Applicability of Annual Independent Audits and Reporting Requirements for Fiscal Years Ending in 2021, 67427-67433 [2020-23630]

Download as PDF 67427 Rules and Regulations Federal Register Vol. 85, No. 206 Friday, October 23, 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. DEPARTMENT OF AGRICULTURE Rural Utilities Service 7 CFR Part 1719 RIN 0572–AC45 Rural Energy Savings Program Rural Utilities Service, USDA. Final rule and response to comments. AGENCY: ACTION: The Rural Utilities Service (RUS), a Rural Development agency of the United States Department of Agriculture (USDA), is confirming the final rule published in the Federal Register on April 2, 2020 to establish the Rural Energy Savings Program (RESP) as authorized by Section 6407 of the Farm Security and Rural Investment Act of 2002, as amended. This document also provides the Agency an opportunity to acknowledge public comments received on the final rule. DATES: The final rule published April 2, 2020 at 85 FR 18413 is confirmed. FOR FURTHER INFORMATION CONTACT: Robert Coates, Rural Utilities Service, Electric Program, Rural Development, United States Department of Agriculture, 1400 Independence Avenue SW, STOP 1568, Room 5165–S, Washington, DC 20250; Telephone: (202) 260–5415; Email Robert.Coates@ usda.gov. SUMMARY: The Rural Utilities Service published the RESP final rule to assist rural families and small businesses achieve cost savings by providing loans to qualified consumers through eligible entities to implement durable cost-effective energy efficiency measures pursuant to 7 U.S.C. 8107a(a) of the RESP authorizing statute. The Secretary may use this funding to allow eligible entities to offer energy efficiency loans to customers in any part of their service territory in accordance to 7 CFR part 1719. The Agency encourages applications that will khammond on DSKJM1Z7X2PROD with RULES SUPPLEMENTARY INFORMATION: VerDate Sep<11>2014 16:19 Oct 22, 2020 Jkt 253001 support recommendations made in the Rural Prosperity Task Force report (see www.usda.gov/ruralprosperity) to help improve life in rural America, to consider projects that provide measurable results in helping rural communities build robust and sustainable economies through strategic investments in infrastructure, partnerships and innovation. Key strategies include: Achieving eConnectivity for rural America, developing the rural economy, harnessing technological innovation, supporting a rural workforce, and improving quality of life. Summary of Comments and Responses RUS invited comments on the final rule published on April 2, 2020 in the Federal Register (85 FR 18413) and received three comments. Two comments were received were from business organizations; Fleet Development and Energy Trust. One comment was received from an individual, Mr. Inri Gonzalez. The comments and Agency’s responses are summarized as follows: Issue 1: One individual and one organization expressed support for the Program as published on April 2, 2020 in the Federal Register. Agency Response: The Agency appreciates the input from the two respondents that support the final rule. Issue 2: Two commenters provide energy efficiency services in their state, including services to multi-family dwellings and manufactured homes, and more specifically the replacement of substandard manufactured housing units. One commenter wrote that ‘‘One recommendation we offer is to reconsider the allowable payback period of both the RESP loan to the eligible borrower and the loan from the borrower to the qualified consumer. Often utility infrastructure, energy efficiency and renewable energy projects are major long-term capital investments. It is not uncommon for a project of any scale to meet its return on investment in the 12–20-year range and then deliver energy savings for the next 10–20 years. We believe this financial reality may have been partly responsible for the historic under use of the program. Energy efficiency and renewable energy projects deliver their primary energy savings in the out years and are essentially break-even projects in the first years. A debt amortization PO 00000 Frm 00001 Fmt 4700 Sfmt 4700 period of only 10-years can leave a significant gap from Year 10 on.’’ The commenter suggested a potential solution would be to allow the eligible borrower to request repayment schedules that fit the needs of the project for both repayment to RESP and the qualified consumer repayment to the re-lender. The other commenter states that their company invested in manufactured home replacement projects in Oregon. ‘‘It has been our experience that the higher monthly payments associated with a 10-year loan term for higher cost measures such as manufactured homes, can constitute a significant obstacle for low- and moderate-income Oregonians—many of whom live in rural communities. The manufactured home replacement pilot program which they successfully operate utilizes a 20-year customer loan term. Should RUS find it feasible to do so, the agency should consider whether extending the Qualified consumer loan term to 20 years would result in more uptake by rural utility customers and more effectively advance RUS ability to deploy these funds to the benefit of rural Americans.’’ Agency Response—The current 10year maturity on loans to qualified consumers is a statutory requirement provided in the Rural Energy Savings Program enabling statute, see 7 U.S.C. 8107a(d)(1)(B). An amendment to that program feature will require Congressional action. The RUS appreciates the interest of the commenters in the RESP and thanks them for their submissions. Chad Rupe, Administrator, Rural Utilities Service. [FR Doc. 2020–21772 Filed 10–22–20; 8:45 am] BILLING CODE P FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 363 RIN 3064–AF63 Applicability of Annual Independent Audits and Reporting Requirements for Fiscal Years Ending in 2021 Federal Deposit Insurance Corporation (FDIC). ACTION: Interim final rule and request for comment. AGENCY: E:\FR\FM\23OCR1.SGM 23OCR1 67428 Federal Register / Vol. 85, No. 206 / Friday, October 23, 2020 / Rules and Regulations In light of recent disruptions in economic conditions caused by the coronavirus disease 2019 (COVID–19) and strains in U.S. financial markets, some insured depository institutions (IDIs) have experienced increases to their consolidated total assets as a result of large cash inflows resulting from participation in the Paycheck Protection Program (PPP), the Money Market Mutual Fund Liquidity Facility (MMLF), the Paycheck Protection Program Liquidity Facility (PPPLF), and the effects of other government stimulus efforts. Since these inflows may be temporary, but are significant and unpredictable, the FDIC is issuing an interim final rule (IFR) that will allow IDIs to determine the applicability of part 363 of the FDIC’s regulations, Annual Independent Audits and Reporting Requirements, for fiscal years ending in 2021 based on the lesser of their consolidated total assets as of December 31, 2019, or consolidated total assets as of the beginning of their fiscal years ending 2021. Notwithstanding any temporary relief provided by this IFR, an IDI would continue to be subject to any otherwise applicable statutory and regulatory audit and reporting requirements. The IFR also reserves the authority to require an IDI to comply with one or more requirements of part 363 if the FDIC determines that asset growth was related to a merger or acquisition. DATES: The interim final rule is effective October 23, 2020 through December 31, 2021, unless extended by the FDIC. Comments on the interim final rule must be received no later than November 23, 2020. ADDRESSES: You may submit comments, identified by RIN 3064–AF63, by any of the following methods: • Agency Website: https:// www.fdic.gov/regulations/laws/federal. Follow instructions for submitting comments on the Agency website. • Email: Comments@FDIC.gov. Include ‘‘RIN 3064–AF63’’ on the subject line of the message. • Mail: Robert E. Feldman, Executive Secretary, Attention: Comments/RIN 3064–AF63, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429. • Hand Delivery/Courier: Comments may be hand-delivered to the 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. All comments received must include the agency name (FDIC) and RIN 3064AF63, and will be posted without change to https://www.fdic.gov/ khammond on DSKJM1Z7X2PROD with RULES SUMMARY: VerDate Sep<11>2014 16:19 Oct 22, 2020 Jkt 253001 regulations/laws/federal, including any personal information provided. FOR FURTHER INFORMATION CONTACT: Harrison E. Greene, Jr., Assistant Chief Accountant, (202) 898–8905, hgreene@ fdic.gov; Shannon M. Beattie, Section Chief and Deputy Chief Accountant, (202) 898–3952, sbeattie@fdic.gov; John Rieger, Chief Accountant, (202) 898– 3602, jrieger@fdic.gov; Mark G. Flanigan, Senior Counsel, (202) 898– 7426, mflanigan@fdic.gov; Joyce M. Raidle, Counsel, (202) 898–6763, jraidle@fdic.gov; and Merritt Pardini, Counsel, (202) 898–6680, mpardini@ fdic.gov, Legal Division, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429. For the hearing impaired only, Telecommunication Device for the Deaf (TDD), (800) 925–4618. SUPPLEMENTARY INFORMATION: Table of Contents I. Background A. Selected Government Responses Related to the Pandemic B. Section 36 of the Federal Deposit Insurance Act (FDI Act) and Part 363 of the FDIC Regulations C. Effects of Government Response Programs on IDI Growth II. The Interim Final Rule III. Expected Effects IV. Alternatives Considered V. Administrative Law Matters A. Administrative Procedure Act B. Congressional Review Act C. Paperwork Reduction Act D. Regulatory Flexibility Act E. Riegle Community Development and Regulatory Improvement Act of 1994 F. Use of Plain Language I. Background A. Selected Government Responses Related to the Pandemic Recent events have significantly and adversely impacted the global economy and financial markets. The spread of COVID–19 has slowed economic activity in many countries, including the United States. Sudden disruptions in financial markets placed increasing liquidity pressure on money market mutual funds (MMFs) and raised the cost of credit for most borrowers. MMFs faced redemption requests from clients with immediate cash needs and potentially the need to sell a significant number of assets to meet these redemption requests, which further increased market pressures. In order to prevent the disruption in the money markets from destabilizing the financial system, on March 18, 2020, the Board of Governors of the Federal Reserve System (Board of Governors), with approval of the Secretary of the Treasury, authorized the Federal PO 00000 Frm 00002 Fmt 4700 Sfmt 4700 Reserve Bank of Boston (FRBB) to establish the MMLF pursuant to section 13(3) of the Federal Reserve Act.1 Under the MMLF, the FRBB is extending nonrecourse loans to eligible borrowers to purchase assets from MMFs. Assets purchased from MMFs are posted as collateral to the FRBB. Eligible borrowers under the MMLF include IDIs. Eligible collateral under the MMLF includes U.S. Treasuries and fully guaranteed agency securities, securities issued by government-sponsored enterprises, and certain types of commercial paper. The MMLF is scheduled to terminate on December 31, 2020, unless extended by the Board of Governors.2 Small businesses also face severe liquidity constraints and a collapse in revenue streams, as millions of Americans were ordered to stay home, severely reducing their ability to engage in normal commerce. Many small businesses were forced to close temporarily or furlough employees. Continued access to financing will be crucial for small businesses to weather economic disruptions caused by COVID–19 and, ultimately, to help restore economic activity. In recognition of the exigent circumstances facing small businesses, Congress created the PPP as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).3 PPP loans are fully guaranteed as to principal and accrued interest by the Small Business Administration (SBA), the amount of each being determined at the time the guarantee is exercised. As a general matter, SBA guarantees are backed by the full faith and credit of the U.S. Government. PPP loans also afford borrowers forgiveness up to the principal amount of the PPP loan if the loan proceeds are used for certain eligible expenses. The SBA reimburses PPP lenders for any amount of a PPP loan that is forgiven. PPP lenders are not held liable for any representations made by PPP borrowers in connection with a borrower’s request for PPP loan forgiveness.4 On June 5, 2020, the 1 12 U.S.C. 343(3). Federal Reserve Board announces an extension through December 31 of its lending facilities that were scheduled to expire on or around September 30 (https:// www.federalreserve.gov/newsevents/pressreleases/ monetary20200728a.htm). 