Amendments.4 Sections 22(g) and 22(h) and Regulation O apply, by their terms, to all banks that are members of the Federal Reserve 1 12 U.S.C. 375b. U.S.C. 375a. 3 12 U.S.C. 1972(2). 4 12 CFR part 215. 2 12 E:\FR\FM\01JNR1.SGM 01JNR1 Federal Register / Vol. 72, No. 105 / Friday, June 1, 2007 / Rules and Regulations jlentini on PROD1PC65 with RULES System.5 Other Federal law subjects Federally insured state non-member banks and Federally insured savings associations to sections 22(g) and 22(h) and Regulation O in the same manner and to the same extent as if they were member banks.6 Section 601 of the Financial Services Regulatory Relief Act of 2006 (‘‘Act’’) (Pub. L. No. 109–351) removed several statutory reporting requirements relating to insider lending by member banks. These amendments, which became effective on October 13, 2006, eliminated the statutory provisions that: • Require a member bank to include a separate report with its quarterly Reports of Condition and Income (‘‘Call Report’’) on any extensions of credit the bank has made to its executive officers since its last Call Report (12 U.S.C. 375a(9)); • Require an executive officer of a member bank to file a report with the member bank’s board of directors whenever the executive officer obtains an extension of credit from another bank in an amount that exceeds the amount the executive officer could obtain from the member bank (12 U.S.C. 375a(6)); • Require an executive officer or principal shareholder of a depository institution to file an annual report with the institution’s board of directors during any year in which the officer or shareholder has an outstanding extension of credit from a correspondent bank of the institution (12 U.S.C. 1972(2)(G)(i)); and • Authorize the Federal banking agencies to issue regulations that require the reporting and public disclosure of information related to extensions of credit received by an executive officer or principal shareholder of a depository institution from a correspondent bank of the institution (12 U.S.C. 1972(2)(G)(ii)). In December 2006, the Board adopted, and sought public comment on, an interim rule that implemented the changes made by section 601 of the Act.7 In particular, the interim rule eliminated: • Section 215.9 of Regulation O, which requires an executive officer of a member bank to file a report with the member bank’s board of directors whenever the executive officer obtains certain extensions of credit from another bank; • Section 215.10 of Regulation O, which requires a member bank to include a separate report with its 5 Section 106(b)(2) of the BHC Act Amendments applies by its terms to insured banks, mutual savings banks, savings banks, and savings associations. 6 12 U.S.C. 1828(j), 1468(b); 12 CFR 563.43. 7 71 FR 71472 (Dec. 11, 2006). VerDate Aug<31>2005 15:51 May 31, 2007 Jkt 211001 quarterly Call Report on any extensions of credit the bank has made to its executive officers since its last Call Report; and • Subpart B of Regulation O, which requires the reporting and public disclosure of extensions of credit to an executive officer or principal shareholder of a member bank by a correspondent bank of the member bank. The interim rule also made minor conforming changes to Regulation O to reflect the removal of these provisions. Analysis of Comments and Description of Final Rule The Board received six comments on the interim rule: three from banks, two from bank trade associations, and one from an individual. The banks and trade associations supported the interim rule and the associated reduction in regulatory reporting burden. The individual commenter criticized the interim rule and stated that public reporting is an important device for preventing financial scandals. After reviewing the public comments on the interim rule, the Board has determined to adopt a final rule that is identical to the interim rule. Although the Board agrees that appropriate public reporting by depository institutions can be an effective mechanism of market discipline, the Board believes that elimination of these regulatory reporting requirements is consistent with the letter and spirit of the Act. In addition, the Board has long supported eliminating these reporting provisions because the Board has found that they did not contribute significantly to the effective monitoring of insider lending or the prevention of insider abuse. One commenter urged the Board to take steps to ensure that depository institutions recognize that section 601 of the Act and this final rule do not alter the underlying substantive insider lending restrictions in Federal law. The Board shares the concern expressed by this commenter. The Board notes that the changes made by section 601 and the final rule do not alter the substantive restrictions on loans by depository institutions to their executive officers and principal