Emergency Capital Investment Program-Restrictions on Executive Compensation, Share Buybacks, and Dividends, 13449-13459 [2021-04900]

Agencies

• DEPARTMENT OF THE TREASURY

[Federal Register Volume 86, Number 44 (Tuesday, March 9, 2021)]
[Rules and Regulations]
[Pages 13449-13459]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-04900]


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DEPARTMENT OF THE TREASURY

31 CFR Part 35

[Docket No. TREAS-DO-2021-0004]
RIN 1505-AC76


Emergency Capital Investment Program--Restrictions on Executive 
Compensation, Share Buybacks, and Dividends

AGENCY: Department of the Treasury.

ACTION: Interim final rule and request for public comment.

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SUMMARY: Section 104A of the Community Development Banking and 
Financial Institutions Act of 1994, which was added by the Consolidated 
Appropriations Act, 2021, establishes the Emergency Capital Investment 
Program to support capital investments in low- and moderate-income 
community financial institutions. The program is available to eligible 
minority depository institutions and community development financial 
institutions that are insured depository institutions, bank holding 
companies, savings and loan holding companies, or federally insured 
credit unions. Under Section 104A, the Secretary of the Treasury is 
required to issue rules setting restrictions on executive compensation, 
share buybacks, and dividend payments for recipients of capital 
investments under the program. This interim final rule establishes 
these restrictions.

DATES: 
    Effective date: This interim final rule is effective March 9, 2021.
    Comment date: Comments must be received on or before April 8, 2021.

ADDRESSES: You may submit comments identified by number TREAS-DO-2021-
0004 through the Federal eRulemaking Portal: https://www.regulations.gov. Follow the instructions for submitting comments.
    Treasury will post all comments on www.regulations.gov. If you wish 
to submit confidential business information (CBI) as defined in the 
User Notice at www.regulations.gov, please send an email to 
[email protected]. Highlight the information that you consider 
to be CBI and explain why you believe Treasury should hold this 
information as confidential. Treasury will review the information and 
make the final determination whether it will publish the information.

FOR FURTHER INFORMATION CONTACT: For further information regarding this 
interim final rule contact Brian Donovan, Emergency Capital Investment 
Program, Treasury, at (202) 653-0371 or [email protected], or 
Eric Froman, Assistant General Counsel (Banking and Finance), Treasury, 
at (202) 622-1942 or [email protected].

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background Information
II. Comments and Immediate Effective Date
III. Interim Final Rule
    A. Background on the ECIP
    B. Overview of the Interim Final Rule
    1. Restrictions on Compensation
    2. Restrictions on Dividends, Share Buybacks, and Other Capital 
Distributions
IV. Regulatory Analyses
    A. Administrative Procedure Act
    B. National Environmental Policy Act
    C. Paperwork Reduction Act
    D. Regulatory Flexibility Act
    E. Regulatory Planning and Review
    F. Executive Order 13132
    G. Congressional Review Act

I. Background Information

    On December 27, 2020, the Consolidated Appropriations Act, 2021 
(Pub. L. 116-260), was signed into law. It added Section 104A of the 
Community Development Banking and Financial Institutions Act of 1994 
(the Act) (12 U.S.C. 4701 et seq.), which was enacted as part of the 
Riegle Community Development and Regulatory Improvement Act of 1994 
(Pub. L. 103-325). Section 104A authorizes the Secretary of the 
Treasury to establish the Emergency Capital Investment Program (ECIP or 
Program) to make investments in low- and moderate-income community 
financial institutions. These investments are to support the efforts of 
low- and moderate-income community financial institutions to, among 
other things, provide loans, grants, and forbearance for small 
businesses, minority-owned businesses, and consumers, especially in 
low-income and underserved communities, including persistent poverty 
counties, which may be disproportionately impacted by the economic 
effects of the COVID-19 pandemic.
    Under Section 104A(h) of the Act, the Department of the Treasury 
(Treasury) must issue rules setting restrictions on executive 
compensation, share buybacks, and dividend payments for recipients of 
capital investments under ECIP. This rulemaking establishes those 
restrictions, which are described in section III below.

II. Comments and Immediate Effective Date

    ECIP is intended to be used to make investments in low- and 
moderate-income community financial institutions expeditiously.\1\ 
Section 104A(h) of the Act requires Treasury to issue rules no later 
than 30 days after the statute's effective date that set restrictions 
on executive compensation, share buybacks, and dividend payments for 
recipients of capital investments under ECIP. This legislative mandate, 
along with the dramatic and ongoing effects of the COVID-19 pandemic--
the public health crisis, continuing closures of small businesses and 
minority-owned businesses, and heightened consumer unemployment, 
especially in low-income and underserved communities--provides good 
cause for Treasury to issue this interim final rule without advance 
notice and public comment and to dispense with the 30-day delayed 
effective date provided in the Administrative Procedure Act (5 U.S.C. 
553). The immediate effective date of this interim final rule will 
benefit low- and moderate-income community financial institutions, as 
well as the communities served by such institutions, by allowing low- 
and moderate-income community financial institutions to expeditiously 
apply for capital investments with a full understanding of the 
executive compensation, share buyback, and dividend payment 
restrictions that will

[[Page 13450]]

apply to participants in the Program. Otherwise, potential recipients 
of capital investments under ECIP could decide not to participate in 
the Program or to delay their applications for a material period of 
time pending the establishment of these requirements, which would 
reduce or delay the provision of much-needed assistance to communities 
that have suffered economic impairment due to the COVID-19 pandemic. 
Although this interim final rule is effective immediately, comments are 
solicited from the public on all aspects of the interim final rule. 
Comments must be submitted on or before April 8, 2021. Treasury will 
consider these comments and the need for making any revisions as a 
result of these comments.
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    \1\ For example, section 104A(d)(1) of the Act requires Treasury 
to begin accepting applications for capital investments under ECIP 
within 30 days after enactment of the statute, and section 
104A(h)(1) requires Treasury to issue rules setting restrictions on 
executive compensation, share buybacks, and dividend payments for 
ECIP recipients within 30 days after enactment of the statute.
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III. Interim Final Rule