3 Public Law 116–136 (Mar. 27, 2020). 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 or acting as independent contractors, certain franchisees, nonprofit corporations, veterans’ organizations, and Tribal businesses. The loan amount under the PPP would 2 See E:\FR\FM\23OCR1.SGM 23OCR1 Federal Register / Vol. 85, No. 206 / Friday, October 23, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act) was signed into law, amending key provisions of the CARES Act, including provisions related to loan maturity, deferral of loan payments, and loan forgiveness.5 Among other changes, the amendments increase from two to five years the maturity of PPP loans that are approved by the SBA on or after June 5, 2020, and provide greater flexibility for borrowers to qualify for loan forgiveness. In order to provide liquidity to small business lenders and the broader credit markets, and to help stabilize the financial system, on April 8, 2020, the Board of Governors, with approval of the Secretary of the Treasury, authorized each of the Federal Reserve Banks to extend credit under the PPPLF pursuant to Section 13(3) of the Federal Reserve Act.6 Under the PPPLF, the Federal Reserve Banks are extending nonrecourse loans to institutions that are eligible to make PPP loans, including IDIs. Under the PPPLF, only PPP loans that are guaranteed by the SBA with respect to both principal and interest and that are originated by an eligible institution may be pledged as collateral to the Federal Reserve Banks (loans pledged to the PPPLF). The maturity date of the extension of credit under the PPPLF 7 equals the maturity date of the PPP loans pledged to secure the extension of credit.8 No new be limited to the lesser of $10 million and 250 percent of a borrower’s average monthly payroll costs. For more information on the Paycheck Protection Program, see https://www.sba.gov/ funding-programs/loans/coronavirus-relief-options/ paycheck-protection-program-ppp. 5 Public Law 116–142 (June 5, 2020). The SBA subsequently issued an interim final rule revising the SBA’s interim final rule implementing sections 1102 and 1106 of the CARES Act temporarily adding the Paycheck Protection Program to the SBA’s 7(a) Loan Program published on April 15, 2020. See 85 FR 20811 (Apr. 15, 2020) and 85 FR 36308 (June 16, 2020). 6 12 U.S.C. 343(3). On April 30, 2020, the facility was renamed the Paycheck Protection Program Liquidity Facility, from Paycheck Protection Program Lending Facility. See Periodic Report: Update on Outstanding Lending Facilities Authorized by the Board under Section 13(3) of the Federal Reserve Act May 15, 2020, Board of Governors of the Federal Reserve System (https:// www.federalreserve.gov/publications/files/mlfmsnlf-mself-and-ppplf-5-15-20.pdf). 7 The maturity date of the extension of credit under the PPPLF will be accelerated if the underlying PPP loan goes into default and the eligible borrower sells the PPP Loan to the SBA to realize the SBA guarantee. The maturity date of the extension of credit under the PPPLF also will be accelerated to the extent of any PPP loan forgiveness reimbursement received by the eligible borrower from the SBA. 8 Under the SBA’s interim final rule, a lender may request that the SBA purchase the expected forgiveness amount of a PPP loan or pool of PPP loans at the end of the covered period. See Interim Final Rule ‘‘Business Loan Program Temporary VerDate Sep<11>2014 16:19 Oct 22, 2020 Jkt 253001 extensions of credit will be made under the PPPLF after December 31, 2020, unless extended by the Board of Governors and the Department of the Treasury. The FDIC, Board of Governors, and Comptroller of the Currency adopted interim final rules on March 23, 2020, and April 13, 2020, respectively, to allow banking organizations to neutralize the regulatory capital effects of purchasing assets under the MMLF program and loans pledged to the PPPLF.9 Consistent with Section 1102 of the CARES Act, the April 2020 interim final rule also required banking organizations to apply a zero percent risk weight to PPP loans originated by the banking organization under the PPP for purposes of the banking organization’s risk-based capital requirements. On June 26, 2020, the FDIC adopted a rule that mitigates the deposit insurance assessment effects of participating in the PPP, PPPLF and MMLF.10 Among other changes, the final rule provides an offset to an IDI’s total assessment amount for the increase in its assessment base attributable to participation in the PPP and MMLF. The FDIC remains committed to considering additional, targeted adjustments to mitigate to the greatest extent possible unintended consequences resulting from pandemicrelated stimulus actions. B. Section 36 of the Federal Deposit Insurance Act (FDI Act) and Part 363 of the FDIC Regulations Section 36 of the FDI Act (section 36) was added by the Federal Deposit Insurance Corporation Improvement Act of 1991 and imposes annual audits and reporting requirements on IDIs that meet certain asset thresholds.11 The purpose of section 36 is to facilitate early identification of needed improvements in financial management at IDIs. Section 36 grants the FDIC discretion to set the asset size threshold for compliance with these statutory requirements, but mandates a minimum threshold of $150 million in consolidated total assets. Part 363 of the FDIC’s regulations implements section 36.12 Currently, an IDI becomes subject to the annual independent audits and reporting requirements of part 363 with respect to Changes; Paycheck Protection Program,’’ 85 FR 20811, 20816 (Apr. 15, 2020) and 85 FR 36308 (June 16, 2020). 9 See 85 FR 16232 (Mar. 23, 2020) and 85 FR 20387 (Apr. 13, 2020). These rules were finalized on September 29, 2020. See https://www.fdic.gov/ news/board/2020/2020-09-15-notice-sum-b-fr.pdf. 10 See 85 FR 38282 (June 26, 2020). 11 12 U.S.C. 1831m. 12 12 CFR 363. PO 00000 Frm 00003 Fmt 4700 Sfmt 4700 67429 any fiscal year in which its consolidated total assets as of the beginning of such fiscal year are $500 million or more.13 Additionally, an IDI with consolidated total assets of $1 billion or more as of the beginning of any fiscal year must provide management’s assessment of, and the independent public accountant’s report, on the effectiveness of internal control over financial reporting (ICFR).14 Part 363 also includes requirements related to audit committees based on consolidated total assets. More specifically, each IDI with consolidated total assets of $500 million or more but less than $1 billion at the beginning of its fiscal year must establish an independent audit committee of its board of directors, the members of which must be outside directors, a majority of whom must be independent of management of the IDI.15 Each IDI with consolidated total assets of $1 billion or more at the beginning of its fiscal year must establish an independent audit committee of its board of directors, the members of which must be outside directors who are independent of management of the IDI.16 Audit committees of IDIs with consolidated total assets of $3 billion or more as of the beginning of their fiscal year are required to include members with banking or related financial management expertise, have access to their own outside counsel, and not include any large customers of the institution.17 The determination of whether an IDI is subject to the annual independent audit and reporting requirements of part 363, including certain additional requirements based on asset size, is based on its consolidated total assets as of the beginning of its fiscal year.18 For example, an IDI whose fiscal year begins on January 1, 2020, and ends on December 31, 2020, would determine whether it met the base asset threshold for compliance with part 363 as well as the other asset thresholds set forth in part 363 based upon its consolidated total assets of December 31, 2019. As another example, an IDI whose fiscal year begins on July 1, 2020, and ends on 13 12 CFR 363.1(a). CFR 363.2(b)(3) and 12 CFR 363.3(b). 15 12 CFR 363.5(a)(2). 16 12 CFR 363.5(a)(1). 17 12 CFR 363.5(b). 18 For measuring total assets, Guideline 1 to part 363 provides that an IDI should use the total assets reported on its most recent Report of Condition (Call Report), the date of which coincides with the end of its preceding fiscal year. If its fiscal year ends on a date other than the end of a calendar quarter, it should use the Call Report for the quarter end immediately preceding the end of its fiscal year. 14 12 E:\FR\FM\23OCR1.SGM 23OCR1 67430 Federal Register / Vol. 85, No. 206 / Friday, October 23, 2020 / Rules and Regulations June 30, 2021, would determine whether it met the base asset threshold for compliance with part 363 as well as the other asset thresholds set forth in part 363 based upon its consolidated total assets of June 30, 2020. khammond on DSKJM1Z7X2PROD with RULES C. Effects of Government Response Programs on IDI Growth Participation in the PPP, PPPLF, or MMLF programs, and effects of other stimulus programs, have caused certain IDIs to experience a temporary increase in their consolidated total assets and thus become subject to part 363 based on certain asset size thresholds set forth within part 363. While some of these IDIs may have reached these thresholds through organic growth or other means, it is likely that others would not have reached these thresholds but for the effects of the government programs and other types of stimulus. For example, an IDI that receives funding under the PPPLF would increase its consolidated total assets (equal to the amount of PPP loans pledged to the Federal Reserve Banks), and increase its liabilities by the same amount. An IDI that obtains additional funding, such as additional deposits or secured borrowings, to make PPP loans would increase its total liabilities and consolidated total assets by that amount of funding.19 Similarly, an IDI that participates in the MMLF would increase its consolidated total assets by the amount of assets purchased from MMFs under the MMLF and increase its liabilities by the same amount. Moreover, some institutions reported general, and likely temporary, increases in deposits due to inflows from PPP proceeds, deposits of funds made in connection with other CARES Act-related programs, and general shifts of liquid funds to safety. Absent the regulatory relief proposed in this IFR, some IDIs that participate in these programs, or have otherwise been affected by volatility in cash flows related to the pandemic, will be forced to incur additional compliance