Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks, 22345-22349 [2020-08574]

Download as PDF 22345 Rules and Regulations Federal Register Vol. 85, No. 78 Wednesday, April 22, 2020 This section of the FEDERAL REGISTER contains regulatory documents having general applicability and legal effect, most of which are keyed to and codified in the Code of Federal Regulations, which is published under 50 titles pursuant to 44 U.S.C. 1510. The Code of Federal Regulations is sold by the Superintendent of Documents. FEDERAL RESERVE SYSTEM 12 CFR Part 215 [Regulation O; Docket No. 1714] RIN 7100–AF 88 Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks Board of Governors of the Federal Reserve System (Board). ACTION: Interim final rule with request for comments. AGENCY: In light of recent disruptions in economic conditions caused by the Coronavirus Disease 2019 and current strains in U.S. financial markets, the Board is issuing an interim final rule that excepts certain loans that are guaranteed under the Small Business Administration’s Paycheck Protection Program from the requirements of section 22(h) of the Federal Reserve Act and the corresponding provisions of the Board’s Regulation O. DATES: This rule is effective April 22, 2020. Comments on the interim final rule must be received no later than June 8, 2020. ADDRESSES: You may submit comments, identified by Docket No. R–1714 and RIN 7100 AF 88, by any of the following methods: • Agency Website: http:// www.federalreserve.gov. Follow the instructions for submitting comments at https://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm. • Email: regs.comments@ federalreserve.gov. Include docket and RIN numbers in the subject line of the message. • Fax: (202) 452–3819 or (202) 452– 3102. • Mail: Ann E. Misback, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. khammond on DSKJM1Z7X2PROD with RULES SUMMARY: VerDate Sep<11>2014 15:57 Apr 21, 2020 Jkt 250001 All public comments will be made available on the Board’s website at http://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons or to remove personally identifiable information at the commenter’s request. Accordingly, comments will not be edited to remove any identifying or contact information. Public comments also may be viewed electronically or in paper form in Room 146, 1709 New York Avenue NW, Washington, DC 20006, between 9:00 a.m. and 5:00 p.m. on weekdays. FOR FURTHER INFORMATION CONTACT: Laurie Schaffer, Deputy General Counsel, (202) 452–2272, Alison Thro, Deputy Associate General Counsel, (202) 452–3236, Benjamin McDonough, Assistant General Counsel, (202) 452– 2036, Josh Strazanac, Senior Attorney, (202) 452–2457, Jasmin Keskinen, Legal Assistant, (202) 475–6650, Legal Division; or Anna Lee Hewko, Associate Director, (202) 530–6360, Constance Horsley, Deputy Associate Director, (202) 452–5239, Kathryn Ballintine, Manager, (202) 452–2555, Joe Maldonado, Senior Financial Policy Analyst, (202) 973–7341, Division of Supervision and Regulation; Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. Users of Telecommunication Device for Deaf (TDD) only, call (202) 263–4869. SUPPLEMENTARY INFORMATION: Table of Contents I. Background A. The Paycheck Protection Program and Small Business Administration Lending Restrictions B. Insider Lending Restrictions in the Federal Reserve Act and Regulation O II. The Interim Final Rule III. Administrative Law Matters A. Administrative Procedure Act B. Congressional Review Act C. Paperwork Reducation Act D. Regulatory Flexibility Act E. Riegle Community Development and Regulatory Improvement Act of 1994 F. Use of Plain Language I. Background A. The Paycheck Protection Program and Small Business Administration Lending Restrictions The spread of the Coronavirus Disease 2019 (COVID–19) has disrupted economic activity in the United States PO 00000 Frm 00001 Fmt 4700 Sfmt 4700 and many other countries. In addition, financial markets have experienced significant volatility. The magnitude and persistence of the overall effects on the economy remain highly uncertain. In light of these developments, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act which, among other things, created the Paycheck Protection Program (PPP) to facilitate lending to small businesses affected by COVID–19. Under the PPP, qualified lenders, including many depository institutions subject to section 22(h) of the Federal Reserve Act and the Board’s Regulation O,1 may make loans to small businesses for payroll-related and other purposes specified in the CARES Act.2 Loans that meet the requirements for the PPP (PPP loans) set forth by the Small Business Administration (SBA) are guaranteed as to the unpaid principal and accrued interest of the loan. The guarantee for PPP loans provided by the SBA is backed by the full faith and credit of the United States. Only loans made between February 15, 2020, and June 30, 2020, are eligible for the PPP.3 The SBA has issued several interim final rules to implement the PPP.4 Under the PPP, eligible borrowers generally include businesses with fewer than 500 employees or that are otherwise considered by the SBA to be small, including individuals operating sole proprietorships, entities that are independent contractors of other businesses, certain franchisees, nonprofit corporations, veterans organizations, and Tribal businesses.5 The loan amount under the PPP is limited to the lesser of $10 million and 250 percent of a borrower’s average monthly payroll costs.6 Under the PPP, a borrower may apply to a PPP qualified lender for forgiveness of the portion of a PPP loan that is used 1 12 U.S.C. 375b; 12 CFR part 215. Law 116–136, 134 Stat. 281. CARES Act section 1102(a)(2). 3 Id. 4 Interim Final Rule: ‘‘Business Loan Program Temporary Changes; Paycheck Protection Program’’ (April 2, 2020) (85 FR 20811); Interim Final Rule: ‘‘Business Loan Program Temporary Changes; Paycheck Protection Program’’ (April 2, 2020) (85 FR 20817); Interim Final Rule: ‘‘Business Loan Program Temporary Changes; Paycheck Protection Program—Additional Eligibility Criteria and Requirements for Certain Pledges of Loans’’ (April 14, 2020) (85 FR 21747). 5 Id. 6 Id. 2 Public E:\FR\FM\22APR1.SGM 22APR1 22346 Federal Register / Vol. 85, No. 78 / Wednesday, April 22, 2020 / Rules and Regulations in the first eight weeks of the loan for payroll costs and certain mortgage, rent, and utility payments. The SBA will reimburse the PPP lender for the forgiven amount of any PPP loan.7 PPP loans will have a maturity of two years and an interest rate of 100 basis points.8 PPP lenders may not alter these terms. PPP loans are subject to the same rules, conditions, and requirements as all other loans made under section 7(a) of the Small Business Act, unless otherwise specified by the SBA in its interim final rules administering the PPP.9 Normally, SBA regulations would prohibit a PPP lender from making a PPP loan to ‘‘[b]usinesses in which the [PPP lender] or any of its Associates owns an equity interest’’ (SBA lending restrictions).10 SBA regulations define an ‘‘Associate’’ of a PPP lender to be ‘‘[a]n officer, director, key employee, or holder of 20 percent or more of the value of the [PPP] [l]ender’s . . . stock or debt instruments’’ and any entity in which one of these individuals or certain relatives ‘‘own or controls at least 20 percent.’’ 11 On April 14, 2020, the SBA issued an interim final rule stating, among other things, that SBA lending restrictions ‘‘shall not apply to prohibit an otherwise eligible business owned (in whole or part) by an outside director or holder of less than 30 percent equity interest in a PPP [l]ender from obtaining a PPP loan from the PPP [l]ender on whose board the director serves or in which the equity owner holders an interest, provided that the eligible business owned by the director or equity holder follows the same process as similarly situated customer or account holder of the [l]ender.’’ 12 The interim final rule also stated that SBA lending restrictions would continue to apply to officers and key employees of a PPP lender, and that ‘‘[f]avoritism by [a PPP] [l]ender in processing time or prioritization of [a] director’s or equity holder’s PPP application is prohibited.’’ 13 7 CARES Act section 1106. Final Rule: ‘‘Business Loan Program Temporary Changes; Paycheck Protection Program’’ (April 2, 2020). 9 Interim Final Rule: ‘‘Business Loan Program Temporary Changes; Paycheck Protection Program’’ (April 2, 2020) at 85 FR 20816. 