A. Background on the ECIP

    The purpose of ECIP is to support the efforts of low- and moderate-
income community financial institutions to, among other things, provide 
loans, grants, and forbearance for small businesses, minority-owned 
businesses, and consumers, especially in low-income and underserved 
communities, including persistent poverty counties, which may be 
disproportionately impacted by the economic effects of the COVID-19 
pandemic.\2\ To support these objectives, the Act makes up to $9 
billion available to Treasury to make capital investments in minority 
depository institutions and community development financial 
institutions that are (1) insured depository institutions that are not 
controlled by eligible bank holding companies or eligible savings and 
loan holding companies, (2) bank holding companies, (3) savings and 
loan holding companies, or (4) federally insured credit unions. Certain 
additional eligibility criteria apply, including a requirement for 
applicants to provide Treasury with an investment and lending plan that 
provides certain specified information concerning the applicant's 
lending history and plans.\3\
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    \2\ Section 104A(b)(2) of the Act.
    \3\ Sections 104A(d)(3)-(4), 104A(i) of the Act.
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    A community development financial institution or minority 
depository institution that submits an application and is selected to 
participate in the Program (ECIP recipient) will receive a capital 
investment from Treasury.4 5 Consistent with statutory 
requirements, the investment by Treasury will take the form of 
preferred stock, except in cases where Treasury determines that an 
institution cannot feasibly issue preferred stock, Treasury may 
purchase subordinated debt instruments.\6\ The statute sets forth 
certain economic terms of the capital investments under ECIP \7\ and 
limitations on the amount of capital investments Treasury may purchase 
from individual institutions.\8\ In addition, the statute prohibits 
institutions with certain types of conflicts of interest from 
participating in ECIP.\9\ Treasury's authority to make new capital 
investments in ECIP will end six months after the date on which the 
national emergency concerning the COVID-19 outbreak declared by the 
President on March 13, 2020 under the National Emergencies Act (50 
U.S.C. 1601 et seq.) terminates.
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    \4\ An ECIP capital investment may be treated as equity or 
subordinated debt for accounting purposes depending on the type of 
instrument issued and the corporate form and regulatory 
classification of the ECIP participant.
    \5\ Currently, the only Federal credit unions that may accept 
these types of investments as secondary capital under the secondary 
capital rules of the National Credit Union Administration (NCUA) are 
those with a designation of low-income status. See 12 CFR 701.34(b). 
Credit unions that do not meet the low-income credit union 
designation may participate through the issuance of subordinated 
debt, but the subordinated debt would not be secondary capital.
    \6\ Section 104(d)(5)(B) of the Act.
    \7\ Sections 104A(d)(5)-(8) of the Act.
    \8\ Sections 104A(e), (f) of the Act.
    \9\ Section 104A(h) of the Act.
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B. Overview of the Interim Final Rule

    This interim final rule establishes restrictions on executive 
compensation, share buybacks, and dividend payments, as required by the 
Act. In developing these restrictions, Treasury has considered two 
primary objectives. First, these restrictions should seek to promote 
the integrity of ECIP by ensuring that the funds provided under the 
Program are used to provide loans, grants, and forbearance for small 
businesses, minority-owned businesses, and consumers, especially in 
low-income and underserved communities. Second, the restrictions 
generally should seek to encourage a large number of minority 
depository institutions and community development financial 
institutions to participate in ECIP, because the Program will have the 
most beneficial impact on the intended communities if a broad range of 
institutions participate in the Program.
    The restrictions under this interim final rule generally apply to 
an ECIP recipient during the ``ECIP period,'' defined as the period 
from the date the ECIP makes its investment until the earliest of (i) 
the date on which the ECIP recipient has fully redeemed or repaid the 
capital investment received under ECIP; (ii) the date on which the 
capital investment the ECIP recipient received under ECIP is no longer 
held, in full or in part, by Treasury or a Treasury affiliate, or a 
custodian, trustee, or agent acting on behalf of Treasury or a Treasury 
affiliate, and (iii) the date that is ten years after the ECIP 
investment date. The restrictions apply to the ECIP recipient on a 
consolidated basis. Treasury anticipates that the ECIP period will 
provide sufficient time to ensure that ECIP investments are deployed in 
a manner that supports the statutory objectives. Accordingly, the 
requirements of the interim final rule will cease to apply when the 
ECIP investment is no longer held by Treasury or an entity established 
by Treasury (Treasury affiliate).
1. Restrictions on Compensation
    The restrictions on executive compensation under the interim final 
rule include (i) a requirement to ensure that the total compensation 
paid to senior executive officers is appropriate and not excessive; 
(ii) a restriction on severance pay for an ECIP recipient's senior 
executive officers if the ECIP recipient is in troubled condition; and 
(iii) a requirement to adopt policies and procedures prohibiting 
excessive or luxury expenditures (as defined below). Each of these 
compensation-related restrictions is intended to help ensure that the 
proceeds of ECIP investments have the effect intended by Section 104A 
of the Act and are not to fund excessive compensation for ECIP 
recipients' executives.
    The restrictions on excess compensation apply to total 
compensation, which is defined as all compensation, other than any 
severance payment, provided by an ECIP recipient to an officer or 
employee, including salary, wages, bonuses, awards of stock, deferred 
compensation, and other financial benefits.
    A ``senior executive officer'' means an ECIP recipient's president, 
any vice president in charge of a principal business unit division or 
function (such as sales, administration, or finance), any other officer 
who performs a policy making function, or any other person who performs 
similar policy making functions.
i. Policies and Procedures Prohibiting Excessive Compensation
    Under the interim final rule, an ECIP recipient is required to 
ensure that the total compensation paid to its senior executive 
officers is appropriate and not excessive. Unless informed otherwise by 
Treasury, an ECIP recipient is considered to have satisfied the 
requirements regarding excessive executive compensation under the