and related expenses. These expenses include engaging independent auditors, performing assessments of ICFR, reviewing and filing reports, and modifying the makeup of their boards of directors in order to comply with the requirements of part 363. II. The Interim Final Rule Under the IFR, the FDIC seeks to negate the cost and burden effects of potentially temporary asset growth associated with pandemic-related 19 An IDI that relies on existing funding, including deposits already at the institution, to make PPP loans would not increase its total liabilities or total assets. VerDate Sep<11>2014 16:19 Oct 22, 2020 Jkt 253001 programs and similar impacts. The IFR accomplishes this by allowing IDIs to determine the applicability of part 363 of the FDIC’s regulations for fiscal years ending in 2021 based on the lesser of the IDI’s (a) consolidated total assets as of December 31, 2019, or (b) consolidated total assets as of the beginning of their fiscal years ending in 2021. For example, an IDI with a fiscal year beginning July 1, 2020, and ending June 30, 2021, would normally determine part 363 compliance requirements as of its fiscal year ended June 30, 2020. Under the IFR, an IDI experiencing growth would instead use its consolidated total assets as of December 31, 2019, for purposes of determining its compliance requirements with part 363. In this example, if the IDI’s consolidated total assets were less than $500 million as of December 31, 2019, it would not become subject to part 363 for its fiscal year beginning July 1, 2020 and ending June 30, 2021, even if its total consolidated total assets were $500 million or more as of June 30, 2020. Based on consolidated total assets as of December 31, 2019, and June 30, 2020, this proposal would, as further discussed below, potentially apply to approximately 290 IDIs: • 156 IDIs based on the number of IDIs that had consolidated total assets of $500 million or more as of December 31, 2019, compared to the number of IDIs that had consolidated total assets of $500 million or more as of June 30, 2020; • 107 IDIs based on the number of IDIs that had consolidated total assets of $1 billion or more as of December 31, 2019, compared to the number of IDIs that had consolidated total assets of $1 billion or more as of June 30, 2020; and • 27 IDIs based on the number of IDIs that had consolidated total assets of $3 billion or more as of December 31, 2019, compared to the number of IDIs that had consolidated total assets of $3 billion or more as of June 30, 2020. The FDIC recognizes the benefits of the part 363 requirements and that some IDIs may have experienced organic or other growth that would have resulted in them reaching the thresholds regardless of the impacts of pandemicrelated programs and associated effects. However, the FDIC is balancing the risk that some IDIs will not become subject to part 363 requirements based on their consolidated total assets as of their actual fiscal year ends in 2020 with the operational simplicity of ‘‘freezing’’ the date to determine the applicability of the regulation for all IDIs experiencing growth based on their consolidated total assets as of December 31, 2019. The PO 00000 Frm 00004 Fmt 4700 Sfmt 4700 FDIC has determined that such targeted and time-limited relief from application of the part 363 requirements is necessary and appropriate, in order to ease the compliance and expense burden on such institutions during this crucial period for the financial services industry. Notwithstanding the temporary relief provided by this IFR, IDIs remain subject to any audit and reporting requirements applicable under other laws and regulations. Also, the FDIC reserves the authority to require an IDI to comply with one or more requirements under part 363 if the FDIC determines that asset growth was related to a merger or acquisition. Additionally, staff notes that approximately 54 percent of IDIs (IDIs with less than $500 million in consolidated total assets) that are not subject to part 363 have audits performed by independent public accountants.20 Sections 36(d) and (f) of the FDI Act obligate the FDIC to consult with the other Federal banking agencies in implementing these provisions of the FDI Act, and the FDIC has performed the required consultation. III. Expected Effects Under part 363 of the FDIC’s regulations, each IDI with consolidated total assets of $500 million or more as of the beginning of a fiscal year must, among other things, have its financial statements audited by an independent public accountant, prepare a management report describing certain aspects of its internal control framework and its compliance with laws and regulations, and have an audit committee that oversees the work of the independent public accountant. Part 363 also contains a number of more detailed and specific requirements that are triggered at asset sizes of $1 billion and $3 billion, regarding management reporting, responsibilities of the independent public accountant, and the responsibilities and composition of the audit committee. Part 363 also describes the conditions under which these requirements may be satisfied at the holding company level. Broadly speaking, by granting temporary relief from the audit and reporting requirements of part 363, the IFR is likely to support participation in the PPP, PPPLF, and MMLF programs by IDIs, which could benefit customers and U.S. economic activity. More specifically, the IFR does this by 20 Call Report Data, March 31, 2020. The level of audit work performed on an institution is reported in the March Call Report each year and can be found on line M.1 in the Memorandum to Schedule RC. E:\FR\FM\23OCR1.SGM 23OCR1 khammond on DSKJM1Z7X2PROD with RULES Federal Register / Vol. 85, No. 206 / Friday, October 23, 2020 / Rules and Regulations determining the applicability of the regulation for all IDIs based on the lesser of their (a) consolidated total assets as of December 31, 2019, or (b) consolidated total assets as of the beginning of their fiscal years ending in 2021, in order to ameliorate potential increases in compliance costs for IDIs as a result of their participation in the PPP, PPPLF, and MMLF. Under the IFR, IDIs that cross the $500 million, $1 billion, or $3 billion asset thresholds just described during fiscal years ending in 2021 will avoid the costs of complying with part 363 that they otherwise would have incurred as a result of crossing those thresholds. IDIs that already exceeded those thresholds at year-end 2019, however, must continue to comply with the associated part 363 requirements. The IFR thus will only affect those entities that cross one or more of the part 363 thresholds after year-end 2019, and while the temporary relief the IFR provides is in effect. It is difficult to estimate how many IDIs will be directly affected by the IFR because the FDIC does not know how many banks with a fiscal year ending after June 30 will increase assets above one of the thresholds in Part 363 between June 30 and the end of the year. Nonetheless, this rule is expected to relieve IDIs from incurring additional expenses if they experience an increase in consolidated total asset levels that could cause the IDI to become newly subject to certain part 363 requirements. The following analysis utilizes Consolidated Reports of Condition and Income (Call Report) data to assess changes in consolidated total assets between December 31, 2019, and June 30, 2020, for IDIs in order to identify IDIs that are likely to be directly affected by the IFR. Specifically, the analysis determines whether the change in consolidated total assets for an IDI between December 31, 2019, and June 30, 2020, might entail a change in compliance requirements for part 363 absent the interim final rule, assuming that the asset level at the end of the sixmonth period is representative of the ‘‘beginning of the fiscal year’’ period criteria for determining applicability of part 363, or its various elements. The various thresholds included in part 363 and the potential effects of the temporary freeze in IDIs’ total consolidated assets for determining compliance with the regulation’s audit and reporting requirements are examined in the following section. Threshold for Compliance With Part 363 Part 363 applies to any IDI with respect to any fiscal year in which its VerDate Sep<11>2014 16:19 Oct 22, 2020 Jkt 253001 consolidated total assets as of the beginning of such fiscal year are $500 million or more. As of December 31, 2019, there were 5,177 IDIs, of which 1,453 IDIs were above the part 363 base threshold, which is $500 million or more in consolidated total assets.21 As of June 30, 2020, this number had increased to 1,609 IDIs.22 Therefore, assuming that the asset level as of June 30, 2020, would be representative of the ‘‘beginning of the fiscal year’’ period criteria for determining applicability of part 363 absent the IFR, 156 institutions would be likely to avoid costs associated with complying with this aspect of the rule. According to §§ 363.2(b)(3) and 363.3(b), IDIs with consolidated total assets of $1 billion or more as of the beginning of their fiscal year are required to include an assessment by management of, and a report of the independent public accountant on, the effectiveness of internal control structures and procedures in their part 363 annual report. As of December 31, 2019, 796 IDIs were above the consolidated total asset threshold of $1 billion or more.23 As of June 30, 2020, this number had increased to 903 IDIs.24 Therefore, assuming that the asset level as of June 30, 2020 would be representative of the ‘‘beginning of the fiscal year’’ period criteria for determining the requirements of §§ 363.2(b) and 363.3(b), absent the IFR, 107 institutions would be likely to avoid costs associated with complying with this aspect of the rule. According to § 363.5(b), IDIs with total assets of more than $3 billion as of the beginning of their fiscal year are required to have audit committee members with banking or related financial management expertise, who have access to their own outside counsel, and are not large customers of the institution. As of December 31, 2019, 315 IDIs were above the § 363.5(b) consolidated total asset threshold of more than $3 billion.25 As of June 30, 2020, this number had increased to 342 IDIs.26 Therefore, assuming that the asset level as of June 30, 2020, would be representative of the ‘‘beginning of the fiscal year’’ period criteria for determining the audit committee member requirements of § 363.5(b), absent the IFR, 27 institutions would be 21 Call Report Data, December 2019. 22 Call Report Data, June 2020. 23 Call Report Data, December 2019. 24 Call Report Data, June 2020. 25 Call Report Data, December 2019. 