Restrictions on Sales of Assets of a Covered Financial Company by the Federal Deposit Insurance Corporation, 66661-66666 [2013-26544]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 78, Number 215 (Wednesday, November 6, 2013)]
[Proposed Rules]
[Pages 66661-66666]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-26544]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 380

RIN 3064-AE05


Restrictions on Sales of Assets of a Covered Financial Company by 
the Federal Deposit Insurance Corporation

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation (``FDIC'') is 
proposing a rule to implement a section of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (``Dodd-Frank Act''). Under the 
section, individuals or entities that have, or may have, contributed to 
the failure of a ``covered financial company'' cannot buy a covered 
financial company's assets from the FDIC. This proposed rule 
establishes a self-certification process that is a prerequisite to the 
purchase of assets of a covered financial company from the FDIC.

DATES: Written comments must be received by the FDIC not later than 
January 6, 2014.

ADDRESSES: You may submit comments by any of the following methods:
     Agency Web site: https://www.fdic.gov/regulations/laws/federal/propose.html. Follow instructions for submitting comments on 
the Agency Web site.
     Email: Comments@FDIC.gov. Include ``RIN 3064-AE05'' 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. (EDT).
     Federal eRulemaking Portal: https://www.regulations.gov/. 
Follow the instructions for submitting comments.
     Public Inspection: All comments received will be posted 
without change to https://www.fdic.gov/regulations/laws/federal/propose.html including any personal information provided. Paper copies 
of public comments may be ordered from the Public Information Center by 
telephone at 703-562-2200 or 1-877-275-3342.

FOR FURTHER INFORMATION CONTACT: Marc Steckel, Deputy Director, 
Division of Resolutions and Receiverships, 202-898-3618; Craig Rice, 
Senior Capital Markets Specialist, Division of Resolutions and 
Receiverships, 202-898-3501; Chuck Templeton, Senior Resolution 
Planning & Implementation Specialist, Office of Complex Financial 
Institutions, 202-898-6774; Elizabeth Falloon, Supervisory Counsel, 
Legal Division, 703-562-6148; Shane Kiernan, Counsel, Legal Division, 
703-562-2632; Federal Deposit Insurance Corporation, 550 17th Street 
NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 210(r) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, 12 U.S.C. 5390(r) (``Section 210(r)''), prohibits 
certain sales of assets held by the FDIC in the course of liquidating a 
covered financial company, including sales of equity stakes in 
subsidiaries. The Dodd-Frank Act requires the FDIC to promulgate 
regulations which, at a minimum, prohibit the sale of an asset of a 
covered financial company by the FDIC to: (1) Any person who has 
defaulted, or was a member of a partnership or an officer or director 
of a corporation that has defaulted, on one or more obligations 
exceeding $1,000,000 to such covered financial company, has been found 
to have engaged in fraudulent activity in connection with such 
obligation, and proposes to purchase any such asset in whole or in part 
through the use of financing from the FDIC; (2) any person who 
participated, as an officer or director of such covered financial 
company or of any affiliate of such company, in a material way in any 
transaction that resulted in a substantial loss to such covered 
financial company; or (3) any person who has demonstrated a pattern or 
practice of defalcation regarding obligations to such covered financial 
company.
    A similar restriction applicable to sales of assets of insured 
depository institutions in conservatorship or receivership is found in 
section 11(p) the Federal Deposit Insurance Act, 12 U.S.C. 1821(p) 
(``Section 11(p)''). The FDIC promulgated a rule implementing this 
statutory proscription on July 1, 2000. That rule, entitled 
``Restrictions on the Sale of Assets by the Federal Deposit Insurance 
Corporation,'' can be found at 12 CFR part 340 \1\ (``Part 340'').
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    \1\ See 65 FR 14816 (July 1, 2000).
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    Because Section 210(r) and Section 11(p) share substantially 
similar statutory language, Part 340 serves as a model for the proposed 
rule. Although Part 340 and the proposed rule are similar in many ways, 
the proposed rule is distinct because it applies to sales of covered 
financial company assets by the FDIC and does not apply to sales of 
failed insured depository institution assets. A covered financial 
company resolution will be different from an insured depository 
institution resolution because the nature of the assets and the manner 
in which sales are conducted will be different. Furthermore, although 
the FDIC has been appointed as receiver of hundreds of insured 
depository institutions, appointment of the FDIC as receiver for a 
covered financial company is expected to be rare. The proposed rule 
would not apply to sales of assets of a failed insured depository 
institution by the FDIC and prospective purchasers seeking to buy 
assets of an insured depository institution from the FDIC should refer 
to Part 340 only.
    The proposed rule addresses the statutory prohibitions contained in 
Section 210(r). It does not address other restrictions on sales of 
assets. For instance, the proposed rule does not address sales of 
assets by the FDIC to its own employees or to contractors it engages. 
Further, the proposed rule is separate and apart from any policy that 
the FDIC has, or may adopt or amend, regarding collection of amounts 
owed by obligors of a failed insured depository institution or a 
covered financial company. The focus of a collection policy is to 
encourage delinquent obligors to promptly repay or settle obligations, 
which is outside the scope of Section 210(r) and the proposed rule.