[[Page 13451]]

interim final rule if it maintains compliance with the guidelines or 
standards established by its primary Federal regulator that address 
excessive compensation, corporate practices, and operations. 
Specifically, ECIP recipients that are insured depository institutions 
are subject to the Interagency Guidelines Establishing Standards for 
Safety and Soundness as issued by the appropriate Federal banking 
agency for the particular ECIP recipient.\10\ Bank holding companies 
and savings and loan holding companies are required to maintain 
compliance with corporate practice \11\ and operations requirements 
\12\ issued by the Board of Governors of the Federal Reserve System 
(Federal Reserve Board), and, under the interim final rule, to ensure 
their subsidiary insured depository institutions adopt and maintain 
policies and procedures that are consistent with the applicable 
guidelines or standards established by their primary Federal regulators 
that address excessive compensation. In addition, federally insured 
credit unions must maintain compliance with the requirements on 
compensation and benefits for federally insured credit unions as issued 
by the National Credit Union Administration (NCUA).\13\ Treasury 
reserves the authority to take action as necessary to address potential 
anti-evasion concerns relating to the interim final rule's requirements 
for ECIP participants.
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    \10\ For national banks and Federal savings associations, 12 CFR 
part 30, Appendix A; state member banks, 12 CFR part 208, Appendix 
D-1; and insured state nonmember banks and state savings 
associations, 12 CFR part 364, Appendix A.
    \11\ 12 CFR 225.4.
    \12\ 12 CFR 238.8.
    \13\ 12 CFR 701.19(a); 12 CFR 701.21(c)(8); 12 CFR 
702.203(b)(10); 12 CFR 702.204(b)(10).
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ii. Limit on Severance Pay
    Under the interim final rule, an ECIP recipient is prohibited from 
making excessive severance payments to a senior executive officer. 
Severance pay is defined to include all types of cash payments, 
benefits, and other amounts paid or provided in connection with an 
individual's termination of employment, except for payment for services 
performed or benefits that were accrued prior to termination of 
employment or otherwise accrued with respect to services performed.
    Unless informed otherwise by Treasury, an ECIP recipient that is an 
insured depository institution, bank holding company, or savings and 
loan holding company is considered to have satisfied the requirements 
regarding severance payments if it maintains compliance with the limits 
and prohibitions on the ability of insured depository institutions and 
their affiliated holding companies to enter into contracts to pay and 
to make golden parachute and indemnification payments to institution-
affiliated parties, as issued by the FDIC.\14\ The FDIC rules place 
restrictions on payments to institution-affiliated parties whenever an 
insured depository institution or depository institution holding 
company is in ``troubled condition,'' as determined by the appropriate 
Federal banking agency. An ECIP recipient that is not designated in 
troubled condition by the appropriate Federal banking agency during the 
ECIP period generally would not be subject to restrictions on severance 
payments under the interim final rule. Similarly, a federally insured 
credit union is considered to have satisfied the requirements regarding 
severance payments if it maintains compliance with the limits and 
prohibitions on the ability of federally insured credit unions to enter 
into contracts to pay and to make golden parachute and indemnification 
payments to institution-affiliated parties as issued by the NCUA.\15\ 
This restriction is designed to align the requirements of the ECIP with 
existing standards applicable to ECIP recipients under regulations 
issued by Federal regulators.
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    \14\ 12 CFR part 359.
    \15\ 12 CFR part 750.
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iii. Limit on Excessive or Luxury Expenditures
    Under the interim final rule, ECIP recipients are required to 
establish and maintain policies designed to eliminate excessive or 
luxury expenditures. The term ``excessive or luxury expenditures'' is 
defined as excessive expenditures on any of the following to the extent 
such expenditures are not reasonable expenditures for staff 
development, reasonable performance incentives, or other similar 
reasonable measures conducted in the normal course of the ECIP 
recipient's business operations: (1) Entertainment or events; (2) 
office and facility renovations; (3) aviation or other transportation 
services; (4) tax gross-ups (i.e., reimbursement of taxes owed with 
respect to any compensation); and (5) other similar items, activities, 
or events for which the ECIP recipient may reasonably anticipate 
incurring expenses, or reimbursing an employee for incurring expenses. 
Capital investments, including investments in technology, equipment, 
and similar items that expand the long-term capability of an ECIP 
recipient to provide products and services to its customers and 
community are not excessive or luxury expenditures.
    The interim final rule requires an ECIP recipient to adopt and 
maintain an ``excessive or luxury expenditures policy'' that sets forth 
written standards applicable to the ECIP recipient and its employees 
that address the five categories of expenses set forth in the 
definition of ``excessive or luxury expenditures'' and that are 
reasonably designed to eliminate excessive or luxury expenditures. The 
standards must (1) identify the types or categories of expenditures 
which are prohibited; (2) identify the types or categories of 
expenditures for which prior approval is required (which may include a 
threshold expenditure amount per item, activity, or event or a 
threshold expenditure amount per employee receiving the item or 
participating in the activity or event); (3) provide reasonable 
approval procedures for expenditures requiring prior approval; (4) 
require the ECIP recipient to deliver a certification, executed by two 
senior executive officers (one of which must be either the ECIP 
recipient's chief executive officer (or individual performing a similar 
function) (defined as the ``principal executive officer'') or its chief 
financial officer (or individual performing a similar function) 
(defined as the ``principal financial officer'') that the approval of 
any expenditure requiring the prior approval of any senior executive 
officer, any executive officer of a substantially similar level of 
responsibility, or the ECIP recipient's board of directors (or a 
committee of such board of directors) was properly obtained with 
respect to each such expenditure; (5) require the prompt internal 
reporting of violations to an appropriate person or persons identified 
in this policy; and (6) mandate accountability for adherence to the 
policy. The requirement to establish a policy regarding excessive or 
luxury expenditures is intended to promote the integrity of ECIP by 
ensuring that the funds provided under the Program are used to provide 
loans, grants, and forbearance, without restricting ECIP participants' 
discretion to establish policies and procedures that are tailored to 
meet the needs and business objectives of their respective 
organizations.
    To facilitate compliance with this requirement, Treasury is making 
available to ECIP recipients a form of excessive or luxury expenditures 
policy in Appendix A to the interim final rule. An ECIP recipient may 
use this form to satisfy the requirement in the interim final rule to 
adopt and maintain an excessive or luxury expenditures policy.

