Records of Failed Insured Depository Institutions, 4349-4353 [2013-01080]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 78, Number 14 (Tuesday, January 22, 2013)]
[Proposed Rules]
[Pages 4349-4353]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01080]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 360

RIN 3064-AD99


Records of Failed Insured Depository Institutions

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The FDIC is proposing a rule, with request for comments, that 
would implement section 11(d)(15)(D) of the Federal Deposit Insurance 
Act (12 U.S.C. 1821(d)(15)(D)). This statutory provision provides time 
frames for the retention of records of a failed insured depository 
institution. The proposed rule incorporates the statutory time frames 
and defines the term ``records.''

DATES: Written comments on the Rule must be received by the FDIC no 
later than March 25, 2013.

ADDRESSES: You may submit comments by any of the following methods:
     Agency Web Site: https://www.fdic.gov/regulations/laws/federal. Follow instructions for Submitting comments on the Agency Web 
Site.
     Email: Comments@FDIC.gov. Include ``RIN 3064-AD99'' in the 
subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429
     Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m. (EST).
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.

[[Page 4350]]

    Public Inspection: All comments received will be posted without 
change to https://www.fdic.gov/regulations/laws/federal including any 
personal information provided. Comments may be inspected and 
photocopied in the FDIC Public Information Center, 3501 North Fairfax 
Drive, Room E-I002, Arlington, VA 22226, between 9 a.m. and 5 p.m. 
(EST) on business days. Paper copies of public comments may be ordered 
from the Public Information Center by telephone at (877) 275-3342 or 
(703) 562-2200.

FOR FURTHER INFORMATION CONTACT: Thomas P. Bolt, Legal Division, (703) 
562-2046; Jerilyn Rogin, Legal Division, (703) 562-2409; Gregory D. 
Talley, Division of Resolutions and Receiverships, (703) 516-5115. 
Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, 
DC 20429.

SUPPLEMENTARY INFORMATION: 

I. Background

    When acting as receiver of a failed insured depository institution, 
the FDIC succeeds to the books and records of the institution.\1\ 
Section 11(d)(15)(D) of the Federal Deposit Insurance Act (12 U.S.C. 
1821(d)(15)(D)), hereafter ``Section 1821(d)(15)(D),'' provides that 
after the end of the six-year period beginning on the date of its 
appointment as receiver, the FDIC may destroy any records of a failed 
insured depository institution that the FDIC in its discretion 
determines to be unnecessary, unless directed not to do so by a court 
of competent jurisdiction or governmental agency or prohibited by law. 
In addition, the FDIC may destroy any records that are at least 10 
years old as of the date of appointment.
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    \1\ 12 U.S.C. 1821(d)(2)(A).
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    The term ``records'' is not defined in the FDI Act and the 
legislative history does not provide any guidance on how the term 
should be interpreted. A broad interpretation is problematic because it 
would encompass not only all documentary materials that clearly relate 
to the business of the institution but also materials that have no 
relevance to its business, or which lack evidentiary value and would 
not ordinarily be considered ``records.'' In addition, advances in 
information technology and data storage capabilities have substantially 
increased the volume of material generated by financial institutions. 
To illustrate, a ``terabyte'' of electronically stored information 
(``ESI'') is the equivalent of 77 million printed pages. A typical 
failed insured depository institution has between 3 and 9 terabytes of 
ESI, or between 231 million and 693 million pages of material. 
Currently, the FDIC is housing on its recordkeeping systems 775 
terabytes of data from failed insured depository institutions for which 
the FDIC has been appointed as receiver since 2007--the equivalent of 
59.675 billion pages. If the term ``records'' were to be interpreted to 
encompass all documentary material that the FDIC as receiver obtains 
from a failed insured depository institution, regardless of its 
significance or evidentiary value, then the capture, processing, and 
maintenance of ever-increasing amounts of such material would pose 
significant unnecessary burdens and inefficiencies both now and in the 
future. For this reason, the FDIC is proposing a rule to define the 
term ``records'' in order to designate more specifically the materials 
that are subject to the FDI Act's record retention provision, thereby 
enabling the FDIC to manage the records of insured depository 
institutions in receivership more efficiently and in a legally 
appropriate manner.