shareholders found in Regulation O. In addition, section 601 and the final rule do not alter the substantive restrictions on loans made to executive officers and principal shareholders of depository institutions by their correspondent banks found at 12 U.S.C. 1972(2). To address the shared concerns of the Board and this commenter, the Board has amended the scope section of Regulation O (12 CFR 215.1(b)(4)) to PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 30471 remind depository institutions of the correspondent bank insider lending restrictions. The Board also notes that elimination of these reporting requirements does not limit the authority of the appropriate Federal banking agency to take enforcement action against a depository institution or its insiders for violation of the Federal insider lending restrictions. Moreover, Regulation O would continue to require that a depository institution and its insiders maintain sufficient information to enable examiners to monitor the institution’s compliance with the regulation,8 and the Federal banking agencies would retain authority under other provisions of law to collect information regarding insider lending by depository institutions. Two commenters requested that the Board eliminate section 215.5(d)(4) of Regulation O in light of the elimination of section 215.9 of the rule. Section 215.5(d)(4) of Regulation O requires a member bank to make any extension of credit to an executive officer ‘‘subject to the condition in writing that the extension of credit will, at the option of the member bank, become due and payable at any time that the officer is indebted to any other bank or banks’’ on non-mortgage, non-educational loans in excess of a specific dollar threshold (typically $100,000).9 Section 215.9 of Regulation O previously required a member bank’s executive officer to report to the bank’s board of directors within 10 days of the date that the officer becomes indebted to other banks on non-mortgage, non-educational loans in excess of the same dollar threshold (typically $100,000). The ‘‘due on demand clause’’ requirement contained in section 215.5(d)(4) of Regulation O derives directly from section 22(g)(1)(D) of the Federal Reserve Act.10 Accordingly, the Board does not have authority to eliminate this Federal insider lending restriction. The Board notes, however, that the continued existence of section 215.5(d)(4) does not make the elimination of section 215.9 ineffective. A bank must continue to include the section 215.5(d)(4) ‘‘due on demand’’ clause in each of its extensions of credit to executive officers, but Regulation O no longer requires the specific internal reporting regime of former section 215.9 to ensure the utility of the due on demand clause. Going forward, a bank may choose to ensure the effectiveness of the due on demand clause requirement in any reasonably prudent 8 12 CFR 215.8. CFR 215.5(d)(4). 10 12 U.S.C. 375a(1)(D). 9 12 E:\FR\FM\01JNR1.SGM 01JNR1 30472 Federal Register / Vol. 72, No. 105 / Friday, June 1, 2007 / Rules and Regulations jlentini on PROD1PC65 with RULES way. For example, a bank may comply with the requirement by mandating a periodic report from its executive officer borrowers. Alternatively, a bank may decide to obtain information about an executive officer borrower’s indebtedness to other banks only at the time the bank would be interested in exercising the due on demand clause (for example, when the creditworthiness of the officer has dropped materially). Either of these methods could, based on all the facts and circumstances, be a reasonable way to ensure the utility of the due on demand clause requirement. The Board also has received numerous inquiries about how a bank can ensure compliance with the correspondent lending restrictions in 12 U.S.C. 1972(2), given that all related reporting requirements are being eliminated as part of this rulemaking. Briefly, the correspondent lending restrictions in 12 U.S.C. 1972(2) require, among other things, that extensions of credit by a bank to an insider of a correspondent bank be on market terms. In light of the elimination of the statutory and regulatory reporting requirements associated with 12 U.S.C. 1972(2), a bank may select any reasonably prudent method to ensure compliance with the restrictions. For example, a bank may establish policies and procedures to request additional information about a borrower’s relationships with correspondent banks when the bank determines that a prospective extension of credit to the borrower will be on preferential terms. Finally, one commenter asked the Board to raise the $100,000 ‘‘other purpose’’ loan cap in section 215.5(c)(4) of Regulation O and to raise the $500,000 prior board approval threshold in section 215.4(b)(2) of the rule.11 The Board has determined not to raise these dollar amounts as a part of this