10 13 CFR 120.110(o). 11 13 CFR 120.10. 12 Interim Final Rule: ‘‘Business Loan Program Temporary Changes; Paycheck Protection Program—Additional Eligibility Criteria and Requirements for Certain Pledges of Loans’’ (April 14, 2020). 13 Id. at 85 FR 21750. khammond on DSKJM1Z7X2PROD with RULES 8 Interim VerDate Sep<11>2014 15:57 Apr 21, 2020 Jkt 250001 B. Insider Lending Restrictions in the Federal Reserve Act and Regulation O Among other things, section 22(h) and Regulation O impose requirements on a bank regarding extensions of credit made to insiders 14 of the bank or its affiliates. Loans to insiders are subject to quantitative limits, prior approval requirements by the bank’s board, and qualitative requirements concerning loan terms.15 Regulation O also requires banks to keep certain records and make certain disclosures concerning extensions of credit subject to the rule.16 Under section 22(h), an ‘‘extension of credit’’ includes, among other things, ‘‘making or renewing any loan, granting a line of credit, or entering into any similar transaction as a result of which the person becomes obligated (directly or indirectly, or by any means whatsoever) to pay money or its equivalent to the bank.’’ 17 Accordingly, PPP loans from a bank to an insider, including the insider’s related interests,18 would be subject to the requirements of section 22(h) and Regulation O. The Housing and Community Development Act of 1992 (HCDA) 19 amended section 22(h) to authorize the Board to adopt, by regulation, exceptions to the definition of ‘‘extension of credit’’ in section 22(h) for transactions that ‘‘pose minimal risk.’’ Therefore, the Board may except PPP loans from the restrictions imposed by section 22(h) and the corresponding provisions of Regulation O if it determines that PPP loans pose minimal risk.20 II. The Interim Final Rule The legislative history of the HCDA states that a transaction poses minimal risk when the risk is ‘‘minuscule compared to that of other loans.’’ 21 PPP loans are guaranteed by the SBA, and the guarantee is backed by the full faith and credit of the United States. Unlike other SBA loans authorized under section 7(a) of the Small Business Act,22 the SBA’s guarantee for PPP loans 14 Insider means an executive officer, director, or principal shareholder, and includes any related interest of such a person. 12 CFR 215.2(h). 15 See 12 CFR 215.4. 16 See 12 CFR 215.8, 215.9, and 215.10. 17 12 U.S.C. 375b(9)(D)(i)(I). 18 Related interest of a person means a company that is controlled by that person or a political or campaign committee that is controlled by that person or the funds or services of which will benefit that person. 12 CFR 215.2(n). 19 Public Law 102–550, section 955, 106 Stat. 3672 (1992). 20 12 U.S.C. 375b(9)(D)(ii). 21 See 138 Cong. Rec. S17, 914–15 (daily ed. October 8, 1992). 22 15 U.S.C. 636(a)(1)(A). PO 00000 Frm 00002 Fmt 4700 Sfmt 4700 extends to 100 percent of the PPP loan amount. PPP loans also are less susceptible to insider abuse than other extensions of credit from a bank to an insider, other loans guaranteed by the SBA, or other extensions of credit that the Board previously has determined pose minimal risk.23 Unlike these other extensions of credit, PPP loans have standard terms that do not allow for variation between borrowers, so banks are unable to modify the terms of PPP loans to be more favorable for insiders than for borrowers that are not insiders. Furthermore, like the PPP, which only applies to loans made between February 15 and June 30, 2020, the exception in this interim final rule only applies to loans made during the same time period. Excepting PPP loans from the definition of ‘‘extension of credit’’ in section 22(h) and the corresponding provisions of Regulation O is appropriate in light of these circumstances. Accordingly, the Board has determined that PPP loans pose minimal risk. These PPP loans will not be subject to section 22(h) or the corresponding provisions of Regulation O if they are not prohibited by the SBA lending restrictions. The exception will help banks, particularly in smaller communities, to give effect to the PPP’s purpose of helping small businesses to continue to operate under current economic conditions. The Board is providing the temporary exclusion in the interim final rule to allow banking organizations to make PPP loans to a broad range of small businesses within their communities, consistent with applicable law and safe and sound banking practices. As noted, the SBA explicitly has prohibited a banking organization from favoring in processing time or prioritization a PPP application of one of its directors or equity holders and the Board will administer this interim final rule accordingly. SBA lending restrictions continue to apply to certain PPP loans that also would be subject to section 22(h) and the corresponding provisions of Regulation O. Excepting PPP loans that would be prohibited by the SBA lending restrictions from the requirements of section 22(h) and the corresponding provisions in Regulation O would not achieve any meaningful regulatory purpose. Excepting these loans from one regime and not the other also may create confusion because some lenders may 23 The Board previously excepted certain transactions from the aggregate lending limit in § 215.4(d) of Regulation O based on a determination that these transactions posed ‘‘minimal risk.’’ See 58 FR 26507 (May 4, 1993). E:\FR\FM\22APR1.SGM 22APR1 Federal Register / Vol. 85, No. 78 / Wednesday, April 22, 2020 / Rules and Regulations mistakenly interpret an exception under one regime to extend to both regimes. This determination does not impact the application of other restrictions that may apply to PPP loans, including section 22(g) of the Federal Reserve Act or § 215.5 of Regulation O.24 This determination also does not affect the SBA lending restrictions. Question 1: What are the advantages and disadvantages of excepting PPP loans from the definition of ‘‘extension of credit’’ in section 22(h) and the corresponding provisions of the Board’s Regulation O? Question 2: What are the most appropriate terms and conditions for this exception and why? III. Administrative Law Matters khammond on DSKJM1Z7X2PROD with RULES A. Administrative Procedure Act The Board is issuing the interim final rule without prior notice and the opportunity for public comment and the delayed effective date ordinarily prescribed by the Administrative Procedure Act (APA)).25 Pursuant to section 553(b)(B) of the APA, general notice and the opportunity for public comment are not required with respect to a rulemaking when an ‘‘agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.’’ 26 The Board believes that the public interest is best served by implementing the interim final rule immediately. As discussed above, the spread of COVID– 19 has disrupted economic activity in the United States and other countries. In addition, U.S. financial markets have featured substantial levels of volatility. The magnitude and persistence of COVID–19 on the economy remain uncertain. In light of the substantial disruptions in the economy, and the likelihood that this interim final rule would help ameliorate those disruptions by promoting lending to small businesses, the Board finds that there is good cause consistent with the public interest to issue the rule without advance notice and comment.27 The APA also requires a 30-day delayed effective date, except for (1) substantive rules which grant or recognize an exemption or relieve a restriction; (2) interpretative rules and statements of policy; or (3) as otherwise provided by the agency for good cause.28 Because the rules relieve a restriction by providing an exception to the definition of ‘‘extension of credit’’ in section 22(h) and Regulation O, the interim final rule is exempt from the APA’s delayed effective date requirement.29 While the Board believes that there is good cause to issue the rule without advance notice and comment and with an immediate effective date, the Board is interested in the views of the public and requests comment on all aspects of the interim final rule. B. Congressional Review Act For purposes of the Congressional Review Act, the Office of Management and Budget (OMB) makes a determination as to whether a final rule constitutes a ‘‘major’’ rule.30 If a rule is deemed a ‘‘major rule’’ by the OMB, the Congressional Review Act generally provides that the rule may not take effect until at least 60 days following its publication.31 The Congressional Review Act defines a ‘‘major rule’’ as any rule that the Administrator of the Office of Information and Regulatory Affairs of the OMB finds has resulted in or is likely to result in (A) an annual effect on the economy of $100,000,000 or more; (B) a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies or geographic regions, or (C) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreignbased enterprises in domestic and export markets.32 For the same reasons set forth above, the Board is adopting the interim final rule without the delayed effective date generally prescribed under the Congressional Review Act. The delayed effective date required by the Congressional Review Act does not apply to any rule for which an agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rule issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.33 In light of current market uncertainty, the Board believes that delaying the effective date 28 5 U.S.C. 553(d). U.S.C. 553(d)(1). 