Section-by-Section Analysis

    Paragraph (a)(1) of the proposed rule states its purpose, which is 
to prohibit individuals or entities who profited or engaged in 
wrongdoing at the expense of a covered financial company, or seriously 
mismanaged a covered financial company, from buying assets of any 
covered financial company from the FDIC.
    Paragraph (a)(2) describes the proposed rule's applicability. 
Paragraph (a)(2)(i) states that the proposed rule applies to sales of 
assets of a covered financial company by the FDIC. The assets of a 
covered financial company vary in character and composition, and

[[Page 66662]]

range from personal property to ownership of subsidiary companies and 
entire operating divisions.
    The proposed rule would apply to sales by the FDIC both as receiver 
and in its corporate capacity. The FDIC may, in its corporate capacity, 
purchase a covered financial company's assets from the receiver and 
then market those assets to the public. The proposed rule makes clear 
that the prohibitions on sales to certain individuals and entities 
apply to sales by the FDIC in any capacity.
    Paragraph (a)(2)(ii) delineates the applicability of the proposed 
rule to sales by a bridge financial company. Sales of bridge financial 
company assets are not expressly subject to the statutory prohibition 
under Section 210(r) because once such assets are transferred to the 
bridge financial company, they are no longer ``assets of a covered 
financial company'' that are being sold ``by the [FDIC].'' The statute 
permits the FDIC to promulgate a more restrictive regulation than is 
required under Section 210(r), which sets forth a ``minimum'' 
requirement. The proposed rule would cover sales by a bridge financial 
company if the FDIC's approval of the sale is required under the bridge 
financial company's corporate governance structure. Sales conducted in 
the ordinary course of business by staff of the bridge financial 
company would not, on the other hand, require approval.
    In general, the FDIC anticipates that a bridge financial company's 
charter, articles of incorporation or bylaws will require that the 
bridge financial company obtain approval from the FDIC as receiver 
before conducting certain significant transactions, such as a sale of a 
material subsidiary or line of business. Because a bridge financial 
company would be established by the FDIC to more efficiently resolve a 
covered financial company, the FDIC believes that the imposition of the 
restrictions set forth in the proposed rule on certain sales by a 
bridge financial company furthers the objective of Section 210(r) by 
prohibiting the same persons restricted from buying covered financial 
company assets (officers and directors who engaged in fraudulent 
activity or caused substantial losses to a covered financial company, 
for example) from buying those assets after those assets have been 
transferred to a bridge financial company.
    Paragraph (a)(2)(iii) clarifies the proposed rule's applicability 
to sales of securities backed by a pool of assets (which pool may 
include assets of a covered financial company) by a trust or other 
entity. It provides that the restriction applies only to the sale of 
assets by the FDIC to an underwriter in an initial offering, and not to 
any other purchaser of the securities because subsequent sales to other 
purchasers would not be conducted by the FDIC.
    Paragraph (a)(2)(iv) clarifies the applicability of Section 210(r) 
and the proposed rule to certain types of transactions involving 
marketable securities and other financial instruments. Paragraph 
(a)(3)(i) expressly states that the prohibition does not apply to the 
sale of a security, commodity, ``qualified financial contract'' (as 
defined in 12 U.S.C. 1821(e)(10)), or other financial instrument where 
the customary manner for sale and settlement does not permit the seller 
to exercise any control in selecting the purchaser and the sale 
actually is conducted in this customary manner. For example, if the 
FDIC as receiver for a covered financial company were to sell publicly-
traded stocks or bonds that the covered financial company held for 
investment, it might well order the covered financial company's broker 