rulemaking but intends to consider raising these limits, in consultation with the other Federal banking agencies, in connection with an upcoming comprehensive review of Regulation O. Regulatory Flexibility Act Analysis Pursuant to section 605(b) of the Regulatory Flexibility Act, the Board certifies that the final rule would not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). Although the final rule would apply to all member banks regardless of their size, the rule would reduce the regulatory burden on member banks, including small member banks, by 11 See 12 CFR 215.5(c)(4) and 215.4(b)(2). VerDate Aug<31>2005 15:51 May 31, 2007 Jkt 211001 removing requirements to report certain types of extensions of credit to insiders and to insiders of correspondent banks. Accordingly, a regulatory flexibility analysis is not required. Paperwork Reduction Act In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Ch. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the final rule under the authority delegated to the Board by the Office of Management and Budget. The collections of information that are revised by this rulemaking are found in 12 CFR 215.9 and 215.10, and 12 CFR part 215, subpart B. This information previously was required to evidence compliance with the requirements of the Federal Reserve Act (12 U.S.C. 375a and 375b) and 12 U.S.C. 1972. The respondents/recordkeepers are for-profit financial institutions, including small businesses, and individuals. The Federal Reserve may not conduct or sponsor, and an organization is not required to respond to, an information collection unless it displays a currently valid OMB control number. The OMB control number associated with 12 CFR 215.9 and 12 CFR part 215, subpart B was 7100–0034 (FFIEC 004). The OMB control number associated with 12 CFR 215.10 was 7100–0036 (FFIEC 031 and 041). The FFIEC 004 was discontinued as a result of this rule as of December 31, 2006. The total amount of annual burden estimated to be saved as a result of this aspect of the rule is 5,331 hours. The estimated annual cost savings are $239,895. In addition, the last page of the FFIEC 031 and 041 reporting forms (loans to executive officers), which is associated with 12 CFR 215.10, was eliminated as a result of this rule as of December 31, 2006. The total amount of annual burden estimated to be eliminated as a result of this aspect of the rule is 919 hours and there are estimated to be minimal cost savings. For the FFIEC 004, individual respondent financial information was regarded as confidential under the Freedom of Information Act (5 U.S.C. 552(b)(4), (6) and (8)). However, until the passage of the Act and the issuance of the interim rule, upon request from the public the member bank was required to disclose the name of each executive officer and principal shareholder who, together with related interests, has loans from correspondent banks equal to a minimum of 5 percent of the member bank’s capital and surplus, or $500,000, whichever was less. The FFIEC 031 and 041 data on loans to executive officers were not considered confidential. PO 00000 Frm 00016 Fmt 4700 Sfmt 4700 Five of the six commenters, representing banks and bank trade associations, supported the reduction in reporting burden associated with the interim rule. One individual’s comment criticized the interim rule and noted that public reporting is an important device for preventing financial scandals. However, the Federal Reserve believes that the elimination of these reporting requirements is consistent with the letter and spirit of the Act, and will make the reporting changes, as proposed. The Federal Reserve has a continuing interest in the public’s opinions of our collections of information. At any time, comments regarding the burden estimate, or any other aspect of this collection of information, including suggestions for reducing the burden, may be sent to: Secretary, Board of Governors of the Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551; and to the Office of Management and Budget, Paperwork Reduction Project (7100– 0034 or 7100–0036), Washington, DC 20503. Plain Language Section 722 of the Gramm-LeachBliley Act (12 U.S.C. 4809) requires the Board to use ‘‘plain language’’ in all rules published in the Federal Register. The Board has sought to present the final rule in a simple and straightforward manner. List of Subjects in 12 CFR Part 215 Credit, Penalties, Reporting and recordkeeping requirements. Authority and Issuance For the reasons set out in the preamble, the interim rule published December 11, 2006 (71 FR 71472, Dec. 11, 2006) is adopted as final without change. I By order of the Board of Governors of the Federal Reserve System, May 25, 2007. Jennifer J. Johnson, Secretary of the Board. [FR Doc. E7–10402 Filed 5–31–07; 8:45 am] BILLING CODE 6210–01–P E:\FR\FM\01JNR1.SGM 01JNR1