30 5 U.S.C. 801 et seq. 31 5 U.S.C. 801(a)(3). 32 5 U.S.C. 804(2). 33 5 U.S.C. 808. 29 5 24 12 U.S.C. 375a; 12 CFR 215.5. U.S.C. 553. 26 5 U.S.C. 553(b)(B). 27 5 U.S.C. 553(b)(B); 553(d)(3). 25 5 VerDate Sep<11>2014 15:57 Apr 21, 2020 Jkt 250001 PO 00000 Frm 00003 Fmt 4700 Sfmt 4700 22347 of the rule would be contrary to the public interest. As required by the Congressional Review Act, the Board will submit the final rule and other appropriate reports to Congress and the Government Accountability Office for review. C. Paperwork Reduction Act The Paperwork Reduction Act (44 U.S.C. 3501–3521) (PRA) states that no agency may conduct or sponsor, nor is the respondent required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. On June 15, 1984, OMB delegated to the Board authority under the PRA to approve and assign OMB control numbers to collections of information conducted or sponsored by the Board, as well as the authority to temporarily approve a new collection of information without providing opportunity for public comment if the Board determines that a change in an existing collection must be instituted quickly and that public participation in the approval process would defeat the purpose of the collection or substantially interfere with the Board’s ability to perform its statutory obligation. This interim final rule does not contain any collections of information subject to the PRA. However, the interim final rule does indirectly affect certain recordkeeping and disclosure requirements in Regulation O that have not previously been cleared by the Board under the PRA. In order to accurately account for these requirements pursuant to the PRA, the Board has temporarily approved a new collection of information titled Recordkeeping and Disclosure Requirements Associated with Regulation O (FR O; OMB No. 7100– NEW). The Board’s delegated authority requires that the Board, after temporarily approving a collection, solicit public comment to extend the information collections for a period not to exceed three years. Therefore, the Board is inviting comment to extend the FR O information collection for three years. The Board invites public comment on the following information collection, which is being reviewed under authority delegated by the OMB under the PRA. Comments must be submitted on or before June 22, 2020. Comments are invited on the following: a. Whether the collection of information is necessary for the proper performance of the Board’s functions, E:\FR\FM\22APR1.SGM 22APR1 22348 Federal Register / Vol. 85, No. 78 / Wednesday, April 22, 2020 / Rules and Regulations including whether the information has practical utility; b. The accuracy of the Board’s estimate of the burden of the information collection, including the validity of the methodology and assumptions used; c. Ways to enhance the quality, utility, and clarity of the information to be collected; d. Ways to minimize the burden of information collection on respondents, including through the use of automated collection techniques or other forms of information technology; and e. Estimates of capital or startup costs and costs of operation, maintenance, and purchase of services to provide information. At the end of the comment period, the comments and recommendations received will be analyzed to determine the extent to which the Board should modify the collection. khammond on DSKJM1Z7X2PROD with RULES Final Approval Under OMB Delegated Authority of the Temporary Implementation of, and Solicitation of Comment To Extend for Three Years, the Following Information Collection Collection title: Recordkeeping and Disclosure Requirements Associated with Regulation O. Agency form number: FR O. OMB control number: 7100–NEW. Effective Date: April 22, 2020. Frequency: Annual, event generated. Respondents: Member banks of the Federal Reserve System, savings associations, and any subsidiary of such institutions. Estimated number of respondents: Recordkeeping (§§ 215.8 and 215.9): 1,570; disclosure (§ 215.9): 1,570. Estimated average hours per response: Recordkeeping (§§ 215.8 and 215.9): 4; disclosure (§ 215.9): 2. Estimated annual burden hours: Recordkeeping (§§ 215.8 and 215.9): 6,280; disclosure (§ 215.9): 3,140; total: 9,420. General description of information collection: Sections 22(g) and (h) of the Federal Reserve Act 34 retstrict certain transactions between banks and their insiders or insiders of their affiliates. Insiders include executive officers, directors, principal shareholders, and companies controlled by such persons. Congress enacted sections 22(g) and (h) to prevent bank insiders from abusing their positions to gain favorable treatment from their associated banks. Congress authorized the Board to prescribe rules and regulations as necessary to effectuate the purposes and 34 12 U.S.C. 375a, 375b. VerDate Sep<11>2014 15:57 Apr 21, 2020 Jkt 250001 to prevent the evasions of the sections. Accordingly, the Board has promulgated the Board’s Regulation O to effectuate Congress’ purpose of preventing insider abuse in banks. Regulation O contains certain recordkeeping and disclosure requirements. Pursuant to § 215.8 of Regulation O, respondents must maintain records necessary for compliance with the requirements of Regulation O.35 Any recordkeeping method adopted by a respondent shall identify, through an annual survey, all insiders of the respondent and maintain records of all extensions of credit to insiders of the respondent, including the amount and terms of each such extension of credit. Additionally, any recordkeeping method adopted by a respondent shall maintain records of extensions of credit to insiders of the respondent’s affiliates by using either the survey method or borrower inquiry method, as set forth in Regulation O, or a different recordkeeping method if the appropriate Federal banking agency determines that the respondent’s method is at least as effective as the listed methods. Pursuant to § 215.9 of Regulation O, upon receipt of a written request from the public, a respondent must make available the names of each of its executive officers and each of its principal shareholders to whom, or to whose related interests, the member bank had outstanding as of the end of the latest previous quarter of the year, an extension of credit that, when aggregated with all other outstanding extensions of credit at such time from the member bank to such person and to all related interests of such person, equaled or exceeded 5 percent of the member bank’s capital and unimpaired surplus or $500,000, whichever amount is less.36 Respondents are not required to disclose the specific amounts of individual extensions of credit. Additionally, each respondent must maintain records of all requests for the information described above and the disposition of such requests. These 35 A respondent that is prohibited by law or by an express resolution of the board of directors of the respondent from making an extension of credit to any company or other entity that is covered by Regulation O as a company is not required to maintain any records of the related interests of the insiders of the respondent or its affiliates or to inquire of borrowers whether they are related interests of the insiders of the respondent or its affiliates. 12 CFR 215.8(d). 