26 Call Report Data, June 2020. PO 00000 Frm 00005 Fmt 4700 Sfmt 4700 67431 likely to avoid costs associated with complying with this aspect of the rule. Summary The IFR would not affect compliance obligations for IDIs that are bound by part 363 as of December 31, 2019. The number of entities that will avoid costs because of the IFR is likely to differ from the numbers suggested by this analysis because consolidated total asset levels are likely to continue to change throughout the remainder of calendar year 2020 and because compliance costs are likely to depend in part on IDIs’ eligibility for part 363 compliance at the holding company level.27 It is difficult to estimate regulatory compliance cost savings as a result of the IFR because such costs depend on the individual characteristics of institutions, the extent of their current audit and reporting activities, and the extent to which they avail themselves of this temporary reduction in compliance requirements, among other things. Finally, the FDIC believes that the temporary relief provided by the IFR is unlikely to substantively affect the safety and soundness of affected IDIs because it only grants short-term temporary relief and IDIs would continue to be subject to any otherwise applicable statutory and regulatory audit and reporting requirements. The FDIC also maintains a number of other regulatory and supervisory tools to oversee the safety and soundness of IDIs. IV. Alternatives Considered The FDIC has considered alternatives to the rule, but believes the IFR represents the most appropriate option for covered institutions. The FDIC considered the status quo alternative of maintaining part 363 in its current form, but believes that the challenges for IDIs associated with the COVID–19 pandemic, and costs to comply with the rule for IDIs with temporary asset growth, necessitate targeted and timelimited relief from the application of part 363 requirements. Finally, and as previously discussed, the temporary relief granted to certain IDIs by the IFR, is unlikely to negatively affect the safety and soundness of IDIs. Therefore, the FDIC believes it is appropriate to grant IDIs this temporary relief. V. Administrative Law Matters A. Administrative Procedure Act The FDIC is issuing the interim final rule without prior notice and the 27 Regulations regarding the compliance by subsidiaries of holding companies are set forth in 12 CFR 363.1(b). E:\FR\FM\23OCR1.SGM 23OCR1 67432 Federal Register / Vol. 85, No. 206 / Friday, October 23, 2020 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES opportunity for public comment and the delayed effective date ordinarily prescribed by the Administrative Procedure Act (APA).28 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.’’ 29 The FDIC believes that the public interest is best served by implementing the interim final rule immediately upon publication in the Federal Register. As discussed above, the spread of COVID–19 has slowed economic activity in many countries, including the United States. Specifically, the disruptions in financial markets have caused depository institutions to receive inflows of deposits—contributing to the increase of deposits at Federal Reserve Banks—and to hold significant amounts of Treasuries. Because the interim final rule will mitigate a potential additional compliance burden and expense for financial institutions participating in Federal government programs intended to ease financial disruptions, the FDIC finds there is good cause consistent with the public interest to issue the rule without advance notice and comment. 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.30 Because the interim final rule will provide a temporary exemption and relief to affected IDI, the interim final rule is exempt from the APA’s delayed effective date requirement.31 While the FDIC believes that there is good cause to issue this interim final rule without advance notice and comment and with an immediate effective date, the FDIC is interested in the views of the public and request comment on all aspects of the interim final rule. B. Congressional Review Act For purposes of Congressional Review Act, the OMB makes a determination as to whether a final rule constitutes a ‘‘major’’ rule.32 If a rule is deemed a ‘‘major rule’’ by the Office of 28 5 U.S.C. 553. U.S.C. 553(b)(B). 30 5 U.S.C. 553(d). 31 5 U.S.C. 553(d)(1). 32 5 U.S.C. 801 et seq. Management and Budget (OMB), the Congressional Review Act generally provides that the rule may not take effect until at least 60 days following its publication.33 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.34 For the same reasons set forth above, the FDIC 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.35 In light of current market uncertainty and the need for IDIs to prepare an audit plan in advance of the beginning of their fiscal years, the FDIC believes that delaying the effective date would be contrary to the public interest. As required by the Congressional Review Act, the FDIC will submit the final rule and other appropriate reports to Congress and the Government Accountability Office for review. C. Paperwork Reduction Act In accordance with the requirements of the Paperwork Reduction Act of 1995 (PRA), the FDIC may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The FDIC has reviewed this interim final rule and determined that it would not introduce any new or revise any collection of information pursuant to the PRA. Therefore, no submissions will be made to OMB for review. 29 5 VerDate Sep<11>2014 16:19 Oct 22, 2020 33 5 U.S.C. 801(a)(3). U.S.C. 804(2). 35 5 U.S.C. 808. 34 5 Jkt 253001 PO 00000 Frm 00006 Fmt 4700 Sfmt 4700 D. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) 36 requires an agency to consider whether the rules it proposes will have a significant economic impact on a substantial number of small entities.37 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 FDIC has determined for good cause that general notice and opportunity for public comment is unnecessary, and therefore the FDIC is not issuing a notice of proposed rulemaking. Accordingly, the RFA’s requirements relating to initial and final regulatory flexibility analysis do not apply. Nevertheless, the FDIC 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),38 in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on IDIs, each Federal banking agency 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.39 For the reasons described above, the FDIC finds that good cause exists under section 302 of RCDRIA to publish this interim final rule with an immediate effective date. As such, the final rule 36 5 U.S.C. 601 et seq. regulations issued by the Small Business Administration, 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 average annual receipts of $41.5 million or less. See 13 CFR 121.201. 38 12 U.S.C. 4802(a). 39 12 U.S.C. 4802. 37 Under E:\FR\FM\23OCR1.SGM 23OCR1 Federal Register / Vol. 85, No. 206 / Friday, October 23, 2020 / Rules and Regulations will be effective immediately upon publication in the Federal Register. Nevertheless, the FDIC seeks comment on RCDRIA. F. Use of Plain Language Section 722 of the Gramm-Leach Bliley Act 40 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 interim final rule in a simple and straightforward manner. The FDIC invites comments on whether there are additional steps it could take to make the rule easier to understand. For example: • Has the FDIC 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 363 Accounting, Administrative practice and procedure, Banks, banking, Reporting and recordkeeping requirements. Authority and Issuance For the reasons stated in the preamble, the FDIC amends part 363 of chapter 1 of title 12, Code of Federal Regulations, as follows: PART 363—ANNUAL INDEPENDENT AUDITS AND REPORTING REQUIREMENTS Authority: 12 U.S.C. 1819, 1831m. 2. Revise § 363.1(a) to read as follows: khammond on DSKJM1Z7X2PROD with RULES § 363.1 Scope and definitions. (a) Applicability. (1) This part applies to any insured depository institution with respect to any fiscal year in which its consolidated total assets as of the beginning of such fiscal year are $500 million or more. Notwithstanding the foregoing and for all requirements in 40 12 U.S.C. 4809. VerDate Sep<11>2014 16:19 Oct 22, 2020 Jkt 253001 Federal Deposit Insurance Corporation. By order of the Board of Directors. Dated at Washington, DC, on October 20, 2020. James P. Sheesley, Assistant Executive Secretary. [FR Doc. 2020–23630 Filed 10–21–20; 4:15 pm] BILLING CODE 6714–01–P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 25 [Docket No. FAA–2020–0934; Special Conditions No. 25–775–SC] Special Conditions: Archeion Holdings, LLC, Boeing Model No. 737– 300, –400, –700, –800, –8, and –9 Series Airplanes; Electronic-System Security Protection From Unauthorized External Access Federal Aviation Administration (FAA), DOT. ACTION: Final special conditions; request for comments. AGENCY: These special conditions are issued for Boeing Model 737–300, –400, –700, –800, –8, and –9 series airplanes. These airplanes, as modified by Archeion Holdings, LLC (Archeion), will have a novel or unusual design feature when compared to the state of technology envisioned in the airworthiness standards for transportcategory airplanes. This design feature is a digital systems architecture for the installation of a system with wireless network and hosted application functionality that allows access from external sources to the airplane’s internal electronic components. The SUMMARY: 1. The authority citation for part 363 is revised to read as follows: ■ ■ this part, with respect to any fiscal year ending in 2021, an insured depository institution’s consolidated total assets shall be determined based on the lesser of (a) an insured depository institution’s consolidated total assets as of December 31, 2019, or (b) an insured depository institution’s consolidated total assets as of the beginning of its fiscal year ending in 2021. The requirements specified in this part are in addition to any other statutory and regulatory requirements otherwise applicable to an insured depository institution. (2) Until December 31, 2021, the FDIC reserves the authority to require an insured depository institution to comply with one or more requirements under this part if the FDIC determines that asset growth was related to a merger or acquisition. * * * * * PO 00000 Frm 00007 Fmt 4700 Sfmt 4700 67433 applicable airworthiness regulations do not contain adequate or appropriate safety standards for this design feature. These special conditions contain the additional safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards. DATES: This action is effective on Archeion on October 23, 2020. Send comments on or before December 7, 2020. ADDRESSES: Send comments identified by Docket No. FAA–2020–0934 using any of the following methods: • Federal eRegulations Portal: Go to http://www.regulations.gov/ and follow the online instructions for sending your comments electronically. • Mail: Send comments to Docket Operations, M–30, U.S. Department of Transportation (DOT), 1200 New Jersey Avenue SE, Room W12–140, West Building Ground Floor, Washington, DC 20590–0001. • Hand Delivery or Courier: Take comments to Docket Operations in Room W12–140 of the West Building Ground Floor at 1200 New Jersey Avenue SE, Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. • Fax: Fax comments to Docket Operations at 202–493–2251. Privacy: The FAA will post all comments it receives, without change, to http://www.regulations.gov/, including any personal information the commenter provides. Using the search function of the docket website, anyone can find and read the electronic form of all comments received into any FAA docket, including the name of the individual sending the comment (or signing the comment for an association, business, labor union, etc.). DOT’s complete Privacy Act Statement can be found in the Federal Register published on April 11, 2000 (65 FR 19477–19478). Docket: Background documents or comments received may be read at http://www.regulations.gov/ at any time. Follow the online instructions for accessing the docket or go to Docket Operations in Room W12–140 of the West Building Ground Floor at 1200 New Jersey Avenue SE, Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. FOR FURTHER INFORMATION CONTACT: Varun Khanna, Airplane and Flight Crew Interface Section, AIR–671, Transport Standards Branch, Policy and Innovation Division, Aircraft Certification Service, Federal Aviation Administration, 2200 South 216th Street, Des Moines, Washington 98198; E:\FR\FM\23OCR1.SGM 23OCR1