or custodian to conduct the sale. The broker or custodian would then 
tender the securities to the market and accept prevailing market terms 
offered by another broker, a specialist, a central counterparty or a 
similar financial intermediary who would then sell the security to 
another purchaser. In this scenario it is not possible for the FDIC as 
receiver to control selection of the end purchaser at the time of sale, 
thus such a transaction is not a ``sale . . . by the [FDIC]'' to a 
prospective purchaser within the meaning of the statute because the 
FDIC has no way to select the prospective purchaser. Moreover, a 
prospective purchaser of such assets will not be able to select the 
FDIC as the seller and therefore could not determine whether Section 
210(r) and the proposed rule apply to the transaction.
    Under paragraph (a)(2)(v), judicial or trustee's sales of property 
that secures an obligation to the FDIC as receiver for a covered 
financial company would not be covered. Although the FDIC as receiver 
has a security interest in the property serving as collateral and has 
authority to initiate the foreclosure action, the selection of the 
purchaser and terms of the sale are not within the FDIC's control. 
Rather, the court or trustee conducts the sale in accordance with 
applicable State law and selects the purchaser. In this situation, the 
sale is not a sale by the FDIC. This exception does not affect sales of 
collateral by the FDIC where the FDIC is in possession of the property 
and conducts the sale itself. Where the FDIC has control over the 
manner and terms of the sale, it will require the purchaser's 
certification that the purchaser is not prohibited from purchasing the 
asset.
    Section 210(r) creates an exception from the prohibition on asset 
sales for sales made pursuant to a settlement agreement with the 
prospective purchaser. It states that the prohibition does not apply if 
the sale or transfer of the asset resolves or settles, or is part of 
the resolution or settlement of, one or more claims that have been, or 
could have been, asserted by the FDIC against the person regardless of 
the amount of such claims or obligations. The proposed rule provides in 
paragraph (a)(2)(vi) that such sales are outside the scope of the 
proposed rule.
    Paragraph (a)(3) makes expressly clear that the FDIC retains the 
authority to establish other policies restricting asset sales and 
expressly contemplates, among other things, the adoption of a policy 
prohibiting the sale of assets to other prospective purchasers, such as 
certain employees or contractors that the FDIC engages, or individuals 
or entities who are in default on obligations to the FDIC. The 
restrictions of the proposed rule are, however, limited to sales of 
assets of a covered financial company.
    Paragraph (b) sets forth definitions used in the proposed rule. 
Several of these definitions have been adopted from Part 340, such as 
the definitions of ``person,'' ``associated person'' and ``default.'' 
The term ``financial intermediary,'' which is not found in Part 340, 
has been defined for use in the proposed rule as well.
    Paragraph (c) of the proposed rule sets forth the operative rule 
for restricting asset sales. An individual or entity is ineligible to 
purchase assets from a covered financial company if it or its 
``associated person'' has committed an act that meets one or more of 
the conditions under which the sale would be prohibited. In applying 
the rule, the first step is to determine whether the ``person'' who is 
the prospective purchaser is an individual or an entity. The next step 
is to determine who qualifies as an ``associated person'' (as defined 
in paragraph (b)(1) of the proposed rule) of that prospective 
purchaser. If the prospective purchaser is an individual, then the 
prospective purchaser is ineligible to purchase any asset of a covered 
financial company from the FDIC if that individual or (i) that 
individual's spouse dependent child or member of his or her household, 
or (ii) any partnership or limited liability company of which the 
individual is or was a member, manager or general or limited partner, 
or (iii) any

[[Page 66663]]