36 No such disclosure is required if the aggregate amount of all extensions of credit outstanding at such time from the member bank to the executive officer or principal shareholder of the respondent and to all related interests of such a person does not exceed $25,000. PO 00000 Frm 00004 Fmt 4700 Sfmt 4700 records may be disposed of after two years from the date of the request. The recordkeeping and disclosure requirements in §§ 215.8 and 215.9 of Regulation O are required by section 306(o) of Public Law 102–242, 105 Stat. 2236 (1991) and authorized under 12 U.S.C. 1817(k). Current actions: The Board has temporarily approved the collections of information contained within Regulation O. The Board has determined that this collection of information must be instituted quickly and that public participation in the approval process would defeat the purpose of the collection of information, as these collections of information are contained in an existing regulation, and the inability of the Board to enforce these collection of information requirements due to noncompliance with the PRA would interfere with the Board’s ability to perform its statutory duties. The Board also invites comment to extend the FR O information collection for three years. D. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) 37 requires an agency to consider whether the rules it proposes will have a significant economic impact on a substantial number of small entities.38 The RFA applies only to rules for which an agency publishes a general notice of proposed rulemaking pursuant to 5 U.S.C. 553(b). As discussed previously, consistent with section 553(b)(B) of the APA, the Board has determined for good cause that general notice and opportunity for public comment are unnecessary, and therefore the Board is not issuing a notice of proposed rulemaking. Accordingly, the Board has concluded that the RFA’s requirements relating to initial and final regulatory flexibility analysis do not apply. Nevertheless, the Board seeks comment on whether, and the extent to which, the interim final rule would affect a significant number of small entities. E. Riegle Community Development and Regulatory Improvement Act of 1994 Pursuant to section 302(a) of the Riegle Community Development and Regulatory Improvement Act (RCDRIA),39 in determining the effective 37 5 U.S.C. 601 et seq. regulations issued by the SBA, a small entity includes a depository institution, bank holding company, or savings and loan holding company with total assets of $600 million or less and trust companies with total assets of $41.5 million or less. See 13 CFR 121.201. 39 12 U.S.C. 4802(a). 38 Under E:\FR\FM\22APR1.SGM 22APR1 Federal Register / Vol. 85, No. 78 / Wednesday, April 22, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions (IDIs), the Federal banking agencies must consider, consistent with the principle of safety and soundness and the public interest, any administrative burdens that such regulations would place on depository institutions, including small depository institutions, and customers of depository institutions, as well as the benefits of such regulations. In addition, section 302(b) of RCDRIA requires new regulations and amendments to regulations that impose additional reporting, disclosures, or other new requirements on IDIs generally to take effect on the first day of a calendar quarter that begins on or after the date on which the regulations are published in final form, with certain exceptions, including for good cause.40 For the reasons described above, the Board finds good cause exists under section 302 of RCDRIA to publish this interim final rule with an immediate effective date. As such, the final rule will be effective immediately on publication. Nevertheless, the Board seeks comment on RCDRIA. F. Use of Plain Language Section 722 of the Gramm-LeachBliley Act 41 requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The Board has sought to present the interim final rule in a simple and straightforward manner. The Board invites comments on whether there are additional steps it could take to make the rule easier to understand. For example: • Have we organized the material to suit your needs? If not, how could this material be better organized? • Are the requirements in the regulation clearly stated? If not, how could the regulation be more clearly stated? • Does the regulation contain language or jargon that is not clear? If so, which language requires clarification? • Would a different format (grouping and order of sections, use of headings, paragraphing) make the regulation easier to understand? If so, what changes to the format would make the regulation easier to understand? • What else could we do to make the regulation easier to understand? 40 12 41 12 List of Subjects in 12 CFR Part 215 Credit, Penalties, Reporting and recordkeeping requirements. Authority and Issuance PART 215—LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS OF MEMBER BANKS (REGULATION O) 1. The authority citation for part 215 is revised to read as follows: ■ 15:57 Apr 21, 2020 Jkt 250001 U.S. Customs and Border Protection 19 CFR Part 24 [USCBP–2020–0017; CBP Dec. 20–05] RIN 1515–AE54 Temporary Postponement of the Time To Deposit Certain Estimated Duties, Taxes, and Fees During the National Emergency Concerning the Novel Coronavirus Disease (COVID–19) Outbreak Authority: 12 U.S.C. 248(a), 375a(10), 375b(9) and (10), 1468, 1817(k), 5412; Pub. L. 102–242, 105 Stat. 2236 (1991) (12 U.S.C. 1811 note) and Pub. L. 116–136, 134 Stat. 281. AGENCY: 2. In § 215.3: ■ a. In paragraph (b)(6), remove the words ‘‘of this part’’ and the word ‘‘or’’ at the end of the paragraph; ■ b. In paragraph (b)(7), remove the period at the end of the paragraph and add ‘‘; or’’ in its place; and ■ c. Add paragraph (b)(8). The addition reads as follows: SUMMARY: ■ Extension of credit. * * * * * (b) * * * (8) Except for purposes of § 215.5, a loan: (i) In which the participation by the Small Business Administration on a deferred basis is 100 percent pursuant to section 1102(a)(1) of Public Law 116– 136 (to be codified at 15 U.S.C. 636(a)(2)(F)); (ii) That is made during the period beginning on February 15, 2020, and ending on June 30, 2020; and (iii) That would not be prohibited by 13 CFR 120.110(o) or rules or interpretations thereof issued by the Small Business Administration. * * * * * Dated: April 17, 2020. By order of the Board of Governors of the Federal Reserve System. Ann Misback, Secretary of the Board. [FR Doc. 2020–08574 Filed 4–20–20; 11:15 am] BILLING CODE P U.S.C. 4802. U.S.C. 4809. VerDate Sep<11>2014 DEPARTMENT OF HOMELAND SECURITY DEPARTMENT OF THE TREASURY For the reasons stated in the preamble, the Board of Governors of the Federal Reserve System amends 12 CFR chapter II as follows: § 215.3 PO 00000 Frm 00005 Fmt 4700 Sfmt 4700 22349 U.S. Customs and Border Protection, Department of Homeland Security; Department of the Treasury. ACTION: Temporary final rule. In light of the President’s Proclamation Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID–19) (Presidential Proclamation 9994) under the National Emergencies Act on March 13, 2020, and the President’s Executive Order entitled ‘‘National Emergency Authority to Temporarily Extend Deadlines for Certain Estimated Payments’’ authorizing the Secretary of the Treasury to exercise the authority under section 318(a) of the Tariff Act of 1930, issued on April 18, 2020, the Secretary of the Treasury, in consultation with the designee of the Secretary of Homeland Security (U.S. Customs and Border Protection (CBP)), is amending the CBP regulations to temporarily postpone the deadline for importers of record with a significant financial hardship to deposit certain estimated duties, taxes, and fees that they would ordinarily be obligated to pay as of the date of entry, or withdrawal from warehouse, for consumption, for merchandise entered in March or April 2020, for a period of 90 days from the date that the deposit would otherwise have been due but for this emergency action. This temporary postponement does not permit return of any deposits of estimated duties, taxes, and/or fees that have been paid. This temporary postponement also does not apply to entries, or withdrawals from warehouse, subject to certain specified trade remedies, and any entry summary that includes merchandise subject to those trade remedies is not eligible under this rule. DATES: Effective date: April 20, 2020. Comments must be received by May 20, 2020. E:\FR\FM\22APR1.SGM 22APR1