[[Page 13452]]

Alternatively, an ECIP recipient may use other forms or existing 
policies relating to excessive or luxury expenditures, but such other 
forms or policies must satisfy all the requirements of the interim 
final rule.
iv. Material Changes to Policies or Procedures
    An ECIP recipient must obtain prior approval from Treasury before 
making any material change to the policies or procedures that it 
maintains for purposes of compliance with the compensation, severance 
pay and excessive or luxury expenditures requirements described in the 
preceding discussion.\16\ A change to such policies or procedures will 
be considered material if the change is likely to have a negative 
effect on the financial condition of the ECIP recipient, limit the 
ability of the ECIP recipient to make payments under the terms of an 
ECIP instrument, or otherwise impair the ECIP recipient's ability to 
meet its obligations to Treasury under the Program. An ECIP recipient 
would bear the initial responsibility for determining whether a change 
in policy or procedures is material; however, Treasury would retain the 
authority to take enforcement as appropriate (i.e., an ECIP recipient 
should not revise its compensation policy to permit or pay excessive 
compensation if its cash is insufficient to pay dividends on ECIP 
instruments). A request by an ECIP recipient to make a material change 
to its compensation, severance pay, or excessive or luxury expenditures 
policies or procedures must be submitted to Treasury in writing at 
least 30 days prior to the effective date of the policy change. The 
notice will be deemed approved 30 days after the ECIP submits the 
notice to Treasury unless prior to the expiration of the 30-day period 
Treasury (i) objects to the proposed change or (ii) notifies the ECIP 
recipient that additional time is required in order to better evaluate 
the impact of the proposed change to policy or procedures.
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    \16\ Disclosures by ECIP recipients of any proposed material 
changes to any such policies or procedures will be subject to their 
Federal regulators' applicable restrictions in respect of the 
disclosure of confidential supervisory information.
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    Treasury specifically solicits comments from members of the public 
concerning the following issues:
    Question #1: Are the restrictions on compensation sufficiently 
tailored to facilitate the ECIP Program objectives without discouraging 
participation in the program?
    Question #2: Are there other reasonable alternatives to the 
Program's excessive or luxury expenditures policy requirement that 
would be as effective in ensuring that funds provided under the Program 
are used to provide loans, grants, and forbearance, without restricting 
ECIP participant discretion to establish policies and procedures that 
are tailored to meet the needs and business objectives of their 
respective organizations?
    Question #3: What additional guidance or clarification regarding 
the compensation and expenditure restrictions would help facilitate 
compliance with these restrictions and ensure that the restrictions are 
working as intended?
2. Restrictions on Dividends, Share Buybacks, and Other Capital 
Distributions
    The restrictions on dividends, share buybacks, and other capital 
distributions under the interim final rule include two components. The 
first is a prohibition on discretionary dividends, share buybacks and 
other capital distributions on non-senior securities if an ECIP 
recipient has not (i) for preferred stock issued to Treasury, paid in 
full the dividends for the last completed dividend period, or (ii) for 
instruments issued to Treasury other than in the form of preferred 
stock, such as subordinated debt, paid all amounts due and payable and 
all amounts previously deferred under the terms of the instruments. The 
second is a limit on dividends, share buybacks, and other capital 
distributions based on separate earnings-based tests for (i) insured 
depository institutions, bank holding companies and savings and loan 
holding companies, on the one hand, and (ii) federally insured credit 
unions, on the other.
    However, the interim final rule provides an exception from these 
restrictions for ECIP recipients that are S corporations or other pass-
through entities for purposes of the Internal Revenue Code of 1986. The 
interim final rule will permit S corporations and other pass-through 
entities to make capital distributions to the extent reasonably 
required to cover its owners' tax obligations in respect of the 
entity's earnings. Such distributions shall be subject to an annual 
reconciliation, with any surplus or deficiency to be deducted or added 
to distributions, as applicable, in the following year.
    The exemption for tax-related distributions in the interim final 
rule does not supersede otherwise applicable limitations or 
determinations with respect to distributions established by an ECIP 
recipient's Federal regulators. Accordingly, tax-related distributions 
permitted under the interim final rule must also comply with any 
applicable limitations or determinations established by an ECIP 
recipient's Federal regulators.
    Similar to the restrictions on executive compensation described 
above, these limitations on capital distributions are intended to 
ensure that the funds provided under ECIP have the effect intended by 
Section 104A of the Act, and are not to provide undue compensation to 
an ECIP recipient's shareholders or owners. In addition, these 
restrictions serve to protect the taxpayer's financial interest in 
connection with the instruments issued by an ECIP recipient to Treasury 
in connection with the Program.
i. Restriction on Dividends, Share Buybacks and Other Capital 
Distributions
    The interim final rule defines ``non-senior securities'' as any 
equity interests in or other instruments issued by an ECIP recipient 
that are pari passu with or junior to Treasury's investment, or equity 
interests in or other instruments issued by a depository institution 
holding company of which the ECIP recipient is a subsidiary. Under the 
interim final rule, an ECIP recipient will be prohibited from making 
capital distributions, such as declaring or paying any dividend on, or 
purchasing or redeeming, any non-senior securities unless (i) if 
Treasury holds shares of preferred stock, the company has paid in full 
dividends on the preferred stock with respect to the last completed 
dividend period (prior to the current dividend period); or (ii) if 
Treasury holds an instrument other than preferred stock (e.g., 
subordinated debt), all amounts due and payable on the instrument have 
been paid in full, and no deferred amounts are unpaid. These 
restrictions reflect customary contractual protections to prevent an 
ECIP recipient from making discretionary distributions on non-senior 
securities if payments are not being made to Treasury on its 
investment. These restrictions would not prevent an ECIP recipient from 
making required, non-discretionary payments on non-senior securities, 
such as payments required at stated maturity in accordance with an 
instrument's terms, or payments of interest that may not be 
deferred.\17\
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    \17\ Such payments may be subject to limitations established by 
an ECIP recipient's primary Federal regulator.
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    For these purposes, a ``capital distributions'' are defined as (i) 
dividends, including discretionary