corporation of which the individual is or was an officer or director 
has committed an act that would render the individual ineligible to 
purchase. If the prospective purchaser is a partnership or other 
entity, then it is ineligible to purchase if either the purchasing 
entity or (i) its managing or general partner or managing member, or 
(ii) an individual or entity that owns or controls 25% or more of the 
entity has committed an act that would render the entity ineligible to 
purchase.
    The proposed rule describes the conditions under which a sale would 
be prohibited in paragraph (c)(1). A person is ineligible to purchase 
any asset of a covered financial company from the FDIC if it or its 
associated person, prior to the appointment of the FDIC as receiver for 
the covered financial company: (A) Has participated as an officer or 
director of a covered financial company or an affiliate thereof in a 
``material way in a transaction that caused a substantial loss to a 
covered financial company'' (as defined in paragraph (c)(2) discussed 
below); (B) has been removed from, or prohibited from participating in 
the affairs of, an insured depository institution, an insurance company 
or a financial company pursuant to any final enforcement action by its 
primary financial regulatory agency; (C) has demonstrated a pattern or 
practice of defalcation regarding obligations to any financial company; 
(D) has been convicted of committing or conspiring to commit any 
offense under 18 U.S.C. 215, 656, 657, 1005, 1006, 1007, 1008, 1014, 
1032, 1341, 1343 or 1344 (having generally to do with financial crimes, 
fraud and embezzlement) affecting any covered financial company and is 
in default with respect to one or more obligations owed by that person 
or its associated person; or (E) would be prohibited from purchasing 
assets from a failed insured depository institution under 12 U.S.C. 
1821(p) and its implementing regulation at 12 CFR part 340.
    The proposed rule establishes parameters to determine whether an 
individual or entity has participated in a ``material way in a 
transaction that caused a substantial loss to a covered financial 
company'' as this concept is used but not defined in the statute. Under 
paragraph (c)(2), a person has participated in a material way in a 
transaction that caused a substantial loss to a covered financial 
company if, in connection with a substantial loss to a covered 
financial company, that person has been found in a final determination 
by a court or administrative tribunal, or is alleged in a judicial or 
administrative action brought by the FDIC or by any component of the 
government of the United States or of any State to have: (1) Violated 
any law, regulation, or order issued by a Federal or State regulatory 
agency, or breached or defaulted on a written agreement with a Federal 
or State regulatory agency or breached a written agreement with a 
covered financial company; or (2) breached a fiduciary duty owed to a 
covered financial company. A ``substantial loss,'' defined in paragraph 
(b)(9), means: (1) An obligation that is delinquent for ninety (90) or 
more days and on which a balance of more than $50,000 remains 
outstanding; (2) a final judgment in excess of $50,000 remains unpaid, 
regardless of whether it becomes forgiven in whole or in part in a 
bankruptcy proceeding; (3) a deficiency balance following a foreclosure 
or other sale of collateral in excess of $50,000 exists, regardless of 
whether it becomes forgiven in whole or in part in a bankruptcy 
proceeding; or (4) any loss in excess of $50,000 evidenced by an IRS 
Form 1099-C (Information Reporting for Cancellation of Debt). There is 
no reprieve for a prospective purchaser who has participated in a 
material way in a transaction that caused a substantial loss to a 
covered financial company. Such prospective purchaser is indefinitely 
prohibited from purchasing assets of any covered financial company from 
the FDIC notwithstanding the passage of any amount of time.
    The approach to determine whether a person has participated in a 
material way in a transaction that has caused a substantial loss to a 
covered financial company is comparatively similar to the approach 
under Part 340. In the proposed rule, the dollar threshold for a 
substantial loss is set at $50,000, just as it is in Part 340. The FDIC 
believes that the $50,000 threshold is consistent with the Act because 
the statute sets the standards that the FDIC shall, at a minimum, 
establish by regulation and leaves the interpretation of subjective 
terms within the FDIC's discretion.
    Under paragraph (c)(3) of the proposed rule, a person or its 
associated person has demonstrated a ``pattern or practice of 
defalcation'' with respect to obligations to a covered financial 
company if the person or associated person has engaged in more than one 
transaction that created an obligation on the part of such person or 
its associated person with intent to cause a loss to a covered 
financial company or with reckless disregard for whether such 
transactions would cause a loss and the transactions, in the aggregate, 
caused a substantial loss to one or more covered financial companies.
    Although the statute restricts only the sale of assets of the 
covered financial company that held the defaulted obligation of the 
prospective purchaser, restrictions contained in the proposed rule 
apply regardless of which covered financial company's assets are being 
sold. The FDIC believes adopting this more stringent approach is 
consistent with the Act because the statute sets only the minimum 
standards that the FDIC must meet with its proposed rule.
    Paragraph (d) of the proposed rule restricts asset sales when the 
FDIC provides seller financing, including financing authorized under 
section 210(h)(9) of the Dodd-Frank Act. It restricts a prospective 
purchaser from borrowing money or accepting credit from the FDIC in 
connection with the purchase of covered financial company assets if 
there has been a default with respect to one or more obligations 
totaling in excess of $1,000,000 owed by that person or its associated 
person and the person or its associated person made any fraudulent 
misrepresentations in connection with such obligation(s).
    In this proposed rule, the FDIC does not intend to imply that it 
will provide seller financing in connection with any asset sales nor 
that, if it elects to provide seller financing, it will do so to a 
person who does not meet other criteria that the FDIC may lawfully 
impose, such as creditworthiness. The FDIC has no obligation to provide 
seller financing even if the person is not in any way disqualified from 
purchasing assets from the FDIC under the restrictions set forth in the 
proposed rule. Further, under paragraph (e) of the proposed rule, the 
FDIC expressly reserves its authority to promulgate other policies and 
rules restricting purchaser eligibility to buy assets from the FDIC.
    Paragraph (f) sets forth the requirement that a prospective 
purchaser certify, before purchasing any asset from the FDIC and under 
penalty of perjury, that none of the restrictions in the proposed rule 
applies to the sale. This requirement creates an effective mechanism to 
comply with Section 210(r) and the proposed rule. The FDIC will provide 
the form for the certification and the proposed rule contemplates that 
the form may change over time. Certain types of entities are exempt 
from this self-certification requirement, unless the Director of the 
FDIC's Division of Resolutions and Receiverships (or designee) 
determines that a certification is required. These exempted entities 
are: (1) State or political subdivisions of a State; (2) Federal 
agencies or instrumentalities