Agencies

[Federal Register Volume 85, Number 206 (Friday, October 23, 2020)]
[Rules and Regulations]
[Pages 67427-67433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23630]


=======================================================================
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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 363

RIN 3064-AF63


Applicability of Annual Independent Audits and Reporting 
Requirements for Fiscal Years Ending in 2021

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Interim final rule and request for comment.

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[[Page 67428]]

SUMMARY: In light of recent disruptions in economic conditions caused 
by the coronavirus disease 2019 (COVID-19) and strains in U.S. 
financial markets, some insured depository institutions (IDIs) have 
experienced increases to their consolidated total assets as a result of 
large cash inflows resulting from participation in the Paycheck 
Protection Program (PPP), the Money Market Mutual Fund Liquidity 
Facility (MMLF), the Paycheck Protection Program Liquidity Facility 
(PPPLF), and the effects of other government stimulus efforts. Since 
these inflows may be temporary, but are significant and unpredictable, 
the FDIC is issuing an interim final rule (IFR) that will allow IDIs to 
determine the applicability of part 363 of the FDIC's regulations, 
Annual Independent Audits and Reporting Requirements, for fiscal years 
ending in 2021 based on the lesser of their consolidated total assets 
as of December 31, 2019, or consolidated total assets as of the 
beginning of their fiscal years ending 2021. Notwithstanding any 
temporary relief provided by this IFR, an IDI would continue to be 
subject to any otherwise applicable statutory and regulatory audit and 
reporting requirements. The IFR also reserves the authority to require 
an IDI to comply with one or more requirements of part 363 if the FDIC 
determines that asset growth was related to a merger or acquisition.

DATES: The interim final rule is effective October 23, 2020 through 
December 31, 2021, unless extended by the FDIC. Comments on the interim 
final rule must be received no later than November 23, 2020.

ADDRESSES: You may submit comments, identified by RIN 3064-AF63, by any 
of the following methods:
     Agency Website: https://www.fdic.gov/regulations/laws/federal. Follow instructions for submitting comments on the Agency 
website.
     Email: [email protected]. Include ``RIN 3064-AF63'' on the 
subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/RIN 3064-AF63, Federal Deposit Insurance Corporation, 550 17th 
Street NW, Washington, DC 20429.
     Hand Delivery/Courier: Comments may be hand-delivered to 
the 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. All comments 
received must include the agency name (FDIC) and RIN 3064- AF63, and 
will be posted without change to https://www.fdic.gov/regulations/laws/federal, including any personal information provided.

FOR FURTHER INFORMATION CONTACT: Harrison E. Greene, Jr., Assistant 
Chief Accountant, (202) 898-8905, [email protected]; Shannon M. Beattie, 
Section Chief and Deputy Chief Accountant, (202) 898-3952, 
[email protected]; John Rieger, Chief Accountant, (202) 898-3602, 
[email protected]; Mark G. Flanigan, Senior Counsel, (202) 898-7426, 
[email protected]; Joyce M. Raidle, Counsel, (202) 898-6763, 
[email protected]; and Merritt Pardini, Counsel, (202) 898-6680, 
[email protected], Legal Division, Federal Deposit Insurance 
Corporation, 550 17th Street NW, Washington, DC 20429. For the hearing 
impaired only, Telecommunication Device for the Deaf (TDD), (800) 925-
4618.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
    A. Selected Government Responses Related to the Pandemic
    B. Section 36 of the Federal Deposit Insurance Act (FDI Act) and 
Part 363 of the FDIC Regulations
    C. Effects of Government Response Programs on IDI Growth
II. The Interim Final Rule
III. Expected Effects
IV. Alternatives Considered
V. Administrative Law Matters
    A. Administrative Procedure Act
    B. Congressional Review Act
    C. Paperwork Reduction Act
    D. Regulatory Flexibility Act
    E. Riegle Community Development and Regulatory Improvement Act 
of 1994
    F. Use of Plain Language

I. Background

A. Selected Government Responses Related to the Pandemic

    Recent events have significantly and adversely impacted the global 
economy and financial markets. The spread of COVID-19 has slowed 
economic activity in many countries, including the United States. 
Sudden disruptions in financial markets placed increasing liquidity 
pressure on money market mutual funds (MMFs) and raised the cost of 
credit for most borrowers. MMFs faced redemption requests from clients 
with immediate cash needs and potentially the need to sell a 
significant number of assets to meet these redemption requests, which 
further increased market pressures. In order to prevent the disruption 
in the money markets from destabilizing the financial system, on March 
18, 2020, the Board of Governors of the Federal Reserve System (Board 
of Governors), with approval of the Secretary of the Treasury, 
authorized the Federal Reserve Bank of Boston (FRBB) to establish the 
MMLF pursuant to section 13(3) of the Federal Reserve Act.\1\ Under the 
MMLF, the FRBB is extending nonrecourse loans to eligible borrowers to 
purchase assets from MMFs. Assets purchased from MMFs are posted as 
collateral to the FRBB. Eligible borrowers under the MMLF include IDIs. 
Eligible collateral under the MMLF includes U.S. Treasuries and fully 
guaranteed agency securities, securities issued by government-sponsored 
enterprises, and certain types of commercial paper. The MMLF is 
scheduled to terminate on December 31, 2020, unless extended by the 
Board of Governors.\2\
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    \1\ 12 U.S.C. 343(3).
    \2\ See Federal Reserve Board announces an extension through 
December 31 of its lending facilities that were scheduled to expire 
on or around September 30 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200728a.htm).
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    Small businesses also face severe liquidity constraints and a 
collapse in revenue streams, as millions of Americans were ordered to 
stay home, severely reducing their ability to engage in normal 
commerce. Many small businesses were forced to close temporarily or 
furlough employees. Continued access to financing will be crucial for 
small businesses to weather economic disruptions caused by COVID-19 
and, ultimately, to help restore economic activity.
    In recognition of the exigent circumstances facing small 
businesses, Congress created the PPP as part of the Coronavirus Aid, 
Relief, and Economic Security Act (CARES Act).\3\ PPP loans are fully 
guaranteed as to principal and accrued interest by the Small Business 
Administration (SBA), the amount of each being determined at the time 
the guarantee is exercised. As a general matter, SBA guarantees are 
backed by the full faith and credit of the U.S. Government. PPP loans 
also afford borrowers forgiveness up to the principal amount of the PPP 
loan if the loan proceeds are used for certain eligible expenses. The 
SBA reimburses PPP lenders for any amount of a PPP loan that is 
forgiven. PPP lenders are not held liable for any representations made 
by PPP borrowers in connection with a borrower's request for PPP loan 
forgiveness.\4\ On June 5, 2020, the