[[Page 13453]]

dividends, on non-senior securities and any other payments on a share 
of stock or other equity or equivalent interest, (ii) payments, 
including interest payments, on non-senior securities that the issuer 
has full discretion to permanently or temporarily suspend without 
triggering a default, (iii) redemptions or repurchases of non-senior 
securities or (iv) any similar transaction that Treasury determines to 
be in substance a capital distribution. Excluded from this definition, 
however, are (a) redemptions or repurchases of shares that are part of 
an employee stock ownership plan for an ECIP recipient that is not 
publicly traded, provided that the repurchase is required solely by 
virtue of the Employee Retirement Income Security Act of 1974, as 
amended; (b) in the case of federally insured credit unions, payments 
of dividends and interest (as defined by 12 CFR 707.2(h) and (o)) on 
accounts held by their members and redemptions of membership share 
interests upon voluntary or involuntary terminations of membership by a 
credit union or its members, as applicable; and (c) solely in the case 
of the earnings test described below, redemptions or repurchases of 
non-senior securities if the issuer of the non-senior securities being 
repurchased or redeemed funds the redemption or repurchase by issuing 
at least a corresponding amount of new non-senior securities that rank 
equally in liquidation with, receive the same capital treatment as and, 
if applicable, have a stated maturity date no earlier than the non-
senior securities being redeemed or repurchased. An extraordinary or 
special dividend (which excludes an ordinary dividend on a special 
share account) by a federally insured credit union is a capital 
distribution and is not subject to the exclusion for payments of 
dividends and interest by credit unions on accounts held by their 
members.
ii. Limit on the Amount of Capital Distributions
    Under the interim final rule, an ECIP recipient will be required to 
obtain prior approval from Treasury in order to make capital 
distributions in excess of the following earnings-based tests.
    Treasury determined that the limits on capital distributions are 
appropriate based on a review of publicly available data regarding 
average dividend rates among banking organizations with $10 billion or 
less in total assets, in the period before the Covid-19 pandemic. Thus, 
the limitation on capital distributions strikes an appropriate balance 
between allowing ECIP recipients to make capital distributions and 
helping to ensure that the proceeds of the ECIP investment are used to 
expand lending to low- and moderate-income and other targeted 
populations.

A. Earnings Test for Insured Depository Institutions, Bank Holding 
Companies, and Savings and Loan Holding Companies

    The interim final rule provides that, without prior approval from 
Treasury, an ECIP recipient that is an insured depository institution, 
bank holding company, or savings and loan holding company may not make 
a capital distribution if the total capital distributions made during 
the calendar year, including the proposed capital distribution, exceeds 
its ``eligible distributable income,'' which is calculated as the sum 
of the ECIP recipient's (a) year-to-date net income as of the end of 
the most recent calendar quarter, plus net income for the two preceding 
calendar years, less (b) any dividends or capital distributions for the 
year to date as of the end of the most recent calendar quarter, and for 
the two preceding calendar years, where each amount is calculated in 
accordance with the instructions to the Call Report or applicable 
reporting form. While approval may be awarded by Treasury to make 
capital distributions, the interim final rule confirms that such 
approval does not supersede any applicable regulatory requirements of 
the ECIP recipient's appropriate Federal banking agency, or other 
actions taken by such agency.
    The ``eligible distributable income'' limit is similar to other 
existing earnings limitations on payments of dividends that apply to 
certain insured depository institutions.\18\ In light of this 
similarity, an ECIP recipient could calculate eligible distributable 
income with respect to capital distributions, by applying the 
methodology set forth in 12 CFR 5.64 or 12 CFR 208.5, as applicable, 
with respect to dividends, by substituting ``capital distributions'' 
for ``dividends.'' In addition, in the case of 12 CFR 208.5, an ECIP 
recipient that is not an insured depository institution would use net 
income, as reported in the ECIP recipient's FR Y-9C or FR Y-9SP, 
instead of net income as reported in the Reports of Condition and 
Income. Treasury anticipates that the operational impact the capital 
distribution approval requirement will be nominal and that the approval 
requirement will provide meaningful support for the objectives of the 
Program.
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    \18\ See, e.g., 12 U.S.C. 60 (national banks), 12 CFR 5.64 
(national banks), and 12 CFR 208.5 (state member banks).
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B. Earnings Test for Federally Insured Credit Unions

    Consistent with existing distribution limitations applicable to 
federally insured credit unions,\19\ the interim final rule provides 
that, without prior approval by Treasury, an ECIP recipient that is a 
federally insured credit union may not make a capital distribution on 
any non-senior securities if the distribution would (i) in the case of 
a dividend, be payable from retained earnings (as defined in 12 CFR 
702.2(f)) other than undivided earnings; or (ii) cause the credit 
union's net worth classification to fall below ``adequately 
capitalized'' (as defined in 12 CFR 702.102(a)(2)).
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    \19\ See 12 CFR 702.403.
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3. Exemptive Relief
    Under the interim final rule, Treasury retains authority to grant 
waivers or exemptions from the restrictions under the interim final 
rule on dividends, share buybacks, and other capital distributions. 
Such relief may be granted broadly to all ECIP recipients or to 
particular entities. In considering whether to grant exemptive relief, 
Treasury will consider whether the relief is necessary or appropriate 
to achieve the goals of the ECIP or to protect the public interest. 
Such relief may be granted based on terms and conditions as determined 
by Treasury, and in making determinations regarding requests for 
exemptive relief, Treasury may consult with the primary Federal 
regulator when deemed appropriate.
4. Annual Certification and Enforcement
    Each ECIP recipient will be required to submit to Treasury on an 
annual basis a certification executed by two senior executive officers 
(one of which must be either the ECIP recipient's principal executive 
officer or principal financial officer) that the ECIP recipient is in 
compliance with each of the excessive compensation, severance payments, 
excessive or luxury expenditures requirements and restrictions on 
capital distributions set forth in the interim final rule. If an ECIP 
recipient certifies that it satisfies the severance payments 
requirements, Treasury expects that the certification will address only 
compliance with the requirements and will neither address whether the 
ECIP recipient is in troubled condition for purposes of 12 CFR parts 
359 and 750, as applicable, nor contain any confidential supervisory 
information subject to applicable disclosure