[[Page 66664]]

such as the Government National Mortgage Association; (3) federally-
regulated, government-sponsored enterprises such as the Federal 
National Mortgage Association or the Federal Home Loan Mortgage 
Corporation; and (4) bridge financial companies established by the 
FDIC. Because of the nature of these entities, including their 
organizational purposes or goals and the fact that they are subject to 
strict governmental control or oversight, it is reasonable to presume 
compliance without requiring self-certification.

III. Request for Comments

    The FDIC requests comments on any aspect of the proposed rule that 
would be helpful in refining the proposed rule further. In addition, 
the FDIC specifically requests comments on the following issues:
     Whether it is appropriate to prohibit individuals or 
entities who profited or engaged in wrongdoing at the expense of a 
covered financial company or seriously mismanaged a covered financial 
company from buying assets of any covered financial company from the 
FDIC, rather than prohibiting the individual or entity from buying an 
asset of only the specific covered financial company that the 
individual or entity had been involved with.
     Whether it is appropriate to prohibit individuals or 
entities that profited or engaged in wrongdoing at the expense of an 
insured depository institution or seriously mismanaged an insured 
depository institution from buying assets of a covered financial 
company from the FDIC.
     Whether the description in paragraph (a)(3) of the 
transactions that are not prohibited under Section 210(r) or the 
proposed rule adequately describes the range of transactions in which 
the customary manner for sale and settlement does not permit the seller 
to know the identity of the purchaser or to exercise any control in 
selecting the purchaser.
     Whether the definition of ``associated person'' should be 
expanded or clarified.
     Whether the dollar threshold in the definition of 
``substantial loss'' is appropriate.
     Whether the scope of entities that would be exempt from 
the self-certification process described in paragraph (f) should be 
supplemented with other types of entities that might purchase assets 
from the FDIC, or whether any of the entities excepted under paragraph 
(f) should in fact be required to certify compliance.

All comments must be received by the FDIC not later than January 6, 
2014.