Agencies

[Federal Register Volume 72, Number 105 (Friday, June 1, 2007)]
[Rules and Regulations]
[Pages 30470-30472]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-10402]


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FEDERAL RESERVE SYSTEM

12 CFR Part 215

[Regulation O; Docket No. R-1271]


Loans to Executive Officers, Directors, and Principal 
Shareholders of Member Banks

AGENCY: Board of Governors of the Federal Reserve System (``Board'').

ACTION: Final rule.

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SUMMARY: The Board is adopting amendments to the Board's Regulation O 
to eliminate certain reporting requirements. These amendments implement 
section 601 of the Financial Services Regulatory Relief Act of 2006.

DATES: Effective July 2, 2007 the interim rule published December 11, 
2006 ( 71 FR 71472, Dec. 11, 2006), is adopted as final without change.

FOR FURTHER INFORMATION CONTACT: Mark E. Van Der Weide, Senior Counsel 
(202-452-2263), or Amanda K. Allexon, Attorney (202-452-3818), Legal 
Division. Users of Telecommunication Device for the Deaf (TTD) only, 
contact (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

Background

    Section 22(h) of the Federal Reserve Act (``FRA'') restricts the 
ability of member banks to extend credit to their executive officers, 
directors, principal shareholders, and to related interests of such 
persons.\1\ Section 22(g) of the FRA imposes some additional 
limitations on extensions of credit made by member banks to their 
executive officers.\2\ Section 106(b)(2) of the Bank Holding Company 
Act Amendments of 1970 (``BHC Act Amendments'') adds further 
restrictions on extensions of credit to an executive officer, director, 
or principal shareholder of a bank from a correspondent bank.\3\ The 
Board's Regulation O implements sections 22(g) and 22(h) of the FRA, as 
well as section 106(b)(2) of the BHC Act Amendments.\4\ Sections 22(g) 
and 22(h) and Regulation O apply, by their terms, to all banks that are 
members of the Federal Reserve

[[Page 30471]]

System.\5\ Other Federal law subjects Federally insured state non-
member banks and Federally insured savings associations to sections 
22(g) and 22(h) and Regulation O in the same manner and to the same 
extent as if they were member banks.\6\
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    \1\ 12 U.S.C. 375b.
    \2\ 12 U.S.C. 375a.
    \3\ 12 U.S.C. 1972(2).
    \4\ 12 CFR part 215.
    \5\ Section 106(b)(2) of the BHC Act Amendments applies by its 
terms to insured banks, mutual savings banks, savings banks, and 
savings associations.
    \6\ 12 U.S.C. 1828(j), 1468(b); 12 CFR 563.43.
---------------------------------------------------------------------------

    Section 601 of the Financial Services Regulatory Relief Act of 2006 
(``Act'') (Pub. L. No. 109-351) removed several statutory reporting 
requirements relating to insider lending by member banks. These 
amendments, which became effective on October 13, 2006, eliminated the 
statutory provisions that:
     Require a member bank to include a separate report with 
its quarterly Reports of Condition and Income (``Call Report'') on any 
extensions of credit the bank has made to its executive officers since 
its last Call Report (12 U.S.C. 375a(9));
     Require an executive officer of a member bank to file a 
report with the member bank's board of directors whenever the executive 
officer obtains an extension of credit from another bank in an amount 
that exceeds the amount the executive officer could obtain from the 
member bank (12 U.S.C. 375a(6));
     Require an executive officer or principal shareholder of a 
depository institution to file an annual report with the institution's 
board of directors during any year in which the officer or shareholder 
has an outstanding extension of credit from a correspondent bank of the 
institution (12 U.S.C. 1972(2)(G)(i)); and
     Authorize the Federal banking agencies to issue 
regulations that require the reporting and public disclosure of 
information related to extensions of credit received by an executive 
officer or principal shareholder of a depository institution from a 
correspondent bank of the institution (12 U.S.C. 1972(2)(G)(ii)).
    In December 2006, the Board adopted, and sought public comment on, 
an interim rule that implemented the changes made by section 601 of the 
Act.\7\ In particular, the interim rule eliminated:
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    \7\ 71 FR 71472 (Dec. 11, 2006).
---------------------------------------------------------------------------

     Section 215.9 of Regulation O, which requires an executive 
officer of a member bank to file a report with the member bank's board 
of directors whenever the executive officer obtains certain extensions 
of credit from another bank;
     Section 215.10 of Regulation O, which requires a member 
bank to include a separate report with its quarterly Call Report on any 
extensions of credit the bank has made to its executive officers since 
its last Call Report; and
     Subpart B of Regulation O, which requires the reporting 
and public disclosure of extensions of credit to an executive officer 
or principal shareholder of a member bank by a correspondent bank of 
the member bank.
    The interim rule also made minor conforming changes to Regulation O 
to reflect the removal of these provisions.