II. Proposed Rule

Authority and Purpose

    The FDI Act gives the FDIC broad authority to carry out its 
statutory responsibilities. Section 11(d)(1) of the FDI Act authorizes 
the FDIC to ``prescribe such regulations as [it] determines to be 
appropriate regarding the conduct of conservatorships or 
receiverships.'' \2\ Additionally, section 10(g) of the FDI Act 
authorizes the FDIC to prescribe regulations, including defining terms, 
as necessary to carry out the FDI Act.\3\ The purpose of the proposed 
rule is to identify more specifically the materials that are subject to 
the FDI Act's records retention provision thereby enabling the FDIC to 
manage the records of an insured depository institution in receivership 
in a realistic, efficient and legally appropriate manner.
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    \2\ 12 U.S.C. 1821(d)(1).
    \3\ 12 U.S.C. 1820(g).
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Section-by-Section Analysis

Definitions
    Under the proposed rule, documentary materials will be 
characterized as records for purposes of Section 1821(d)(15)(D) by 
meeting a formal definition (paragraph (a)) and a functional test 
(paragraph (b)). The FDIC believes that this two-tiered approach will 
have the effect of excluding extraneous material that is not related in 
any way to the transaction of the failed insured depository 
institution's business.
    Paragraph (a)(3) of the proposed rule defines the term ``records'' 
for purposes of Section 1821(d)(15)(D) to mean ``any reasonably 
accessible document, book, paper, map, photograph, microfiche, 
microfilm, computer or electronically created record generated or 
maintained by an insured depository institution in the course of and 
necessary to its transaction of business.'' This definition is 
consistent with the definition of ``records'' in section 210(a)(16)(D) 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(``Dodd-Frank Act''),\4\ which addresses the retention of records of a 
systemically important financial (non-bank) institution for which the 
FDIC is appointed as receiver. The qualification in the definition that 
``records'' be ``reasonably accessible'' reflects the text of Federal 
Rule of Civil Procedure 26(b)(2)(B), which provides that a party from 
whom discovery is sought need not provide ESI from sources that the 
party identifies as not reasonably accessible because of undue cost or 
burden. (For example, a party may be excused from restoring ESI from 
aging back-up tapes.) Use of the phrase ``reasonably accessible'' would 
make the definition of ``records'' in the proposed rule consistent with 
the discovery standard and would also protect the FDIC as receiver from 
incurring expenses associated with restoring or maintaining the legacy 
systems of multiple failed insured depository institutions in order to 
extract documentary material from those systems that is not needed by 
the Receiver to carry out its functions and was not in use by the 
insured depository institution to carry out its day-to-day operations 
prior to its failure.
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    \4\ 12 U.S.C. 5390(a)(16)(D), which defines ``records'' to mean 
``any document, book, paper, map, photograph, microfiche, microfilm, 
computer or electronically of and necessary to its transaction of 
business.''
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    Paragraph (a) also provides a non-exclusive list of examples of 
material that will ordinarily be understood to constitute records of 
the failed institution, specifically, board or committee meeting 
minutes, contracts to which the insured depository institution is a 
party, deposit account information, employee and employee benefits 
information, general ledger and financial reports or data, litigation 
files, and loan documents.
    Two types of materials are excluded from the definition of records 
in paragraph (a)(3). The first exclusion is for multiple copies of 
records, either in paper or electronic format. The retention of 
multiple copies is unnecessary and is not cost-efficient. The second 
exclusion is for