IV. Regulatory Analysis and Procedure

A. Paperwork Reduction Act

1. Request for Comment on Proposed Information Collection
    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501, et seq.) (the ``PRA''), the FDIC may not 
conduct or sponsor, and the respondent is not required to respond to, 
an information collection unless it displays a currently valid Office 
of Management and Budget (``OMB'') control number. As indicated by 
Sec.  380.13(f) of the proposed rule, the FDIC intends to develop a 
purchaser eligibility certification form relating to this proposed 
rule. The form would be used to establish compliance with the proposed 
rule by a prospective purchaser of assets of a covered financial 
company from the FDIC. The FDIC believes that the certification is a 
collection of information under the PRA and, consistent with the 
requirements of 5 CFR 1320.11, the FDIC has submitted the form to OMB 
for review under section 3507(d) of the PRA.
    Comments are invited on:
     Whether the collection of information is necessary for the 
proper performance of the agencies' functions, including whether the 
information has practical utility;
     The accuracy of the estimates of the burden of the 
information collection, including the validity of the methodology and 
assumptions used;
     Ways to enhance the quality, utility, and clarity of the 
information to be collected;
     Ways to minimize the burden of the information collection 
on respondents, including through the use of automated collection 
techniques or other forms of information technology; and
     Estimates of capital or start-up costs and costs of 
operation, maintenance, and purchase of services to provide 
information.
    All comments will become a matter of public record. Commenters may 
submit comments on the proposed information collection and burden 
estimates at the addresses listed under the ADDRESSES heading above. A 
copy of the comments may also be submitted to the attention of the OMB 
desk officer for the FDIC: By mail to U.S. Office of Management and 
Budget, 725 17th Street NW., 10235, Washington, DC 20503; by 
facsimile to 202-395-6974; or by email to: oira_submission@omb.eop.gov.
2. Proposed Information Collection
    Title of Information Collection: Covered Financial Company 
Purchaser Eligibility Certification.
    Affected Public: Prospective purchasers of covered financial 
company assets.
    Frequency of Response: Event generated.
    Estimated Number of Respondents: 20.
    Time per Response: 30 minutes.
    Total Estimated Annual Burden: 10 hours.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires an 
agency that is issuing a proposed rule to prepare and make available an 
initial regulatory flexibility analysis of a proposed regulation. The 
Regulatory Flexibility Act provides, however, that an agency is not 
required to prepare and publish a regulatory flexibility analysis if 
the agency certifies that the proposed rule will not have a significant 
economic impact on a substantial number of small entities. The FDIC 
hereby certifies pursuant to 5 U.S.C. 605(b) that the proposed rule 
would not have a significant economic impact on a substantial number of 
small entities within the meaning of the Regulatory Flexibility Act.
    Under regulations issued by the Small Business Administration (13 
CFR 121.201), a ``small entity'' includes those firms in the ``Finance 
and Insurance'' sector whose size varies from $7 million or less in 
assets to $175 million or less in assets. The proposed rule is 
promulgated under the Title II of the Dodd-Frank Act, which establishes 
a regime for the orderly liquidation of the nation's largest, and most 
systemic companies. For instance, companies subject to enhanced 
supervision under the Dodd-Frank Act include bank holding companies 
with assets in excess of $50,000,000.00. The orderly liquidation of 
assets of such a large, systemic company generally will involve the 
sale of significant subsidiaries and business lines rather than smaller 
asset sales, and such sales are unlikely to impact a substantial number 
of small entities.
    Moreover, the burden imposed by this proposed rule is the 
completion of a certification form described above in the Paperwork 
Reduction Act section. Completing the certification form does not 
require the use of professional skills or the preparation of special 
reports or records and has a minimal economic impact on those 
individuals and entities that seek to purchase assets from the FDIC. 
Thus, any impact on small entities will not be substantial.

[[Page 66665]]

C. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act of 1999 (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. The FDIC invites comments on whether the 
proposed rule is clearly stated and effectively organized, and how the 
FDIC might make the proposed rule text easier to understand.

List of Subjects in 12 CFR Part 380

    Asset disposition, Bank holding companies, Covered financial 
companies, Financial companies, Holding companies, Insurance companies, 
Nonbank financial companies.

    For the reasons set forth in the preamble, the Federal Deposit 
Insurance Corporation proposes to amend 12 CFR 380 as follows:

PART 380--ORDERLY LIQUIDATION AUTHORITY

0
1. Revise the authority for part 380 to read as follows:

    Authority: 12 U.S.C. 5389; 12 U.S.C. 5390(s)(3); 12 U.S.C. 
5390(b)(1)(C); 12 U.S.C. 5390(a)(7)(D); 12 U.S.C. 5381(b); 12 U.S.C. 
5390(r).

0
2. Add Sec.  380.13 to read as follows:


Sec.  380.13  Restrictions on sale of assets of a covered financial 
company by the Federal Deposit Insurance Corporation.