[[Page 13454]]

restrictions promulgated by the ECIP recipients' Federal regulators.
    The interim final rule is promulgated under Section 104A of the 
Act, and agreements between ECIP recipients and Treasury in connection 
with the Program will be entered into under the Act. Treasury may take 
action or directly address noncompliance with the requirements of this 
interim final rule or Program agreements. In addition, Treasury may, in 
its discretion, inform the appropriate Federal banking agencies of any 
apparent violations by ECIP recipients of the interim final rule or 
Program agreements between ECIP recipients and Treasury.\20\
---------------------------------------------------------------------------

    \20\ See, e.g., 12 U.S.C. 4717(b).
---------------------------------------------------------------------------

    Treasury specifically solicits comments from members of the public 
concerning the following issues:
    Question #4: Are the restrictions on dividends, share buybacks, and 
other capital distributions sufficiently tailored to facilitate the 
ECIP Program objectives without discouraging participation in the 
program?
    Question #5: What would be the advantages and disadvantages of 
aligning limitations on capital distributions under the interim final 
rule with limitations applicable to each entity pursuant to the 
requirements of its appropriate Federal banking regulator? What are the 
advantages and disadvantages of calculating eligible distributable 
income based on (i) income as of the end of the most recent calendar 
quarter and (ii) year to date reported net income? What are the 
advantages and disadvantages of calculating the capital distribution 
limitation using (i) year-to-date dividends or capital distributions; 
(ii) reported dividends or capital distributions; and (iii) year-to-
date dividends or capital distributions as of the end of the most 
recent calendar quarter?

IV. Regulatory Analyses

A. Administrative Procedure Act

    Pursuant to authority at 5 U.S.C. 553(b)(B), the interim final rule 
is exempt from the rulemaking requirements of the Administrative 
Procedure Act (APA) (5 U.S.C. 551 et seq.), including the requirement 
to provide prior notice and an opportunity for public comment for the 
good cause shown in Sections I and II of this SUPPLEMENTARY 
INFORMATION.

B. National Environmental Policy Act

    The interim final rule has been reviewed in accordance with 12 CFR 
part 1815, the CDFI Fund's environmental quality regulations published 
pursuant to the National Environmental Protection Act of 1969 (NEPA). 
It is the determination of Treasury that the interim final rule does 
not constitute a major Federal action significantly affecting the 
quality of the human environment and, in accordance with NEPA and the 
CDFI Fund's environmental quality regulations at 12 CFR part 1815, 
neither an Environmental Assessment nor an Environmental Impact 
Statement is required.

C. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA) 
states that no agency may conduct or sponsor, nor is the respondent 
required to respond to, an information collection unless it displays a 
currently valid OMB control number.
    The interim final rule will add current information collections for 
excessive or luxury expenditure policy and exemptive relief requests to 
the ECIP application process. The ``excessive or luxury policy'' 
collection requirements include the adoption and maintenance of the 
policy (detailed in section 1(iii)); written notices of change 
(detailed in section 1(iv)); and annual certifications (detailed in 
section 4). The exemptive relief requests are detailed in section 3. 
The addition of these collections will increase total annual burden by 
44,014 hours: The policy requirements are expected to take 1,100 
respondents 40 hours to complete for an annual burden of 44,000 hours, 
and it is estimated that 55 (or 5%) of respondents will submit an 
exemptive relief request that will take 15 minutes to complete, for an 
annual burden of 14 hours. The OMB Control Number for the Emergency 
Capital Investment Program information collection is 1505-0267.
    Comments concerning suggestions for reducing the burden of 
collections of information should be directed to the Deputy Director 
for Policy and Programs, Community Development Financial Institutions 
Fund, 601 13th Street, NW, Suite 200 South, Washington, DC 20005.

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
requires an agency to consider whether the rules it proposes will have 
a significant economic impact on a substantial number of small 
entities. 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 above, consistent with 5 U.S.C. 553(b)(B), Treasury has 
determined for good cause that general notice and opportunity for 
public comment is unnecessary, and therefore is not issuing a notice of 
proposed rulemaking. Because no notice of proposed rulemaking is 
required for this interim final rule, the provisions of the RFA do not 
apply. Nevertheless, Treasury seeks comment on whether, and the extent 
to which, the interim final rule would affect a significant number of 
small entities.

E. Regulatory Planning and Review

    This interim final rule is economically significant for the 
purposes of Executive Orders 12866 and 13563. Treasury, however, is 
proceeding under the emergency provision at Executive Order 12866 
section 6(a)(3)(D) based on the need to move expeditiously to mitigate 
the current economic conditions arising from the COVID-19 emergency, as 
discussed in Section II of this Supplementary Information.

F. Executive Order 13132

    This interim final rule does not have federalism implications as 
defined in Executive Order 13132. It will not have substantial direct 
effects on the States, on the relationship between the National 
Government and the States, or on the distribution of power and 
responsibilities among the various levels of government, as specified 
in the executive order. As such it does not warrant the preparation of 
a federalism assessment.

G. Congressional Review Act

    The Administrator of the Office of Management and Budget's Office 
of Information and Regulatory Affairs (OIRA) has determined that this 
is a major rule for purposes the Congressional Review Act (CRA) (5 
U.S.C. 804(2) et seq.). Under the CRA, a major rule takes effect 60 
days after the rule is published in the Federal Register. 5 U.S.C. 
801(a)(3).
    Notwithstanding this requirement, the CRA allows agencies to 
dispense with the requirements of section 801 when the agency for good 
cause finds that such procedure would be impracticable, unnecessary, or 
contrary to the public interest and the rule shall take effect at such 
time as the agency promulgating the rule determines. 5 U.S.C. 808(2). 
Pursuant to Sec.  808(2), Treasury, for the good cause shown in 
sections I and II of this SUPPLEMENTARY INFORMATION, finds that a 60-
day delay to provide public notice is impracticable and contrary to the 
public interest.

[[Page 13455]]

List of Subjects in 31 CFR Part 35

    Executive compensation.