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examination, operating, or condition reports prepared by, on behalf of, 
or for the use of the FDIC or any agency responsible for the regulation 
or supervision of insured depository institutions. The FDIC has 
consistently maintained that reports of examination and other 
confidential supervisory correspondence or information prepared by FDIC 
examiners with respect to an open insured depository institution belong 
exclusively to the FDIC and not to the insured depository institution, 
but insured depository institutions often retain copies of reports of 
examination and other supervisory correspondence.
Determination of Whether Material Constitutes Records
    In determining whether particular material obtained from a failed 
insured depository institution constitutes a record, the FDIC will 
consider four factors set forth in paragraph (b). If the FDIC in its 
discretion determines that one or more of the factors weigh in favor of 
classifying the material as a record, it will be classified as a record 
for purposes of Section 1821(d)(15)(D).
    The first factor is whether the documentary material relates to the 
business of the failed insured depository institution. This factor is 
modeled after section 210(a)(16)(D)(iii) of the Dodd-Frank Act defining 
``records'' as materials generated or maintained ``in the course of and 
necessary to [the institution's] transaction of business.''
    The second factor is whether the documentary material was generated 
or maintained in accordance with the failed insured depository 
institution's own recordkeeping practices and procedures or pursuant to 
standards established by the failed insured depository institution's 
regulators. Thus, the FDIC will consider whether documentary material 
was retained pursuant to the insured depository institution's 
recordkeeping practices when determining whether specific documentary 
material is a record for the purposes of Section 1821(d)(15)(D) and the 
proposed rule. Likewise, the FDIC will consider whether documentary 
material was retained pursuant standards imposed by state or federal 
regulators when determining whether specific documentary material is a 
record for the purposes of Section 1821(d)(15)(D) and the proposed 
rule.
    The third factor is whether the documentary material is needed by 
the FDIC to carry out its functions as receiver. This inquiry would 
permit the classification of documents as records when they are used by 
the FDIC to carry out its function as receiver, for example, to 
transfer the failed insured depository institution's assets or 
liabilities, assume or repudiate the institution's contracts, determine 
claims, and collect liabilities owed to the institution.
    The fourth factor used to determine whether documentary material 
should be classified as records is the expected evidentiary needs of 
the FDIC. Records generated and maintained by the failed insured 
depository institution are used to support enforcement actions and 
litigation. In addition, records of the insured depository institution 
may also be required to respond to requests filed under the Freedom of 
Information Act. This factor is modeled on section 210(a)(16)(D)(i)(II) 
of the Dodd-Frank Act requiring the FDIC to prescribe records retention 
regulations with due regard for ``the expected evidentiary needs of the 
Corporation as receiver of a covered financial company and the public 
regarding the records of covered financial companies.'' \5\
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    \5\ 12 U.S.C. 5390(a)(16)(D)(i)(II).
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    Paragraph (c) of the proposed rule provides that the FDIC's 
designation of material as records pursuant to paragraph (b) is solely 
for the purpose of identifying records that are subject to the 
retention requirements of Section 1821(d)(15)(D) and the FDIC's 
designation of specific material as a record under Section 
1821(d)(15)(D) should have no effect on whether the material is 
discoverable or admissible in any court, tribunal or other adjudicative 
proceeding, nor on whether such material is subject to the Freedom of 
Information Act, the Privacy Act or other law. Thus, whether specific 
material is a record pursuant to the proposed rule does not alter its 
status under evidentiary rules such as the Federal Rules of Evidence 
(``FRE''). For example, FRE 803(1) provides that ``records of regularly 
conducted activity'' (``business records'') are not excluded from 
evidence by the rule against hearsay, regardless of whether the 
declarant is available as a witness. If certain documentary material 
meets the requirements of a business record pursuant to FRE 803(1), 
then whether or not the FDIC determines that specific documentary 
material constitutes ``records'' pursuant to the proposed rule will not 
affect the documentary material's status as a business record under FRE 
803(1). Likewise, whether specific material is or is not designated as 
a record for purposes of Section 1821(d)(15)(D) should not affect 
whether it may be subject to a litigation hold or a request under the 
Freedom of Information Act, the Privacy Act or other law.
Destruction of Records
    Section 1821(d)(15)(D) sets forth the timeframes for the 
destruction of a failed insured depository institution's records. 
Paragraph (d) of the proposed rule incorporates these timeframes: after 
the end of the six-year period beginning on the date of its appointment 
as receiver, the FDIC may destroy any records of a failed insured 
depository institution that the FDIC in its discretion determines to be 
unnecessary to maintain, unless directed not to by a court of competent 
jurisdiction or governmental agency or prohibited by law. The FDIC may 
destroy any records that are at least 10 years old as of the date of 
appointment. In addition, the proposed rule provides that the FDIC will 
not destroy records subject to a legal hold imposed by the FDIC. By 
including legal holds, the proposed rule implements the policy of the 
FDIC to preserve information (both ESI and paper) that the FDIC may be 
required to produce to opposing parties in litigation or when otherwise 
subject to a legal requirement to produce information.
Transfer of Records
    In many resolutions of failed insured depository institutions, an 
acquiring institution will purchase assets or assume liabilities of the 
failed insured depository institution and, in such a case, must obtain 
custody of records related to such assets and liabilities. Paragraph 
(f) of the proposed rule provides that the FDIC's transfer of records 
to a third party in connection with that party's purchase of assets or 
assumption of liabilities will satisfy the records retention 
obligations under Section 1821(d)(15)(D) so long as the transfer is 
made pursuant to a purchase and assumption agreement under which the 
transferee agrees that it will not destroy the transferred records for 
at least six years from the date of the appointment of the FDIC as 
receiver of the failed insured depository institution unless otherwise 
notified in writing by the FDIC.
Policies and Procedures
    Paragraph (f) of the proposed rule provides that the FDIC may 
establish policies and procedures with respect to the retention and 
destruction of records. It is expected that these policies and 
procedures will address specific matters related to the capture, 
processing and storage of failed bank records, such as collecting 
computer hard drives, email databases, and backup and disaster recovery 
tapes.