    (a) Purpose and applicability--(1) Purpose. The purpose of this 
section is to prohibit individuals or entities that profited or engaged 
in wrongdoing at the expense of a covered financial company or an 
insured depository institution, or seriously mismanaged a covered 
financial company or an insured depository institution, from buying 
assets of a covered financial company from the FDIC.
    (2) Applicability. (i) The restrictions of this section apply to 
the sale of assets of a covered financial company by the FDIC as 
receiver or in its corporate capacity.
    (ii) The restrictions in this section apply to the sale of assets 
of a bridge financial company if:
    (A) The sale is not in the ordinary course of business of the 
bridge financial company, and
    (B) The approval or non-objection of the FDIC is required in 
connection with the sale according to the charter, articles of 
association, bylaws or other documents or instruments establishing the 
governance of the bridge financial company and the authorities of its 
board of directors and executive officers.
    (iii) In the case of a sale of securities backed by a pool of 
assets that may include assets of a covered financial company by a 
trust or other entity, this section applies only to the sale of assets 
by the FDIC to an underwriter in an initial offering, and not to any 
other purchaser of the securities.
    (iv) The restrictions of this section do not apply to a sale of a 
security or a group or index of securities, a commodity, or any 
qualified financial contract that customarily is traded through a 
financial intermediary, as defined in paragraph (b) of this section, 
where the seller cannot control selection of the purchaser and the sale 
is consummated through that customary practice.
    (v) The restrictions of this section do not apply to a judicial 
sale or a trustee's sale of property that secures an obligation to the 
FDIC where the sale is not conducted or controlled by the FDIC.
    (vi) The restrictions of this section do not apply to the sale or 
transfer of an asset if such sale or transfer resolves or settles, or 
is part of the resolution or settlement of, one (1) or more claims or 
obligations that have been, or could have been, asserted by the FDIC 
against the person with whom the FDIC is settling regardless of the 
amount of such claims or obligations.
    (3) The FDIC retains the authority to establish other policies 
restricting asset sales. Neither 12 U.S.C. 5390(r) nor Sec.  380.13 in 
any way limits the authority of the FDIC to establish policies 
prohibiting the sale of assets to prospective purchasers who have 
injured the respective covered financial company, or to other 
prospective purchasers, such as certain employees or contractors of the 
FDIC, or individuals who are not in compliance with the terms of any 
debt or duty owed to the FDIC in any of its capacities. Any such 
policies may be independent of, in conjunction with, or in addition to 
the restrictions set forth in this part.
    (b) Definitions. Many of the terms used in this section are defined 
in the Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 
U.S.C. 5301, et seq. Additionally, for the purposes of this section, 
the following terms are defined:
    Associated person. An ``associated person'' of an individual or 
entity means:
    (i) With respect to an individual:
    (A) The individual's spouse or dependent child or any member of his 
or her immediate household;
    (B) A partnership of which the individual is or was a general or 
limited partner or a limited liability company of which the individual 
is or was a member; or
    (C) A corporation of which the individual is or was an officer or 
director;
    (ii) With respect to a partnership, a managing or general partner 
of the partnership or with respect to a limited liability company, a 
manager; or
    (iii) With respect to any entity, an individual or entity who, 
acting individually or in concert with one or more individuals or 
entities, owns or controls 25 percent or more of the entity.
    Default. The term ``default'' means any failure to comply with the 
terms of an obligation to such an extent that:
    (i) A judgment has been rendered in favor of the FDIC or a covered 
financial company; or
    (ii) In the case of a secured obligation, the lien on property 
securing such obligation has been foreclosed.
    Financial intermediary. The term ``financial intermediary'' means 
any broker, dealer, bank, underwriter, exchange, clearing agency 
registered with the SEC under section 17A of the Securities Exchange 
Act of 1934, transfer agent (as defined in section 3(a)(25) of the 
Securities Exchange Act of 1934), central counterparty or any other 
entity whose role is to facilitate a transaction by, as a riskless 
intermediary, purchasing a security or qualified financial contract 
from one counterparty and then selling it to another.
    Obligation. The term ``obligation'' means any debt or duty to pay 
money owed to the FDIC or a covered financial company, including any 
guarantee of any such debt or duty.
    Person. The term ``person'' means an individual, or an entity with 
a legally independent existence, including: A trustee; the beneficiary 
of at least a 25 percent share of the proceeds of a trust; a 
partnership; a limited liability company, a corporation; an 
association; or other organization or society.
    Substantial loss. The term ``substantial loss'' means:
    (i) An obligation that is delinquent for ninety (90) or more days 
and on which there remains an outstanding balance of more than $50,000;
    (ii) An unpaid final judgment in excess of $50,000 regardless of 
whether it becomes forgiven in whole or in part in a bankruptcy 
proceeding;
    (iii) A deficiency balance following a foreclosure of collateral in 
excess of $50,000, regardless of whether it