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[Federal Register Volume 85, Number 78 (Wednesday, April 22, 2020)]
[Rules and Regulations]
[Pages 22345-22349]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08574]



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Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 

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Federal Register / Vol. 85, No. 78 / Wednesday, April 22, 2020 / 
Rules and Regulations

[[Page 22345]]



FEDERAL RESERVE SYSTEM

12 CFR Part 215

[Regulation O; Docket No. 1714]
RIN 7100-AF 88


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

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

ACTION: Interim final rule with request for comments.

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SUMMARY: In light of recent disruptions in economic conditions caused 
by the Coronavirus Disease 2019 and current strains in U.S. financial 
markets, the Board is issuing an interim final rule that excepts 
certain loans that are guaranteed under the Small Business 
Administration's Paycheck Protection Program from the requirements of 
section 22(h) of the Federal Reserve Act and the corresponding 
provisions of the Board's Regulation O.

DATES: This rule is effective April 22, 2020. Comments on the interim 
final rule must be received no later than June 8, 2020.

ADDRESSES: You may submit comments, identified by Docket No. R-1714 and 
RIN 7100 AF 88, by any of the following methods:
     Agency Website: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Email: [email protected]. Include docket 
and RIN numbers in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Ann E. Misback, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551.
    All public comments will be made available on the Board's website 
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons or to remove 
personally identifiable information at the commenter's request. 
Accordingly, comments will not be edited to remove any identifying or 
contact information. Public comments also may be viewed electronically 
or in paper form in Room 146, 1709 New York Avenue NW, Washington, DC 
20006, between 9:00 a.m. and 5:00 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Laurie Schaffer, Deputy General 
Counsel, (202) 452-2272, Alison Thro, Deputy Associate General Counsel, 
(202) 452-3236, Benjamin McDonough, Assistant General Counsel, (202) 
452-2036, Josh Strazanac, Senior Attorney, (202) 452-2457, Jasmin 
Keskinen, Legal Assistant, (202) 475-6650, Legal Division; or Anna Lee 
Hewko, Associate Director, (202) 530-6360, Constance Horsley, Deputy 
Associate Director, (202) 452-5239, Kathryn Ballintine, Manager, (202) 
452-2555, Joe Maldonado, Senior Financial Policy Analyst, (202) 973-
7341, Division of Supervision and Regulation; Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551. Users of Telecommunication Device for Deaf (TDD) 
only, call (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
    A. The Paycheck Protection Program and Small Business 
Administration Lending Restrictions
    B. Insider Lending Restrictions in the Federal Reserve Act and 
Regulation O
II. The Interim Final Rule
III. Administrative Law Matters
    A. Administrative Procedure Act
    B. Congressional Review Act
    C. Paperwork Reducation Act
    D. Regulatory Flexibility Act
    E. Riegle Community Development and Regulatory Improvement Act 
of 1994
    F. Use of Plain Language

I. Background

A. The Paycheck Protection Program and Small Business Administration 
Lending Restrictions

    The spread of the Coronavirus Disease 2019 (COVID-19) has disrupted 
economic activity in the United States and many other countries. In 
addition, financial markets have experienced significant volatility. 
The magnitude and persistence of the overall effects on the economy 
remain highly uncertain. In light of these developments, Congress 
passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act 
which, among other things, created the Paycheck Protection Program 
(PPP) to facilitate lending to small businesses affected by COVID-19.
    Under the PPP, qualified lenders, including many depository 
institutions subject to section 22(h) of the Federal Reserve Act and 
the Board's Regulation O,\1\ may make loans to small businesses for 
payroll-related and other purposes specified in the CARES Act.\2\ Loans 
that meet the requirements for the PPP (PPP loans) set forth by the 
Small Business Administration (SBA) are guaranteed as to the unpaid 
principal and accrued interest of the loan. The guarantee for PPP loans 
provided by the SBA is backed by the full faith and credit of the 
United States. Only loans made between February 15, 2020, and June 30, 
2020, are eligible for the PPP.\3\ The SBA has issued several interim 
final rules to implement the PPP.\4\
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    \1\ 12 U.S.C. 375b; 12 CFR part 215.
    \2\ Public Law 116-136, 134 Stat. 281. CARES Act section 
1102(a)(2).
    \3\ Id.
    \4\ Interim Final Rule: ``Business Loan Program Temporary 
Changes; Paycheck Protection Program'' (April 2, 2020) (85 FR 
20811); Interim Final Rule: ``Business Loan Program Temporary 
Changes; Paycheck Protection Program'' (April 2, 2020) (85 FR 
20817); Interim Final Rule: ``Business Loan Program Temporary 
Changes; Paycheck Protection Program--Additional Eligibility 
Criteria and Requirements for Certain Pledges of Loans'' (April 14, 
2020) (85 FR 21747).
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    Under the PPP, eligible borrowers generally include businesses with 
fewer than 500 employees or that are otherwise considered by the SBA to 
be small, including individuals operating sole proprietorships, 
entities that are independent contractors of other businesses, certain 
franchisees, nonprofit corporations, veterans organizations, and Tribal 
businesses.\5\ The loan amount under the PPP is limited to the lesser 
of $10 million and 250 percent of a borrower's average monthly payroll 
costs.\6\
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    \5\ Id.
    \6\ Id.
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    Under the PPP, a borrower may apply to a PPP qualified lender for 
forgiveness of the portion of a PPP loan that is used

[[Page 22346]]