Analysis of Comments and Description of Final Rule

    The Board received six comments on the interim rule: three from 
banks, two from bank trade associations, and one from an individual. 
The banks and trade associations supported the interim rule and the 
associated reduction in regulatory reporting burden. The individual 
commenter criticized the interim rule and stated that public reporting 
is an important device for preventing financial scandals.
    After reviewing the public comments on the interim rule, the Board 
has determined to adopt a final rule that is identical to the interim 
rule. Although the Board agrees that appropriate public reporting by 
depository institutions can be an effective mechanism of market 
discipline, the Board believes that elimination of these regulatory 
reporting requirements is consistent with the letter and spirit of the 
Act. In addition, the Board has long supported eliminating these 
reporting provisions because the Board has found that they did not 
contribute significantly to the effective monitoring of insider lending 
or the prevention of insider abuse.
    One commenter urged the Board to take steps to ensure that 
depository institutions recognize that section 601 of the Act and this 
final rule do not alter the underlying substantive insider lending 
restrictions in Federal law. The Board shares the concern expressed by 
this commenter. The Board notes that the changes made by section 601 
and the final rule do not alter the substantive restrictions on loans 
by depository institutions to their executive officers and principal 
shareholders found in Regulation O. In addition, section 601 and the 
final rule do not alter the substantive restrictions on loans made to 
executive officers and principal shareholders of depository 
institutions by their correspondent banks found at 12 U.S.C. 1972(2). 
To address the shared concerns of the Board and this commenter, the 
Board has amended the scope section of Regulation O (12 CFR 
215.1(b)(4)) to remind depository institutions of the correspondent 
bank insider lending restrictions.
    The Board also notes that elimination of these reporting 
requirements does not limit the authority of the appropriate Federal 
banking agency to take enforcement action against a depository 
institution or its insiders for violation of the Federal insider 
lending restrictions. Moreover, Regulation O would continue to require 
that a depository institution and its insiders maintain sufficient 
information to enable examiners to monitor the institution's compliance 
with the regulation,\8\ and the Federal banking agencies would retain 
authority under other provisions of law to collect information 
regarding insider lending by depository institutions.
---------------------------------------------------------------------------

    \8\ 12 CFR 215.8.
---------------------------------------------------------------------------

    Two commenters requested that the Board eliminate section 
215.5(d)(4) of Regulation O in light of the elimination of section 
215.9 of the rule. Section 215.5(d)(4) of Regulation O requires a 
member bank to make any extension of credit to an executive officer 
``subject to the condition in writing that the extension of credit 
will, at the option of the member bank, become due and payable at any 
time that the officer is indebted to any other bank or banks'' on non-
mortgage, non-educational loans in excess of a specific dollar 
threshold (typically $100,000).\9\ Section 215.9 of Regulation O 
previously required a member bank's executive officer to report to the 
bank's board of directors within 10 days of the date that the officer 
becomes indebted to other banks on non-mortgage, non-educational loans 
in excess of the same dollar threshold (typically $100,000).
---------------------------------------------------------------------------

    \9\ 12 CFR 215.5(d)(4).
---------------------------------------------------------------------------

    The ``due on demand clause'' requirement contained in section 
215.5(d)(4) of Regulation O derives directly from section 22(g)(1)(D) 
of the Federal Reserve Act.\10\ Accordingly, the Board does not have 
authority to eliminate this Federal insider lending restriction. The 
Board notes, however, that the continued existence of section 
215.5(d)(4) does not make the elimination of section 215.9 ineffective. 
A bank must continue to include the section 215.5(d)(4) ``due on 
demand'' clause in each of its extensions of credit to executive 
officers, but Regulation O no longer requires the specific internal 
reporting regime of former section 215.9 to ensure the utility of the 
due on demand clause. Going forward, a bank may choose to ensure the 
effectiveness of the due on demand clause requirement in any reasonably 
prudent

[[Page 30472]]

way. For example, a bank may comply with the requirement by mandating a 
periodic report from its executive officer borrowers. Alternatively, a 
bank may decide to obtain information about an executive officer 
borrower's indebtedness to other banks only at the time the bank would 
be interested in exercising the due on demand clause (for example, when 
the creditworthiness of the officer has dropped materially). Either of 
these methods could, based on all the facts and circumstances, be a 
reasonable way to ensure the utility of the due on demand clause 
requirement.
---------------------------------------------------------------------------

    \10\ 12 U.S.C. 375a(1)(D).
---------------------------------------------------------------------------

    The Board also has received numerous inquiries about how a bank can 
ensure compliance with the correspondent lending restrictions in 12 
U.S.C. 1972(2), given that all related reporting requirements are being 
eliminated as part of this rulemaking. Briefly, the correspondent 
lending restrictions in 12 U.S.C. 1972(2) require, among other things, 
that extensions of credit by a bank to an insider of a correspondent 
bank be on market terms. In light of the elimination of the statutory 
and regulatory reporting requirements associated with 12 U.S.C. 
1972(2), a bank may select any reasonably prudent method to ensure 
compliance with the restrictions. For example, a bank may establish 
policies and procedures to request additional information about a 
borrower's relationships with correspondent banks when the bank 
determines that a prospective extension of credit to the borrower will 
be on preferential terms.
    Finally, one commenter asked the Board to raise the $100,000 
``other purpose'' loan cap in section 215.5(c)(4) of Regulation O and 
to raise the $500,000 prior board approval threshold in section 
215.4(b)(2) of the rule.\11\ The Board has determined not to raise 
these dollar amounts as a part of this rulemaking but intends to 
consider raising these limits, in consultation with the other Federal 
banking agencies, in connection with an upcoming comprehensive review 
of Regulation O.
---------------------------------------------------------------------------