0
For the reasons set forth in the preamble, 31 CFR subtitle A is amended 
by adding part 35 to read as follows:

PART 35--EMERGENCY CAPITAL INVESTMENT PROGRAM

Subpart A--[Reserved]
Subpart B--Compensation and Capital Distributions
Sec.
35.20 Purpose, applicability, and general provisions.
35.21 Definitions.
35.22 Restrictions on compensation.
35.23 Restrictions on dividends, share buybacks, and other capital 
distributions.
35.24 Annual certification.
35.25 Exemptive relief.
 Appendix A to 31 CFR Part 35--Emergency Capital Investment Program 
Model Excessive or Luxury Expenditures Policy

    Authority: Consolidated Appropriations Act, 2021 (Pub. L. 116-
260), Division N, Title V, Subtitle B; Community Development Banking 
and Financial Institutions Act of 1994 (enacted as part of the 
Riegle Community and Regulatory Improvement Act of 1994 (Pub. L. 
103-325)), as amended (12 U.S.C. 4701 et seq.), Section 104A.

Subpart A [Reserved]

Subpart B--Compensation and Capital Distributions


Sec.  35.20  Purpose, applicability and general provisions.

    (a) Purpose. Pursuant Section 104A of the Community Development 
Banking and Financial Institutions Act of 1994 (Act), as added by the 
Consolidated Appropriations Act, 2021 (Pub. L. 116-260), this subpart 
establishes restrictions on executive compensation, dividend payments, 
and share buybacks for recipients of capital investments under the 
Department of the Treasury's Emergency Capital Investment Program (ECIP 
or Program), as well as additional criteria for participation in the 
Program that the Secretary has determined are appropriate in 
furtherance of the Program goals.
    (b) Applicability. This subpart applies on a consolidated basis to 
any insured depository institution, bank holding company, savings and 
loan holding company, or federally insured credit union that issues 
preferred stock or a subordinated debt instrument to the Department of 
the Treasury under the Program (an ECIP recipient, as defined in Sec.  
35.21 of this subpart). An ECIP recipient must comply with the 
requirements of this subpart during the ECIP period.
    (c) Limitation of authority. Nothing in this subpart shall be 
interpreted to limit the authority of the appropriate Federal banking 
agency to take action under other provisions of law, including action 
to address unsafe or unsound practices or conditions, deficient capital 
levels, or violations of law or regulation, under section 8 of the 
Federal Deposit Insurance Act, section 8 of the Bank Holding Company 
Act, or section 10 of the Home Owners' Loan Act, or the Federal Credit 
Union Act, as may be applicable.


Sec.  35.21  Definitions.

    Except as modified in this regulation or unless the context 
otherwise requires, the terms used in this regulation have the same 
meaning as set forth in the relevant statutes. For purposes of this 
subpart:
    Act means the Community Development Banking and Financial 
Institutions Act of 1994, as amended (12 U.S.C. 4701 et seq.).
    Appropriate Federal banking agency has the same meaning as in 12 
U.S.C. 1813 and also includes the NCUA with respect to a federally 
insured credit union.
    Capital distributions means:
    (1) Dividends, including discretionary dividends, on non-senior 
securities and any other payments on a share of stock or other equity 
or equivalent interest;
    (2) Payments, including interest payments, on non-senior 
securities, that the issuer has full discretion to permanently or 
temporarily suspend without triggering a default;
    (3) Redemptions or repurchases of non-senior securities; or
    (4) Any similar transaction that the Department of the Treasury 
determines to be in substance a capital distribution;
    (5) Provided, that a ``capital distribution'' does not include:
    (i) Redemptions or repurchases of shares that are part of an 
employee stock ownership plan for an ECIP recipient that is not 
publicly traded, provided that the repurchase is required solely by 
virtue of the Employee Retirement Income Security Act of 1974, as 
amended;
    (ii) In the case of federally insured credit unions:
    (A) Payments of dividends and interest (as defined by 12 CFR 
707.2(h) and (o)) on accounts held by their members; provided that this 
exclusion does not apply to any extraordinary or special dividend by a 
credit union; or
    (B) Redemptions of membership share interests upon voluntary or 
involuntary terminations of membership by a credit union or its 
members, as applicable; and
    (iii) Solely in the case of Sec.  35.23(b) (Limit on amount of 
capital distributions), redemptions or repurchases of non-senior 
securities if the issuer of the non-senior securities being repurchased 
or redeemed fully funds the redemption or repurchase by issuing at 
least a corresponding amount of new non-senior securities that rank 
equally in liquidation with, receive the same capital treatment as and, 
if applicable, have a stated maturity date no earlier than the non-
senior securities being redeemed or repurchased.
    ECIP means the Emergency Capital Investment Program established 
under Section 104A of the Community Development Banking and Financial 
Institutions Act of 1994, as amended.
    ECIP investment means any preferred stock, subordinated debt, or 
other instrument (including any successor to any such instrument) 
issued by an ECIP recipient to the Department of the Treasury under the 
ECIP.
    ECIP investment agreement means the agreement between an ECIP 
recipient and the Department of the Treasury with respect to the ECIP 
investment in that ECIP recipient.
    ECIP investment date means the date on which an ECIP recipient 
first issued an ECIP investment.
    ECIP period means the period from the ECIP investment date until 
the earliest of:
    (1) The date on which the ECIP recipient has fully redeemed or 
repaid the ECIP investment received under ECIP;
    (2) The date on which the investment the ECIP recipient received 
under the ECIP is no longer held, in full or in part, by the Department 
of the Treasury or any affiliate thereof; and
    (3) Ten years after the ECIP investment date.
    ECIP recipient means any entity that has received a capital 
investment under the ECIP.
    Excessive or luxury expenditures means:
    (1) Excessive expenditures on any of the following to the extent 
such expenditures are not reasonable expenditures for staff 
development, reasonable performance incentives, or other similar 
reasonable measures conducted in the normal course of the ECIP 
recipient's business operations:
    (i) Entertainment or events;
    (ii) Office and facility renovations;
    (iii) Aviation or other transportation services;
    (iv) Tax gross-ups; and
    (v) Other similar items, activities, or events for which the ECIP 
recipient may reasonably anticipate incurring expenses, or reimbursing 
an employee for incurring expenses;
    (2) Provided, that reasonable capital investments in technology, 
equipment,