[[Page 67429]]

Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility 
Act) was signed into law, amending key provisions of the CARES Act, 
including provisions related to loan maturity, deferral of loan 
payments, and loan forgiveness.\5\ Among other changes, the amendments 
increase from two to five years the maturity of PPP loans that are 
approved by the SBA on or after June 5, 2020, and provide greater 
flexibility for borrowers to qualify for loan forgiveness.
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    \3\ Public Law 116-136 (Mar. 27, 2020).
    \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 or acting as independent contractors, certain 
franchisees, nonprofit corporations, veterans' organizations, and 
Tribal businesses. The loan amount under the PPP would be limited to 
the lesser of $10 million and 250 percent of a borrower's average 
monthly payroll costs. For more information on the Paycheck 
Protection Program, see https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp.
    \5\ Public Law 116-142 (June 5, 2020). The SBA subsequently 
issued an interim final rule revising the SBA's interim final rule 
implementing sections 1102 and 1106 of the CARES Act temporarily 
adding the Paycheck Protection Program to the SBA's 7(a) Loan 
Program published on April 15, 2020. See 85 FR 20811 (Apr. 15, 2020) 
and 85 FR 36308 (June 16, 2020).
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    In order to provide liquidity to small business lenders and the 
broader credit markets, and to help stabilize the financial system, on 
April 8, 2020, the Board of Governors, with approval of the Secretary 
of the Treasury, authorized each of the Federal Reserve Banks to extend 
credit under the PPPLF pursuant to Section 13(3) of the Federal Reserve 
Act.\6\ Under the PPPLF, the Federal Reserve Banks are extending 
nonrecourse loans to institutions that are eligible to make PPP loans, 
including IDIs. Under the PPPLF, only PPP loans that are guaranteed by 
the SBA with respect to both principal and interest and that are 
originated by an eligible institution may be pledged as collateral to 
the Federal Reserve Banks (loans pledged to the PPPLF). The maturity 
date of the extension of credit under the PPPLF \7\ equals the maturity 
date of the PPP loans pledged to secure the extension of credit.\8\ No 
new extensions of credit will be made under the PPPLF after December 
31, 2020, unless extended by the Board of Governors and the Department 
of the Treasury.
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    \6\ 12 U.S.C. 343(3). On April 30, 2020, the facility was 
renamed the Paycheck Protection Program Liquidity Facility, from 
Paycheck Protection Program Lending Facility. See Periodic Report: 
Update on Outstanding Lending Facilities Authorized by the Board 
under Section 13(3) of the Federal Reserve Act May 15, 2020, Board 
of Governors of the Federal Reserve System (https://www.federalreserve.gov/publications/files/mlf-msnlf-mself-and-ppplf-5-15-20.pdf).
    \7\ The maturity date of the extension of credit under the PPPLF 
will be accelerated if the underlying PPP loan goes into default and 
the eligible borrower sells the PPP Loan to the SBA to realize the 
SBA guarantee. The maturity date of the extension of credit under 
the PPPLF also will be accelerated to the extent of any PPP loan 
forgiveness reimbursement received by the eligible borrower from the 
SBA.
    \8\ Under the SBA's interim final rule, a lender may request 
that the SBA purchase the expected forgiveness amount of a PPP loan 
or pool of PPP loans at the end of the covered period. See Interim 
Final Rule ``Business Loan Program Temporary Changes; Paycheck 
Protection Program,'' 85 FR 20811, 20816 (Apr. 15, 2020) and 85 FR 
36308 (June 16, 2020).
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    The FDIC, Board of Governors, and Comptroller of the Currency 
adopted interim final rules on March 23, 2020, and April 13, 2020, 
respectively, to allow banking organizations to neutralize the 
regulatory capital effects of purchasing assets under the MMLF program 
and loans pledged to the PPPLF.\9\ Consistent with Section 1102 of the 
CARES Act, the April 2020 interim final rule also required banking 
organizations to apply a zero percent risk weight to PPP loans 
originated by the banking organization under the PPP for purposes of 
the banking organization's risk-based capital requirements. On June 26, 
2020, the FDIC adopted a rule that mitigates the deposit insurance 
assessment effects of participating in the PPP, PPPLF and MMLF.\10\ 
Among other changes, the final rule provides an offset to an IDI's 
total assessment amount for the increase in its assessment base 
attributable to participation in the PPP and MMLF. The FDIC remains 
committed to considering additional, targeted adjustments to mitigate 
to the greatest extent possible unintended consequences resulting from 
pandemic-related stimulus actions.
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    \9\ See 85 FR 16232 (Mar. 23, 2020) and 85 FR 20387 (Apr. 13, 
2020). These rules were finalized on September 29, 2020. See https://www.fdic.gov/news/board/2020/2020-09-15-notice-sum-b-fr.pdf.
    \10\ See 85 FR 38282 (June 26, 2020).
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B. Section 36 of the Federal Deposit Insurance Act (FDI Act) and Part 
363 of the FDIC Regulations

    Section 36 of the FDI Act (section 36) was added by the Federal 
Deposit Insurance Corporation Improvement Act of 1991 and imposes 
annual audits and reporting requirements on IDIs that meet certain 
asset thresholds.\11\ The purpose of section 36 is to facilitate early 
identification of needed improvements in financial management at IDIs. 
Section 36 grants the FDIC discretion to set the asset size threshold 
for compliance with these statutory requirements, but mandates a 
minimum threshold of $150 million in consolidated total assets. Part 
363 of the FDIC's regulations implements section 36.\12\ Currently, an 
IDI becomes subject to the annual independent audits and reporting 
requirements of part 363 with respect to any fiscal year in which its 
consolidated total assets as of the beginning of such fiscal year are 
$500 million or more.\13\ Additionally, an IDI with consolidated total 
assets of $1 billion or more as of the beginning of any fiscal year 
must provide management's assessment of, and the independent public 
accountant's report, on the effectiveness of internal control over 
financial reporting (ICFR).\14\
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    \11\ 12 U.S.C. 1831m.
    \12\ 12 CFR 363.
    \13\ 12 CFR 363.1(a).
    \14\ 12 CFR 363.2(b)(3) and 12 CFR 363.3(b).
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    Part 363 also includes requirements related to audit committees 
based on consolidated total assets. More specifically, each IDI with 
consolidated total assets of $500 million or more but less than $1 
billion at the beginning of its fiscal year must establish an 
independent audit committee of its board of directors, the members of 
which must be outside directors, a majority of whom must be independent 
of management of the IDI.\15\ Each IDI with consolidated total assets 
of $1 billion or more at the beginning of its fiscal year must 
establish an independent audit committee of its board of directors, the 
members of which must be outside directors who are independent of 
management of the IDI.\16\ Audit committees of IDIs with consolidated 
total assets of $3 billion or more as of the beginning of their fiscal 
year are required to include members with banking or related financial 
management expertise, have access to their own outside counsel, and not 
include any large customers of the institution.\17\
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    \15\ 12 CFR 363.5(a)(2).
    \16\ 12 CFR 363.5(a)(1).
    \17\ 12 CFR 363.5(b).
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    The determination of whether an IDI is subject to the annual 
independent audit and reporting requirements of part 363, including 
certain additional requirements based on asset size, is based on its 
consolidated total assets as of the beginning of its fiscal year.\18\ 
For example, an IDI whose fiscal year begins on January 1, 2020, and 
ends on December 31, 2020, would determine whether it met the base 
asset threshold for compliance with part 363 as well as the other asset 
thresholds set forth in part 363 based upon its consolidated total 
assets of December 31, 2019. As another example, an IDI whose fiscal 
year begins on July 1, 2020, and ends on

[[Page 67430]]

June 30, 2021, would determine whether it met the base asset threshold 
for compliance with part 363 as well as the other asset thresholds set 
forth in part 363 based upon its consolidated total assets of June 30, 
2020.
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    \18\ For measuring total assets, Guideline 1 to part 363 
provides that an IDI should use the total assets reported on its 
most recent Report of Condition (Call Report), the date of which 
coincides with the end of its preceding fiscal year. If its fiscal 
year ends on a date other than the end of a calendar quarter, it 
should use the Call Report for the quarter end immediately preceding 
the end of its fiscal year.
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C. Effects of Government Response Programs on IDI Growth

    Participation in the PPP, PPPLF, or MMLF programs, and effects of 
other stimulus programs, have caused certain IDIs to experience a 
temporary increase in their consolidated total assets and thus become 
subject to part 363 based on certain asset size thresholds set forth 
within part 363. While some of these IDIs may have reached these 
thresholds through organic growth or other means, it is likely that 
others would not have reached these thresholds but for the effects of 
the government programs and other types of stimulus. For example, an 
IDI that receives funding under the PPPLF would increase its 
consolidated total assets (equal to the amount of PPP loans pledged to 
the Federal Reserve Banks), and increase its liabilities by the same 
amount. An IDI that obtains additional funding, such as additional 
deposits or secured borrowings, to make PPP loans would increase its 
total liabilities and consolidated total assets by that amount of 
funding.\19\ Similarly, an IDI that participates in the MMLF would 
increase its consolidated total assets by the amount of assets 
purchased from MMFs under the MMLF and increase its liabilities by the 
same amount. Moreover, some institutions reported general, and likely 
temporary, increases in deposits due to inflows from PPP proceeds, 
deposits of funds made in connection with other CARES Act-related 
programs, and general shifts of liquid funds to safety.
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    \19\ An IDI that relies on existing funding, including deposits 
already at the institution, to make PPP loans would not increase its 
total liabilities or total assets.
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    Absent the regulatory relief proposed in this IFR, some IDIs that 
participate in these programs, or have otherwise been affected by 
volatility in cash flows related to the pandemic, will be forced to 
incur additional compliance and related expenses. These expenses 
include engaging independent auditors, performing assessments of ICFR, 
reviewing and filing reports, and modifying the makeup of their boards 
of directors in order to comply with the requirements of part 363.