in the first eight weeks of the loan for payroll costs and certain 
mortgage, rent, and utility payments. The SBA will reimburse the PPP 
lender for the forgiven amount of any PPP loan.\7\ PPP loans will have 
a maturity of two years and an interest rate of 100 basis points.\8\ 
PPP lenders may not alter these terms.
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    \7\ CARES Act section 1106.
    \8\ Interim Final Rule: ``Business Loan Program Temporary 
Changes; Paycheck Protection Program'' (April 2, 2020).
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    PPP loans are subject to the same rules, conditions, and 
requirements as all other loans made under section 7(a) of the Small 
Business Act, unless otherwise specified by the SBA in its interim 
final rules administering the PPP.\9\ Normally, SBA regulations would 
prohibit a PPP lender from making a PPP loan to ``[b]usinesses in which 
the [PPP lender] or any of its Associates owns an equity interest'' 
(SBA lending restrictions).\10\ SBA regulations define an ``Associate'' 
of a PPP lender to be ``[a]n officer, director, key employee, or holder 
of 20 percent or more of the value of the [PPP] [l]ender's . . . stock 
or debt instruments'' and any entity in which one of these individuals 
or certain relatives ``own or controls at least 20 percent.'' \11\
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    \9\ Interim Final Rule: ``Business Loan Program Temporary 
Changes; Paycheck Protection Program'' (April 2, 2020) at 85 FR 
20816.
    \10\ 13 CFR 120.110(o).
    \11\ 13 CFR 120.10.
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    On April 14, 2020, the SBA issued an interim final rule stating, 
among other things, that SBA lending restrictions ``shall not apply to 
prohibit an otherwise eligible business owned (in whole or part) by an 
outside director or holder of less than 30 percent equity interest in a 
PPP [l]ender from obtaining a PPP loan from the PPP [l]ender on whose 
board the director serves or in which the equity owner holders an 
interest, provided that the eligible business owned by the director or 
equity holder follows the same process as similarly situated customer 
or account holder of the [l]ender.'' \12\ The interim final rule also 
stated that SBA lending restrictions would continue to apply to 
officers and key employees of a PPP lender, and that ``[f]avoritism by 
[a PPP] [l]ender in processing time or prioritization of [a] director's 
or equity holder's PPP application is prohibited.'' \13\
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    \12\ Interim Final Rule: ``Business Loan Program Temporary 
Changes; Paycheck Protection Program--Additional Eligibility 
Criteria and Requirements for Certain Pledges of Loans'' (April 14, 
2020).
    \13\ Id. at 85 FR 21750.
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B. Insider Lending Restrictions in the Federal Reserve Act and 
Regulation O

    Among other things, section 22(h) and Regulation O impose 
requirements on a bank regarding extensions of credit made to insiders 
\14\ of the bank or its affiliates. Loans to insiders are subject to 
quantitative limits, prior approval requirements by the bank's board, 
and qualitative requirements concerning loan terms.\15\ Regulation O 
also requires banks to keep certain records and make certain 
disclosures concerning extensions of credit subject to the rule.\16\ 
Under section 22(h), an ``extension of credit'' includes, among other 
things, ``making or renewing any loan, granting a line of credit, or 
entering into any similar transaction as a result of which the person 
becomes obligated (directly or indirectly, or by any means whatsoever) 
to pay money or its equivalent to the bank.'' \17\ Accordingly, PPP 
loans from a bank to an insider, including the insider's related 
interests,\18\ would be subject to the requirements of section 22(h) 
and Regulation O.
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    \14\ Insider means an executive officer, director, or principal 
shareholder, and includes any related interest of such a person. 12 
CFR 215.2(h).
    \15\ See 12 CFR 215.4.
    \16\ See 12 CFR 215.8, 215.9, and 215.10.
    \17\ 12 U.S.C. 375b(9)(D)(i)(I).
    \18\ Related interest of a person means a company that is 
controlled by that person or a political or campaign committee that 
is controlled by that person or the funds or services of which will 
benefit that person. 12 CFR 215.2(n).
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    The Housing and Community Development Act of 1992 (HCDA) \19\ 
amended section 22(h) to authorize the Board to adopt, by regulation, 
exceptions to the definition of ``extension of credit'' in section 
22(h) for transactions that ``pose minimal risk.'' Therefore, the Board 
may except PPP loans from the restrictions imposed by section 22(h) and 
the corresponding provisions of Regulation O if it determines that PPP 
loans pose minimal risk.\20\
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    \19\ Public Law 102-550, section 955, 106 Stat. 3672 (1992).
    \20\ 12 U.S.C. 375b(9)(D)(ii).
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II. The Interim Final Rule

    The legislative history of the HCDA states that a transaction poses 
minimal risk when the risk is ``minuscule compared to that of other 
loans.'' \21\ PPP loans are guaranteed by the SBA, and the guarantee is 
backed by the full faith and credit of the United States. Unlike other 
SBA loans authorized under section 7(a) of the Small Business Act,\22\ 
the SBA's guarantee for PPP loans extends to 100 percent of the PPP 
loan amount. PPP loans also are less susceptible to insider abuse than 
other extensions of credit from a bank to an insider, other loans 
guaranteed by the SBA, or other extensions of credit that the Board 
previously has determined pose minimal risk.\23\ Unlike these other 
extensions of credit, PPP loans have standard terms that do not allow 
for variation between borrowers, so banks are unable to modify the 
terms of PPP loans to be more favorable for insiders than for borrowers 
that are not insiders. Furthermore, like the PPP, which only applies to 
loans made between February 15 and June 30, 2020, the exception in this 
interim final rule only applies to loans made during the same time 
period. Excepting PPP loans from the definition of ``extension of 
credit'' in section 22(h) and the corresponding provisions of 
Regulation O is appropriate in light of these circumstances.
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    \21\ See 138 Cong. Rec. S17, 914-15 (daily ed. October 8, 1992).
    \22\ 15 U.S.C. 636(a)(1)(A).
    \23\ The Board previously excepted certain transactions from the 
aggregate lending limit in Sec.  215.4(d) of Regulation O based on a 
determination that these transactions posed ``minimal risk.'' See 58 
FR 26507 (May 4, 1993).
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    Accordingly, the Board has determined that PPP loans pose minimal 
risk. These PPP loans will not be subject to section 22(h) or the 
corresponding provisions of Regulation O if they are not prohibited by 
the SBA lending restrictions. The exception will help banks, 
particularly in smaller communities, to give effect to the PPP's 
purpose of helping small businesses to continue to operate under 
current economic conditions. The Board is providing the temporary 
exclusion in the interim final rule to allow banking organizations to 
make PPP loans to a broad range of small businesses within their 
communities, consistent with applicable law and safe and sound banking 
practices. As noted, the SBA explicitly has prohibited a banking 
organization from favoring in processing time or prioritization a PPP 
application of one of its directors or equity holders and the Board 
will administer this interim final rule accordingly.
    SBA lending restrictions continue to apply to certain PPP loans 
that also would be subject to section 22(h) and the corresponding 
provisions of Regulation O. Excepting PPP loans that would be 
prohibited by the SBA lending restrictions from the requirements of 
section 22(h) and the corresponding provisions in Regulation O would 
not achieve any meaningful regulatory purpose. Excepting these loans 
from one regime and not the other also may create confusion because 
some lenders may

[[Page 22347]]

mistakenly interpret an exception under one regime to extend to both 
regimes.
    This determination does not impact the application of other 
restrictions that may apply to PPP loans, including section 22(g) of 
the Federal Reserve Act or Sec.  215.5 of Regulation O.\24\ This 
determination also does not affect the SBA lending restrictions.
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    \24\ 12 U.S.C. 375a; 12 CFR 215.5.
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    Question 1: What are the advantages and disadvantages of excepting 
PPP loans from the definition of ``extension of credit'' in section 
22(h) and the corresponding provisions of the Board's Regulation O?
    Question 2: What are the most appropriate terms and conditions for 
this exception and why?