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III. Request for Comments

    The FDIC seeks comments on all aspects of the Proposed Rule. 
Comments will be considered by the FDIC and appropriate revisions will 
be made to the Proposed Rule, if necessary, before a final rule is 
issued. All comments must be received by the FDIC not later than March 
25, 2013.

IV. Regulatory Analysis and Procedure

A. Paperwork Reduction Act

    No collections of information pursuant to the Paperwork Reduction 
Act, 44 U.S.C. 3501, et seq., are contained in the proposed rule.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, et seq., 
requires that each Federal agency either certify that a proposed rule 
would not, if adopted in final form, have a significant economic impact 
on a substantial number of small entities or prepare an initial 
regulatory flexibility analysis of the rule and publish the analysis 
for comment. For purposes of the RFA analysis or certification, 
financial institutions with total assets of $175 million or less are 
considered to be ``small entities.'' The FDIC hereby certifies pursuant 
to 5 U.S.C. 605(b) that the proposed rule, if adopted, will not have a 
significant economic impact on a substantial number of small entities. 
The proposed rule defines the term ``records'' under section 
1821(d)(15)(D) for purposes of the FDIC's own internal operations and 
recordkeeping, enabling it to more efficiently manage the records of an 
insured depository institution in receivership. Accordingly, there will 
be no significant economic impact on a substantial number of small 
entities as a result of this rule.

C. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The FDIC has determined that the proposed rule will not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, enacted as part of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 1999 
(Pub. L. 105-277, 112 Stat. 2681).

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 
Stat. 1338, 1471), requires the Federal banking agencies to use plain 
language in all proposed and final rules published after January 1, 
2000. The FDIC has sought to present the Proposed Rule in a simple and 
straightforward manner.

List of Subjects in 12 CFR 360

    Banks, Banking, Bank deposit insurance, Holding companies, National 
banks, Participations, Reporting and record keeping requirements, 
Savings associations, Securitizations.

    For the reasons stated above, the Board of Directors of the Federal 
Deposit Insurance Corporation proposes to amend Part 360 of title 12 of 
the Code of Federal Regulations as follows:

PART 360--RESOLUTION AND RECEIVERSHIP RULES

0
1. The authority citation for part 360 is revised to read as follows:

    Authority:  12 U.S.C. 1817(b), 1818(a)(2), 1818(t), 1819(a) 
Seventh, Ninth and Tenth, 1820(b)(3), (4), 1821(d)(1), 
1821(d)(10)(c), 1821(d)(11), 1821(d)(15)(D), 1821(e)(1), 
1821(e)(8)(D)(i), 1823(c)(4), 1823(e)(2); Sec. 401(h), Pub. L. 101-
73, 103 Stat. 357.