[[Page 66666]]

becomes forgiven in whole or in part in a bankruptcy proceeding; or
    (iv) Any loss in excess of $50,000 evidenced by an IRS Form 1099-C 
(Information Reporting for Cancellation of Debt).
    (c) Restrictions on the sale of assets. (1) A person may not 
acquire any assets of a covered financial company from the FDIC if, 
prior to the appointment of the FDIC as receiver for the covered 
financial company, the person or its associated person:
    (i) Has participated as an officer or director of a covered 
financial company or of an affiliate of a covered financial company in 
a material way in one or more transactions that caused a substantial 
loss to a covered financial company;
    (ii) Has been removed from, or prohibited from participating in the 
affairs of, a financial company pursuant to any final enforcement 
action by its primary financial regulatory agency;
    (iii) Has demonstrated a pattern or practice of defalcation 
regarding obligations to a covered financial company;
    (iv) Has been convicted of committing or conspiring to commit any 
offense under 18 U.S.C. 215, 656, 657, 1005, 1006, 1007, 1008, 1014, 
1032, 1341, 1343 or 1344 affecting any covered financial company and 
there has been a default with respect to one or more obligations owed 
by that person or its associated person; or
    (v) Would be prohibited from purchasing the assets of a failed 
insured depository institution from the FDIC under 12 U.S.C. 1821(p) or 
its implementing regulation at 12 CFR part 340.
    (2) For purposes of paragraph (c)(1) of this section, a person has 
participated in a ``material way in a transaction that caused a 
substantial loss to a covered financial company'' if, in connection 
with a substantial loss to the covered financial company, the person 
has been found in a final determination by a court or administrative 
tribunal, or is alleged in a judicial or administrative action brought 
by a primary financial regulatory agency or by any component of the 
government of the United States or of any state:
    (i) To have violated any law, regulation, or order issued by a 
Federal or State regulatory agency, or breached or defaulted on a 
written agreement with a Federal or State regulatory agency, or 
breached a written agreement with a covered financial company; or
    (ii) To have breached a fiduciary duty owed to a covered financial 
company.
    (3) For purposes of paragraph (c)(1) of this section, a person or 
its associated person has demonstrated a ``pattern or practice of 
defalcation'' regarding obligations to a covered financial company if 
the person or associated person has:
    (i) Engaged in more than one transaction that created an obligation 
on the part of such person or its associated person with intent to 
cause a loss to any financial company or with reckless disregard for 
whether such transactions would cause a loss to any such financial 
company; and
    (ii) The transactions, in the aggregate, caused a substantial loss 
to one or more covered financial companies.
    (d) Restrictions when FDIC provides seller financing. A person may 
not borrow money or accept credit from the FDIC in connection with the 
purchase of any assets from the FDIC or any covered financial company 
if:
    (1) There has been a default with respect to one or more 
obligations totaling in excess of $1,000,000 owed by that person or its 
associated person; and
    (2) The person or its associated person made any fraudulent 
misrepresentations in connection with any such obligation(s).
    (e) No obligation to provide seller financing. The FDIC still has 
the right to make an independent determination, based upon all relevant 
facts of a person's financial condition and history, of that person's 
eligibility to receive any loan or extension of credit from the FDIC, 
even if the person is not in any way disqualified from purchasing 
assets from the FDIC under the restrictions set forth in this section.
    (f) Purchaser eligibility certificate required. (1) Before any 
person may purchase any asset from the FDIC that person must certify, 
under penalty of perjury, that none of the restrictions contained in 
this section applies to the purchase. The FDIC may establish the form 
of the certification and may change the form from time to time.
    (2) Notwithstanding paragraph (f)(1) of this section, and unless 
the Director of the FDIC's Division of Resolutions and Receiverships, 
or designee, in his or her discretion so requires, a certification need 
not be provided by:
    (i) A State or political subdivision of a State;
    (ii) A Federal agency or instrumentality such as the Government 
National Mortgage Association;
    (iii) A federally-regulated, government-sponsored enterprise such 
as Federal National Mortgage Association or Federal Home Loan Mortgage 
Corporation; or
    (iv) A bridge financial company.

    Dated at Washington, DC, this 30th day of October 2013.

    By Order of the Board of Directors, Federal Deposit Insurance 
Corporation.
Valerie J. Best,
Assistant Executive Secretary.
[FR Doc. 2013-26544 Filed 11-5-13; 8:45 am]
BILLING CODE 6714-01-P