III. Administrative Law Matters

A. Administrative Procedure Act

    The Board is issuing the interim final rule without prior notice 
and the opportunity for public comment and the delayed effective date 
ordinarily prescribed by the Administrative Procedure Act (APA)).\25\ 
Pursuant to section 553(b)(B) of the APA, general notice and the 
opportunity for public comment are not required with respect to a 
rulemaking when an ``agency for good cause finds (and incorporates the 
finding and a brief statement of reasons therefor in the rules issued) 
that notice and public procedure thereon are impracticable, 
unnecessary, or contrary to the public interest.'' \26\
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    \25\ 5 U.S.C. 553.
    \26\ 5 U.S.C. 553(b)(B).
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    The Board believes that the public interest is best served by 
implementing the interim final rule immediately. As discussed above, 
the spread of COVID-19 has disrupted economic activity in the United 
States and other countries. In addition, U.S. financial markets have 
featured substantial levels of volatility. The magnitude and 
persistence of COVID-19 on the economy remain uncertain. In light of 
the substantial disruptions in the economy, and the likelihood that 
this interim final rule would help ameliorate those disruptions by 
promoting lending to small businesses, the Board finds that there is 
good cause consistent with the public interest to issue the rule 
without advance notice and comment.\27\
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    \27\ 5 U.S.C. 553(b)(B); 553(d)(3).
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    The APA also requires a 30-day delayed effective date, except for 
(1) substantive rules which grant or recognize an exemption or relieve 
a restriction; (2) interpretative rules and statements of policy; or 
(3) as otherwise provided by the agency for good cause.\28\ Because the 
rules relieve a restriction by providing an exception to the definition 
of ``extension of credit'' in section 22(h) and Regulation O, the 
interim final rule is exempt from the APA's delayed effective date 
requirement.\29\
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    \28\ 5 U.S.C. 553(d).
    \29\ 5 U.S.C. 553(d)(1).
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    While the Board believes that there is good cause to issue the rule 
without advance notice and comment and with an immediate effective 
date, the Board is interested in the views of the public and requests 
comment on all aspects of the interim final rule.

B. Congressional Review Act

    For purposes of the Congressional Review Act, the Office of 
Management and Budget (OMB) makes a determination as to whether a final 
rule constitutes a ``major'' rule.\30\ If a rule is deemed a ``major 
rule'' by the OMB, the Congressional Review Act generally provides that 
the rule may not take effect until at least 60 days following its 
publication.\31\
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    \30\ 5 U.S.C. 801 et seq.
    \31\ 5 U.S.C. 801(a)(3).
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    The Congressional Review Act defines a ``major rule'' as any rule 
that the Administrator of the Office of Information and Regulatory 
Affairs of the OMB finds has resulted in or is likely to result in (A) 
an annual effect on the economy of $100,000,000 or more; (B) a major 
increase in costs or prices for consumers, individual industries, 
Federal, State, or local government agencies or geographic regions, or 
(C) significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic and 
export markets.\32\
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    \32\ 5 U.S.C. 804(2).
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    For the same reasons set forth above, the Board is adopting the 
interim final rule without the delayed effective date generally 
prescribed under the Congressional Review Act. The delayed effective 
date required by the Congressional Review Act does not apply to any 
rule for which an agency for good cause finds (and incorporates the 
finding and a brief statement of reasons therefor in the rule issued) 
that notice and public procedure thereon are impracticable, 
unnecessary, or contrary to the public interest.\33\ In light of 
current market uncertainty, the Board believes that delaying the 
effective date of the rule would be contrary to the public interest.
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    \33\ 5 U.S.C. 808.
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    As required by the Congressional Review Act, the Board will submit 
the final rule and other appropriate reports to Congress and the 
Government Accountability Office for review.

C. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. 3501-3521) (PRA) states that 
no agency may conduct or sponsor, nor is the respondent required to 
respond to, an information collection unless it displays a currently 
valid Office of Management and Budget (OMB) control number. On June 15, 
1984, OMB delegated to the Board authority under the PRA to approve and 
assign OMB control numbers to collections of information conducted or 
sponsored by the Board, as well as the authority to temporarily approve 
a new collection of information without providing opportunity for 
public comment if the Board determines that a change in an existing 
collection must be instituted quickly and that public participation in 
the approval process would defeat the purpose of the collection or 
substantially interfere with the Board's ability to perform its 
statutory obligation.
    This interim final rule does not contain any collections of 
information subject to the PRA. However, the interim final rule does 
indirectly affect certain recordkeeping and disclosure requirements in 
Regulation O that have not previously been cleared by the Board under 
the PRA. In order to accurately account for these requirements pursuant 
to the PRA, the Board has temporarily approved a new collection of 
information titled Recordkeeping and Disclosure Requirements Associated 
with Regulation O (FR O; OMB No. 7100-NEW).
    The Board's delegated authority requires that the Board, after 
temporarily approving a collection, solicit public comment to extend 
the information collections for a period not to exceed three years. 
Therefore, the Board is inviting comment to extend the FR O information 
collection for three years.
    The Board invites public comment on the following information 
collection, which is being reviewed under authority delegated by the 
OMB under the PRA. Comments must be submitted on or before June 22, 
2020. Comments are invited on the following:
    a. Whether the collection of information is necessary for the 
proper performance of the Board's functions,

[[Page 22348]]