II. The Interim Final Rule

    Under the IFR, the FDIC seeks to negate the cost and burden effects 
of potentially temporary asset growth associated with pandemic-related 
programs and similar impacts. The IFR accomplishes this by allowing 
IDIs to determine the applicability of part 363 of the FDIC's 
regulations for fiscal years ending in 2021 based on the lesser of the 
IDI's (a) consolidated total assets as of December 31, 2019, or (b) 
consolidated total assets as of the beginning of their fiscal years 
ending in 2021. For example, an IDI with a fiscal year beginning July 
1, 2020, and ending June 30, 2021, would normally determine part 363 
compliance requirements as of its fiscal year ended June 30, 2020. 
Under the IFR, an IDI experiencing growth would instead use its 
consolidated total assets as of December 31, 2019, for purposes of 
determining its compliance requirements with part 363. In this example, 
if the IDI's consolidated total assets were less than $500 million as 
of December 31, 2019, it would not become subject to part 363 for its 
fiscal year beginning July 1, 2020 and ending June 30, 2021, even if 
its total consolidated total assets were $500 million or more as of 
June 30, 2020.
    Based on consolidated total assets as of December 31, 2019, and 
June 30, 2020, this proposal would, as further discussed below, 
potentially apply to approximately 290 IDIs:
     156 IDIs based on the number of IDIs that had consolidated 
total assets of $500 million or more as of December 31, 2019, compared 
to the number of IDIs that had consolidated total assets of $500 
million or more as of June 30, 2020;
     107 IDIs based on the number of IDIs that had consolidated 
total assets of $1 billion or more as of December 31, 2019, compared to 
the number of IDIs that had consolidated total assets of $1 billion or 
more as of June 30, 2020; and
     27 IDIs based on the number of IDIs that had consolidated 
total assets of $3 billion or more as of December 31, 2019, compared to 
the number of IDIs that had consolidated total assets of $3 billion or 
more as of June 30, 2020.
    The FDIC recognizes the benefits of the part 363 requirements and 
that some IDIs may have experienced organic or other growth that would 
have resulted in them reaching the thresholds regardless of the impacts 
of pandemic-related programs and associated effects. However, the FDIC 
is balancing the risk that some IDIs will not become subject to part 
363 requirements based on their consolidated total assets as of their 
actual fiscal year ends in 2020 with the operational simplicity of 
``freezing'' the date to determine the applicability of the regulation 
for all IDIs experiencing growth based on their consolidated total 
assets as of December 31, 2019. The FDIC has determined that such 
targeted and time-limited relief from application of the part 363 
requirements is necessary and appropriate, in order to ease the 
compliance and expense burden on such institutions during this crucial 
period for the financial services industry.
    Notwithstanding the temporary relief provided by this IFR, IDIs 
remain subject to any audit and reporting requirements applicable under 
other laws and regulations. Also, the FDIC reserves the authority to 
require an IDI to comply with one or more requirements under part 363 
if the FDIC determines that asset growth was related to a merger or 
acquisition. Additionally, staff notes that approximately 54 percent of 
IDIs (IDIs with less than $500 million in consolidated total assets) 
that are not subject to part 363 have audits performed by independent 
public accountants.\20\
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    \20\ Call Report Data, March 31, 2020. The level of audit work 
performed on an institution is reported in the March Call Report 
each year and can be found on line M.1 in the Memorandum to Schedule 
RC.
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    Sections 36(d) and (f) of the FDI Act obligate the FDIC to consult 
with the other Federal banking agencies in implementing these 
provisions of the FDI Act, and the FDIC has performed the required 
consultation.

III. Expected Effects

    Under part 363 of the FDIC's regulations, each IDI with 
consolidated total assets of $500 million or more as of the beginning 
of a fiscal year must, among other things, have its financial 
statements audited by an independent public accountant, prepare a 
management report describing certain aspects of its internal control 
framework and its compliance with laws and regulations, and have an 
audit committee that oversees the work of the independent public 
accountant. Part 363 also contains a number of more detailed and 
specific requirements that are triggered at asset sizes of $1 billion 
and $3 billion, regarding management reporting, responsibilities of the 
independent public accountant, and the responsibilities and composition 
of the audit committee. Part 363 also describes the conditions under 
which these requirements may be satisfied at the holding company level.
    Broadly speaking, by granting temporary relief from the audit and 
reporting requirements of part 363, the IFR is likely to support 
participation in the PPP, PPPLF, and MMLF programs by IDIs, which could 
benefit customers and U.S. economic activity. More specifically, the 
IFR does this by

[[Page 67431]]

determining the applicability of the regulation for all IDIs based on 
the lesser of their (a) consolidated total assets as of December 31, 
2019, or (b) consolidated total assets as of the beginning of their 
fiscal years ending in 2021, in order to ameliorate potential increases 
in compliance costs for IDIs as a result of their participation in the 
PPP, PPPLF, and MMLF. Under the IFR, IDIs that cross the $500 million, 
$1 billion, or $3 billion asset thresholds just described during fiscal 
years ending in 2021 will avoid the costs of complying with part 363 
that they otherwise would have incurred as a result of crossing those 
thresholds. IDIs that already exceeded those thresholds at year-end 
2019, however, must continue to comply with the associated part 363 
requirements.
    The IFR thus will only affect those entities that cross one or more 
of the part 363 thresholds after year-end 2019, and while the temporary 
relief the IFR provides is in effect. It is difficult to estimate how 
many IDIs will be directly affected by the IFR because the FDIC does 
not know how many banks with a fiscal year ending after June 30 will 
increase assets above one of the thresholds in Part 363 between June 30 
and the end of the year. Nonetheless, this rule is expected to relieve 
IDIs from incurring additional expenses if they experience an increase 
in consolidated total asset levels that could cause the IDI to become 
newly subject to certain part 363 requirements.
    The following analysis utilizes Consolidated Reports of Condition 
and Income (Call Report) data to assess changes in consolidated total 
assets between December 31, 2019, and June 30, 2020, for IDIs in order 
to identify IDIs that are likely to be directly affected by the IFR. 
Specifically, the analysis determines whether the change in 
consolidated total assets for an IDI between December 31, 2019, and 
June 30, 2020, might entail a change in compliance requirements for 
part 363 absent the interim final rule, assuming that the asset level 
at the end of the six-month period is representative of the ``beginning 
of the fiscal year'' period criteria for determining applicability of 
part 363, or its various elements.
    The various thresholds included in part 363 and the potential 
effects of the temporary freeze in IDIs' total consolidated assets for 
determining compliance with the regulation's audit and reporting 
requirements are examined in the following section.
Threshold for Compliance With Part 363
    Part 363 applies to any IDI with respect to any fiscal year in 
which its consolidated total assets as of the beginning of such fiscal 
year are $500 million or more. As of December 31, 2019, there were 
5,177 IDIs, of which 1,453 IDIs were above the part 363 base threshold, 
which is $500 million or more in consolidated total assets.\21\ As of 
June 30, 2020, this number had increased to 1,609 IDIs.\22\ Therefore, 
assuming that the asset level as of June 30, 2020, would be 
representative of the ``beginning of the fiscal year'' period criteria 
for determining applicability of part 363 absent the IFR, 156 
institutions would be likely to avoid costs associated with complying 
with this aspect of the rule.
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    \21\ Call Report Data, December 2019.
    \22\ Call Report Data, June 2020.
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    According to Sec. Sec.  363.2(b)(3) and 363.3(b), IDIs with 
consolidated total assets of $1 billion or more as of the beginning of 
their fiscal year are required to include an assessment by management 
of, and a report of the independent public accountant on, the 
effectiveness of internal control structures and procedures in their 
part 363 annual report. As of December 31, 2019, 796 IDIs were above 
the consolidated total asset threshold of $1 billion or more.\23\ As of 
June 30, 2020, this number had increased to 903 IDIs.\24\ Therefore, 
assuming that the asset level as of June 30, 2020 would be 
representative of the ``beginning of the fiscal year'' period criteria 
for determining the requirements of Sec. Sec.  363.2(b) and 363.3(b), 
absent the IFR, 107 institutions would be likely to avoid costs 
associated with complying with this aspect of the rule.
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    \23\ Call Report Data, December 2019.
    \24\ Call Report Data, June 2020.
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    According to Sec.  363.5(b), IDIs with total assets of more than $3 
billion as of the beginning of their fiscal year are required to have 
audit committee members with banking or related financial management 
expertise, who have access to their own outside counsel, and are not 
large customers of the institution. As of December 31, 2019, 315 IDIs 
were above the Sec.  363.5(b) consolidated total asset threshold of 
more than $3 billion.\25\ As of June 30, 2020, this number had 
increased to 342 IDIs.\26\ Therefore, assuming that the asset level as 
of June 30, 2020, would be representative of the ``beginning of the 
fiscal year'' period criteria for determining the audit committee 
member requirements of Sec.  363.5(b), absent the IFR, 27 institutions 
would be likely to avoid costs associated with complying with this 
aspect of the rule.
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    \25\ Call Report Data, December 2019.
    \26\ Call Report Data, June 2020.
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Summary
    The IFR would not affect compliance obligations for IDIs that are 
bound by part 363 as of December 31, 2019. The number of entities that 
will avoid costs because of the IFR is likely to differ from the 
numbers suggested by this analysis because consolidated total asset 
levels are likely to continue to change throughout the remainder of 
calendar year 2020 and because compliance costs are likely to depend in 
part on IDIs' eligibility for part 363 compliance at the holding 
company level.\27\ It is difficult to estimate regulatory compliance 
cost savings as a result of the IFR because such costs depend on the 
individual characteristics of institutions, the extent of their current 
audit and reporting activities, and the extent to which they avail 
themselves of this temporary reduction in compliance requirements, 
among other things.
---------------------------------------------------------------------------