    \11\ See 12 CFR 215.5(c)(4) and 215.4(b)(2).
---------------------------------------------------------------------------

Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
Board certifies that the final rule would not have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). 
Although the final rule would apply to all member banks regardless of 
their size, the rule would reduce the regulatory burden on member 
banks, including small member banks, by removing requirements to report 
certain types of extensions of credit to insiders and to insiders of 
correspondent banks. Accordingly, a regulatory flexibility analysis is 
not required.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Ch. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the final rule 
under the authority delegated to the Board by the Office of Management 
and Budget.
    The collections of information that are revised by this rulemaking 
are found in 12 CFR 215.9 and 215.10, and 12 CFR part 215, subpart B. 
This information previously was required to evidence compliance with 
the requirements of the Federal Reserve Act (12 U.S.C. 375a and 375b) 
and 12 U.S.C. 1972. The respondents/recordkeepers are for-profit 
financial institutions, including small businesses, and individuals.
    The Federal Reserve may not conduct or sponsor, and an organization 
is not required to respond to, an information collection unless it 
displays a currently valid OMB control number. The OMB control number 
associated with 12 CFR 215.9 and 12 CFR part 215, subpart B was 7100-
0034 (FFIEC 004). The OMB control number associated with 12 CFR 215.10 
was 7100-0036 (FFIEC 031 and 041).
    The FFIEC 004 was discontinued as a result of this rule as of 
December 31, 2006. The total amount of annual burden estimated to be 
saved as a result of this aspect of the rule is 5,331 hours. The 
estimated annual cost savings are $239,895. In addition, the last page 
of the FFIEC 031 and 041 reporting forms (loans to executive officers), 
which is associated with 12 CFR 215.10, was eliminated as a result of 
this rule as of December 31, 2006. The total amount of annual burden 
estimated to be eliminated as a result of this aspect of the rule is 
919 hours and there are estimated to be minimal cost savings.
    For the FFIEC 004, individual respondent financial information was 
regarded as confidential under the Freedom of Information Act (5 U.S.C. 
552(b)(4), (6) and (8)). However, until the passage of the Act and the 
issuance of the interim rule, upon request from the public the member 
bank was required to disclose the name of each executive officer and 
principal shareholder who, together with related interests, has loans 
from correspondent banks equal to a minimum of 5 percent of the member 
bank's capital and surplus, or $500,000, whichever was less. The FFIEC 
031 and 041 data on loans to executive officers were not considered 
confidential.
    Five of the six commenters, representing banks and bank trade 
associations, supported the reduction in reporting burden associated 
with the interim rule. One individual's comment criticized the interim 
rule and noted that public reporting is an important device for 
preventing financial scandals. However, the Federal Reserve believes 
that the elimination of these reporting requirements is consistent with 
the letter and spirit of the Act, and will make the reporting changes, 
as proposed.
    The Federal Reserve has a continuing interest in the public's 
opinions of our collections of information. At any time, comments 
regarding the burden estimate, or any other aspect of this collection 
of information, including suggestions for reducing the burden, may be 
sent to: Secretary, Board of Governors of the Federal Reserve System, 
20th and C Streets, NW., Washington, DC 20551; and to the Office of 
Management and Budget, Paperwork Reduction Project (7100-0034 or 7100-
0036), Washington, DC 20503.

Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (12 U.S.C. 4809) requires 
the Board to use ``plain language'' in all rules published in the 
Federal Register. The Board has sought to present the final rule in a 
simple and straightforward manner.

List of Subjects in 12 CFR Part 215

    Credit, Penalties, Reporting and recordkeeping requirements.

Authority and Issuance

0
For the reasons set out in the preamble, the interim rule published 
December 11, 2006 (71 FR 71472, Dec. 11, 2006) is adopted as final 
without change.


    By order of the Board of Governors of the Federal Reserve 
System, May 25, 2007.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E7-10402 Filed 5-31-07; 8:45 am]
BILLING CODE 6210-01-P