including whether the information has practical utility;
    b. The accuracy of the Board's estimate of the burden of the 
information collection, including the validity of the methodology and 
assumptions used;
    c. Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    d. Ways to minimize the burden of information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    e. Estimates of capital or startup costs and costs of operation, 
maintenance, and purchase of services to provide information.
    At the end of the comment period, the comments and recommendations 
received will be analyzed to determine the extent to which the Board 
should modify the collection.
Final Approval Under OMB Delegated Authority of the Temporary 
Implementation of, and Solicitation of Comment To Extend for Three 
Years, the Following Information Collection
    Collection title: Recordkeeping and Disclosure Requirements 
Associated with Regulation O.
    Agency form number: FR O.
    OMB control number: 7100-NEW.
    Effective Date: April 22, 2020.
    Frequency: Annual, event generated.
    Respondents: Member banks of the Federal Reserve System, savings 
associations, and any subsidiary of such institutions.
    Estimated number of respondents: Recordkeeping (Sec. Sec.  215.8 
and 215.9): 1,570; disclosure (Sec.  215.9): 1,570.
    Estimated average hours per response: Recordkeeping (Sec. Sec.  
215.8 and 215.9): 4; disclosure (Sec.  215.9): 2.
    Estimated annual burden hours: Recordkeeping (Sec. Sec.  215.8 and 
215.9): 6,280; disclosure (Sec.  215.9): 3,140; total: 9,420.
    General description of information collection:
    Sections 22(g) and (h) of the Federal Reserve Act \34\ retstrict 
certain transactions between banks and their insiders or insiders of 
their affiliates. Insiders include executive officers, directors, 
principal shareholders, and companies controlled by such persons. 
Congress enacted sections 22(g) and (h) to prevent bank insiders from 
abusing their positions to gain favorable treatment from their 
associated banks. Congress authorized the Board to prescribe rules and 
regulations as necessary to effectuate the purposes and to prevent the 
evasions of the sections. Accordingly, the Board has promulgated the 
Board's Regulation O to effectuate Congress' purpose of preventing 
insider abuse in banks.
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    \34\ 12 U.S.C. 375a, 375b.
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    Regulation O contains certain recordkeeping and disclosure 
requirements. Pursuant to Sec.  215.8 of Regulation O, respondents must 
maintain records necessary for compliance with the requirements of 
Regulation O.\35\ Any recordkeeping method adopted by a respondent 
shall identify, through an annual survey, all insiders of the 
respondent and maintain records of all extensions of credit to insiders 
of the respondent, including the amount and terms of each such 
extension of credit. Additionally, any recordkeeping method adopted by 
a respondent shall maintain records of extensions of credit to insiders 
of the respondent's affiliates by using either the survey method or 
borrower inquiry method, as set forth in Regulation O, or a different 
recordkeeping method if the appropriate Federal banking agency 
determines that the respondent's method is at least as effective as the 
listed methods.
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    \35\ A respondent that is prohibited by law or by an express 
resolution of the board of directors of the respondent from making 
an extension of credit to any company or other entity that is 
covered by Regulation O as a company is not required to maintain any 
records of the related interests of the insiders of the respondent 
or its affiliates or to inquire of borrowers whether they are 
related interests of the insiders of the respondent or its 
affiliates. 12 CFR 215.8(d).
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    Pursuant to Sec.  215.9 of Regulation O, upon receipt of a written 
request from the public, a respondent must make available the names of 
each of its executive officers and each of its principal shareholders 
to whom, or to whose related interests, the member bank had outstanding 
as of the end of the latest previous quarter of the year, an extension 
of credit that, when aggregated with all other outstanding extensions 
of credit at such time from the member bank to such person and to all 
related interests of such person, equaled or exceeded 5 percent of the 
member bank's capital and unimpaired surplus or $500,000, whichever 
amount is less.\36\ Respondents are not required to disclose the 
specific amounts of individual extensions of credit. Additionally, each 
respondent must maintain records of all requests for the information 
described above and the disposition of such requests. These records may 
be disposed of after two years from the date of the request.
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    \36\ No such disclosure is required if the aggregate amount of 
all extensions of credit outstanding at such time from the member 
bank to the executive officer or principal shareholder of the 
respondent and to all related interests of such a person does not 
exceed $25,000.
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    The recordkeeping and disclosure requirements in Sec. Sec.  215.8 
and 215.9 of Regulation O are required by section 306(o) of Public Law 
102-242, 105 Stat. 2236 (1991) and authorized under 12 U.S.C. 1817(k).
    Current actions: The Board has temporarily approved the collections 
of information contained within Regulation O. The Board has determined 
that this collection of information must be instituted quickly and that 
public participation in the approval process would defeat the purpose 
of the collection of information, as these collections of information 
are contained in an existing regulation, and the inability of the Board 
to enforce these collection of information requirements due to 
noncompliance with the PRA would interfere with the Board's ability to 
perform its statutory duties.
    The Board also invites comment to extend the FR O information 
collection for three years.

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \37\ requires an agency to 
consider whether the rules it proposes will have a significant economic 
impact on a substantial number of small entities.\38\ The RFA applies 
only to rules for which an agency publishes a general notice of 
proposed rulemaking pursuant to 5 U.S.C. 553(b). As discussed 
previously, consistent with section 553(b)(B) of the APA, the Board has 
determined for good cause that general notice and opportunity for 
public comment are unnecessary, and therefore the Board is not issuing 
a notice of proposed rulemaking. Accordingly, the Board has concluded 
that the RFA's requirements relating to initial and final regulatory 
flexibility analysis do not apply.
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    \37\ 5 U.S.C. 601 et seq.
    \38\ Under regulations issued by the SBA, a small entity 
includes a depository institution, bank holding company, or savings 
and loan holding company with total assets of $600 million or less 
and trust companies with total assets of $41.5 million or less. See 
13 CFR 121.201.
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    Nevertheless, the Board seeks comment on whether, and the extent to 
which, the interim final rule would affect a significant number of 
small entities.

E. Riegle Community Development and Regulatory Improvement Act of 1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act (RCDRIA),\39\ in determining the effective

[[Page 22349]]

date and administrative compliance requirements for new regulations 
that impose additional reporting, disclosure, or other requirements on 
insured depository institutions (IDIs), the Federal banking agencies 
must consider, consistent with the principle of safety and soundness 
and the public interest, any administrative burdens that such 
regulations would place on depository institutions, including small 
depository institutions, and customers of depository institutions, as 
well as the benefits of such regulations. In addition, section 302(b) 
of RCDRIA requires new regulations and amendments to regulations that 
impose additional reporting, disclosures, or other new requirements on 
IDIs generally to take effect on the first day of a calendar quarter 
that begins on or after the date on which the regulations are published 
in final form, with certain exceptions, including for good cause.\40\ 
For the reasons described above, the Board finds good cause exists 
under section 302 of RCDRIA to publish this interim final rule with an 
immediate effective date.
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    \39\ 12 U.S.C. 4802(a).
    \40\ 12 U.S.C. 4802.
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    As such, the final rule will be effective immediately on 
publication. Nevertheless, the Board seeks comment on RCDRIA.

F. Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \41\ requires the Federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The Board has sought to present the 
interim final rule in a simple and straightforward manner. The Board 
invites comments on whether there are additional steps it could take to 
make the rule easier to understand. For example:
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    \41\ 12 U.S.C. 4809.
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     Have we organized the material to suit your needs? If not, 
how could this material be better organized?
     Are the requirements in the regulation clearly stated? If 
not, how could the regulation be more clearly stated?
     Does the regulation contain language or jargon that is not 
clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes to the format would make the regulation 
easier to understand?
     What else could we do to make the regulation easier to 
understand?

List of Subjects in 12 CFR Part 215

    Credit, Penalties, Reporting and recordkeeping requirements.

Authority and Issuance

    For the reasons stated in the preamble, the Board of Governors of 
the Federal Reserve System amends 12 CFR chapter II as follows:

PART 215--LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL 
SHAREHOLDERS OF MEMBER BANKS (REGULATION O)

0
1. The authority citation for part 215 is revised to read as follows:

    Authority:  12 U.S.C. 248(a), 375a(10), 375b(9) and (10), 1468, 
1817(k), 5412; Pub. L. 102-242, 105 Stat. 2236 (1991) (12 U.S.C. 
1811 note) and Pub. L. 116-136, 134 Stat. 281.


0
2. In Sec.  215.3:
0
a. In paragraph (b)(6), remove the words ``of this part'' and the word 
``or'' at the end of the paragraph;
0
b. In paragraph (b)(7), remove the period at the end of the paragraph 
and add ``; or'' in its place; and
0
c. Add paragraph (b)(8).
    The addition reads as follows:


Sec.  215.3   Extension of credit.

* * * * *
    (b) * * *
    (8) Except for purposes of Sec.  215.5, a loan:
    (i) In which the participation by the Small Business Administration 
on a deferred basis is 100 percent pursuant to section 1102(a)(1) of 
Public Law 116-136 (to be codified at 15 U.S.C. 636(a)(2)(F));
    (ii) That is made during the period beginning on February 15, 2020, 
and ending on June 30, 2020; and
    (iii) That would not be prohibited by 13 CFR 120.110(o) or rules or 
interpretations thereof issued by the Small Business Administration.
* * * * *

    Dated: April 17, 2020.

    By order of the Board of Governors of the Federal Reserve 
System.
Ann Misback,
Secretary of the Board.
[FR Doc. 2020-08574 Filed 4-20-20; 11:15 am]
 BILLING CODE P