Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks, 30470-30472 [E7-10402]
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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).
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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 https://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.
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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
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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).
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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
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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
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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).
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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.
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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
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]]>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.
-----------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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:
---------------------------------------------------------------------------
\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.
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\8\ 12 CFR 215.8.
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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).
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\9\ 12 CFR 215.5(d)(4).
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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.
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\10\ 12 U.S.C. 375a(1)(D).
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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.
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\11\ See 12 CFR 215.5(c)(4) and 215.4(b)(2).
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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