    \27\ Regulations regarding the compliance by subsidiaries of 
holding companies are set forth in 12 CFR 363.1(b).
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    Finally, the FDIC believes that the temporary relief provided by 
the IFR is unlikely to substantively affect the safety and soundness of 
affected IDIs because it only grants short-term temporary relief and 
IDIs would continue to be subject to any otherwise applicable statutory 
and regulatory audit and reporting requirements. The FDIC also 
maintains a number of other regulatory and supervisory tools to oversee 
the safety and soundness of IDIs.

IV. Alternatives Considered

    The FDIC has considered alternatives to the rule, but believes the 
IFR represents the most appropriate option for covered institutions. 
The FDIC considered the status quo alternative of maintaining part 363 
in its current form, but believes that the challenges for IDIs 
associated with the COVID-19 pandemic, and costs to comply with the 
rule for IDIs with temporary asset growth, necessitate targeted and 
time-limited relief from the application of part 363 requirements. 
Finally, and as previously discussed, the temporary relief granted to 
certain IDIs by the IFR, is unlikely to negatively affect the safety 
and soundness of IDIs. Therefore, the FDIC believes it is appropriate 
to grant IDIs this temporary relief.

V. Administrative Law Matters

A. Administrative Procedure Act

    The FDIC is issuing the interim final rule without prior notice and 
the

[[Page 67432]]

opportunity for public comment and the delayed effective date 
ordinarily prescribed by the Administrative Procedure Act (APA).\28\
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    \28\ 5 U.S.C. 553.
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    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.'' \29\ The FDIC 
believes that the public interest is best served by implementing the 
interim final rule immediately upon publication in the Federal 
Register.
---------------------------------------------------------------------------

    \29\ 5 U.S.C. 553(b)(B).
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    As discussed above, the spread of COVID-19 has slowed economic 
activity in many countries, including the United States. Specifically, 
the disruptions in financial markets have caused depository 
institutions to receive inflows of deposits--contributing to the 
increase of deposits at Federal Reserve Banks--and to hold significant 
amounts of Treasuries. Because the interim final rule will mitigate a 
potential additional compliance burden and expense for financial 
institutions participating in Federal government programs intended to 
ease financial disruptions, the FDIC finds there is good cause 
consistent with the public interest to issue the rule without advance 
notice and comment.
    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.\30\ Because the 
interim final rule will provide a temporary exemption and relief to 
affected IDI, the interim final rule is exempt from the APA's delayed 
effective date requirement.\31\ While the FDIC believes that there is 
good cause to issue this interim final rule without advance notice and 
comment and with an immediate effective date, the FDIC is interested in 
the views of the public and request comment on all aspects of the 
interim final rule.
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    \30\ 5 U.S.C. 553(d).
    \31\ 5 U.S.C. 553(d)(1).
---------------------------------------------------------------------------

B. Congressional Review Act

    For purposes of Congressional Review Act, the OMB makes a 
determination as to whether a final rule constitutes a ``major'' 
rule.\32\ If a rule is deemed a ``major rule'' by the Office of 
Management and Budget (OMB), the Congressional Review Act generally 
provides that the rule may not take effect until at least 60 days 
following its publication.\33\ 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.\34\ For the same 
reasons set forth above, the FDIC 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.\35\ In light of current market uncertainty and the 
need for IDIs to prepare an audit plan in advance of the beginning of 
their fiscal years, the FDIC believes that delaying the effective date 
would be contrary to the public interest. As required by the 
Congressional Review Act, the FDIC will submit the final rule and other 
appropriate reports to Congress and the Government Accountability 
Office for review.
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    \32\ 5 U.S.C. 801 et seq.
    \33\ 5 U.S.C. 801(a)(3).
    \34\ 5 U.S.C. 804(2).
    \35\ 5 U.S.C. 808.
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C. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (PRA), the FDIC may not conduct or sponsor, and a respondent is 
not required to respond to, an information collection unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number. The FDIC has reviewed this interim final rule and 
determined that it would not introduce any new or revise any collection 
of information pursuant to the PRA. Therefore, no submissions will be 
made to OMB for review.

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \36\ requires an agency to 
consider whether the rules it proposes will have a significant economic 
impact on a substantial number of small entities.\37\ 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 FDIC has 
determined for good cause that general notice and opportunity for 
public comment is unnecessary, and therefore the FDIC is not issuing a 
notice of proposed rulemaking. Accordingly, the RFA's requirements 
relating to initial and final regulatory flexibility analysis do not 
apply. Nevertheless, the FDIC seeks comment on whether, and the extent 
to which, the interim final rule would affect a significant number of 
small entities.
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    \36\ 5 U.S.C. 601 et seq.
    \37\ Under regulations issued by the Small Business 
Administration, 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 
average annual receipts of $41.5 million or less. See 13 CFR 
121.201.
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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),\38\ in determining the effective 
date and administrative compliance requirements for new regulations 
that impose additional reporting, disclosure, or other requirements on 
IDIs, each Federal banking agency 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.\39\
---------------------------------------------------------------------------

    \38\ 12 U.S.C. 4802(a).
    \39\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

    For the reasons described above, the FDIC finds that good cause 
exists under section 302 of RCDRIA to publish this interim final rule 
with an immediate effective date. As such, the final rule

[[Page 67433]]

will be effective immediately upon publication in the Federal Register. 
Nevertheless, the FDIC seeks comment on RCDRIA.

F. Use of Plain Language

    Section 722 of the Gramm-Leach Bliley Act \40\ 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 
interim final rule in a simple and straightforward manner. The FDIC 
invites comments on whether there are additional steps it could take to 
make the rule easier to understand. For example:
---------------------------------------------------------------------------

    \40\ 12 U.S.C. 4809.
---------------------------------------------------------------------------

     Has the FDIC 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 363

    Accounting, Administrative practice and procedure, Banks, banking, 
Reporting and recordkeeping requirements.

Authority and Issuance

    For the reasons stated in the preamble, the FDIC amends part 363 of 
chapter 1 of title 12, Code of Federal Regulations, as follows:

PART 363--ANNUAL INDEPENDENT AUDITS AND REPORTING REQUIREMENTS

0
1. The authority citation for part 363 is revised to read as follows:

    Authority:  12 U.S.C. 1819, 1831m.


0
2. Revise Sec.  363.1(a) to read as follows:


Sec.  363.1   Scope and definitions.

    (a) Applicability. (1) This part applies to any insured depository 
institution with respect to any fiscal year in which its consolidated 
total assets as of the beginning of such fiscal year are $500 million 
or more. Notwithstanding the foregoing and for all requirements in this 
part, with respect to any fiscal year ending in 2021, an insured 
depository institution's consolidated total assets shall be determined 
based on the lesser of (a) an insured depository institution's 
consolidated total assets as of December 31, 2019, or (b) an insured 
depository institution's consolidated total assets as of the beginning 
of its fiscal year ending in 2021. The requirements specified in this 
part are in addition to any other statutory and regulatory requirements 
otherwise applicable to an insured depository institution.
    (2) Until December 31, 2021, the FDIC reserves the authority to 
require an insured depository institution to comply with one or more 
requirements under this part if the FDIC determines that asset growth 
was related to a merger or acquisition.
* * * * *

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on October 20, 2020.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2020-23630 Filed 10-21-20; 4:15 pm]
BILLING CODE 6714-01-P