0
2. Add new Sec.  360.11 to read as follows:


Sec.  360.11  Records of failed insured depository institutions.

    (a) Definitions. For purposes of this section, the following 
definitions apply--
    (1) Failed insured depository institution is an insured depository 
institution for which the FDIC has been appointed receiver pursuant to 
12 U.S.C. 1821(c)(1).
    (2) Insured depository institution has the same meaning as provided 
by 12 U.S.C. 1813(c)(2).
    (3) Records means any reasonably accessible document, book, paper, 
map, photograph, microfiche, microfilm, computer or electronically-
created record generated or maintained by an insured depository 
institution in the course of and necessary to its transaction of 
business.
    (i) Examples of records include, without limitation, board or 
committee meeting minutes, contracts to which the insured depository 
institution is a party, deposit account information, employee and 
employee benefits information, general ledger and financial reports or 
data, litigation files, and loan documents.
    (ii) Records do not include:
    (A) Multiple copies of records; or
    (B) Examination, operating, or condition reports prepared by, on 
behalf of, or for the use of the FDIC or any agency responsible for the 
regulation or supervision of insured depository institutions.
    (b) Determination of records. In determining whether particular 
documentary material obtained from a failed insured depository 
institution is a record for purposes of 12 U.S.C. 1821(d)(15)(D), the 
FDIC in its discretion will determine whether one or more of the 
following factors weigh in favor of classifying the material as a 
record:
    (1) Whether the documentary material relates to the business of the 
failed insured depository institution,
    (2) Whether the documentary material was generated or maintained as 
records in the regular course of the business of the failed insured 
depository institution in accordance with its own recordkeeping 
practices and procedures or pursuant to standards established by the 
failed insured depository institution's regulators,
    (3) Whether the documentary material is needed by the FDIC to carry 
out its receivership function, and
    (4) The expected evidentiary needs of the FDIC.
    (c) The FDIC's determination that documentary materials from a 
failed insured depository institution constitute records is solely for 
the purpose of identifying those documentary materials that must be 
maintained pursuant to 12 U.S.C. 1821(d)(15)(D) and shall not bear on 
the discoverability or admissibility of such documentary materials in 
any court, tribunal or other adjudicative proceeding, nor on whether 
such documentary materials are subject to release under the Freedom of 
Information Act, the Privacy Act or other law.
    (d) Destruction of records.
    (1) Except as provided in paragraph (d)(2) of this section, after 
the end of the six-year period beginning on the date the FDIC is 
appointed as receiver of an insured depository institution, the FDIC 
may destroy any records of such institution which the FDIC, in its 
discretion, determines to be unnecessary unless directed not to do so 
by a court of competent jurisdiction or governmental agency, prohibited 
by law, or subject to a legal hold imposed by the FDIC.
    (2) Notwithstanding paragraph (d)(1) of this section, the FDIC may 
destroy records of an insured depository institution which are at least 
10 years old as of the date on which the FDIC is appointed as the 
receiver of such depository institution in accordance with paragraph 
(d)(1) of this section at any time after such appointment is final, 
without regard to the six-year period of limitation contained in 
paragraph (d)(1) of this section.
    (e) Transfer of records. If the FDIC transfers records to a third 
party in connection with an agreement for the

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purchase and assumption of assets and liabilities of a failed insured 
depository institution, the recordkeeping requirements of 12 U.S.C. 
1821(d)(15)(D), and paragraph (d) of this section shall be satisfied if 
the transferee agrees that it will not destroy such records for six 
years from the date the FDIC was appointed as receiver of such failed 
insured depository institution unless otherwise notified in writing by 
the FDIC.
    (f) Policies and procedures. The FDIC may establish policies and 
procedures with respect to the retention and destruction of records 
that are consistent with this section.

    Dated at Washington, DC, this 15th day of January 2013.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2013-01080 Filed 1-18-13; 8:45 am]
BILLING CODE 6714-01-P