[[Page 13456]]

and similar items that expand the long-term capability of an ECIP 
recipient to provide products and services to its customers and 
community are not excessive or luxury expenditures.
    Excessive or luxury expenditures policy means written standards 
applicable to the ECIP recipient and its employees that address the 
five categories of expenses set forth in the definition of ``excessive 
or luxury expenditures,'' and that are reasonably designed to eliminate 
excessive and luxury expenditures. Such written standards must:
    (1) Identify the types or categories of expenditures which are 
prohibited (which may include a threshold expenditure amount per item, 
activity, or event or a threshold expenditure amount per employee 
receiving the item or participating in the activity or event);
    (2) Identify the types or categories of expenditures for which 
prior approval is required (which may include a threshold expenditure 
amount per item, activity, or event or a threshold expenditure amount 
per employee receiving the item or participating in the activity or 
event);
    (3) Provide reasonable approval procedures for expenditures 
requiring prior approval;
    (4) Require the ECIP recipient to deliver a certification, executed 
by two senior executive officers (one of which must be its principal 
executive officer or principal financial officer) certifying that the 
approval of any expenditure requiring the prior approval of any senior 
executive officer, any executive officer of a substantially similar 
level of responsibility, or the ECIP recipient's board of directors (or 
a committee of such board of directors), was properly obtained with 
respect to each such expenditure;
    (5) Require the prompt internal reporting of violations to an 
appropriate person or persons identified in this policy; and
    (6) Mandate accountability for adherence to the policy.
    FDIC means the Federal Deposit Insurance Corporation.
    Federal Reserve Board means the Board of Governors of the Federal 
Reserve System.
    NCUA means the National Credit Union Administration.
    Non-senior security means any equity interest or equivalent 
interest (including but not limited to membership share interests in 
the case of a credit union) or any other interest in, or instrument 
issued by, an ECIP recipient that is pari passu with, or junior to, the 
ECIP investment with respect to capital distributions or ranking in 
liquidation, including but not limited to the common stock (or 
equivalent equity interest) of the ECIP recipient, or any equity 
interest or equivalent interest or any other interest in or instrument 
issued by a depository institution holding company of which the ECIP 
recipient is a subsidiary.
    OCC means the Office of the Comptroller of the Currency.
    Principal executive officer means the chief executive officer of an 
ECIP recipient (or individual performing a similar function).
    Principal financial officer means the chief financial officer of an 
ECIP recipient (or individual performing a similar function).
    Senior executive officer means an ECIP recipient's president, any 
vice president in charge of a principal business unit, division or 
function, any other officer who performs a policy making function, or 
any other person who performs similar policy making functions.
    Severance payment means any payment or benefit provided to an 
officer or employee of an ECIP recipient in connection with any 
termination of such officer or employee's employment with the ECIP 
recipient (including resignation, severance, retirement, or 
constructive termination), except for payment for services performed or 
benefits accrued. A severance payment includes cash payments, health 
care benefits, perquisites, the enhancement or acceleration of any 
payment or vesting of any payment or benefit, or any other in-kind 
benefit payable or provided in connection with any termination of an 
officer or employee of the ECIP recipient.
    Total compensation means all compensation, other than any severance 
payment, provided by an ECIP recipient to an officer or employee, 
including salary, wages, bonuses, awards of stock, deferred 
compensation, and other financial benefits.


Sec.  35.22  Restrictions on compensation.

    (a) Restriction on executive compensation. An ECIP recipient must 
ensure that the total compensation paid to its senior executive 
officers is appropriate and not excessive. Unless informed otherwise by 
the Department of the Treasury, an ECIP recipient is considered to have 
satisfied the requirements regarding executive compensation in this 
section if it, and, if applicable, all insured depository institution 
subsidiaries of the ECIP recipient, maintains compliance with the 
following (or any successor requirement, as applicable):
    (1) For an ECIP recipient or subsidiary of an ECIP recipient that 
is an insured depository institution, except for federally insured 
credit unions, the Interagency Guidelines Establishing Standards for 
Safety and Soundness as issued by the appropriate Federal banking 
agency for the ECIP recipient or subsidiary (i.e., for national banks 
and Federal savings associations, 12 CFR part 30, appendix A; state 
member banks, 12 CFR part 208, appendix D-1; insured state nonmember 
banks and state savings associations, 12 CFR part 364, appendix A);
    (2) For an ECIP recipient that is a bank holding company, the 
requirements for corporate practices of bank holding companies as 
issued by the Federal Reserve Board at 12 CFR 225.4;
    (3) For an ECIP recipient that is a savings and loan holding 
company, the requirements regarding safe and sound operations of 
savings and loan holding companies as issued by the Federal Reserve 
Board at 12 CFR 238.8; and
    (4) For an ECIP recipient that is a federally insured credit union, 
the requirements on compensation and benefits for federally insured 
credit unions as issued by the NCUA at 12 CFR 701.19(a); 12 CFR 
701.21(c)(8); 12 CFR 702.203(b)(10); and 12 CFR 702.204(b)(10).
    (b) Restriction on severance payments. An ECIP recipient shall not 
make excessive severance payments to any senior executive officer. 
Unless informed otherwise by the Department of the Treasury, an ECIP is 
considered to have satisfied the requirements regarding severance 
payments in this section if it maintains compliance with the following 
(or any successor requirement, as applicable):
    (1) For an ECIP recipient that is an insured depository 
institution, a bank holding company or a savings and loan holding 
company, the limits and prohibitions to enter into contracts to pay and 
to make golden parachute and indemnification payments to institution-
affiliated parties to the extent applicable to the ECIP recipient, as 
issued by the FDIC at 12 CFR part 359; and
    (2) For an ECIP recipient that is a federally insured credit union, 
the limits and prohibitions on the ability of federally insured credit 
unions to enter into contracts to pay and to make golden parachute and 
indemnification payments to institution-affiliated parties as issued by 
the NCUA at 12 CFR 750.1.
    (c) Excessive or luxury expenditures. (1) Ninety days after an ECIP 
investment date with respect to an ECIP recipient, the board of 
directors of the ECIP

[[Page 13457]]

recipient must adopt an excessive or luxury expenditures policy, 
provide such policy to the Department of the Treasury and the ECIP 
recipient's appropriate Federal banking agency, and post the text of 
such policy on its internet website, if the ECIP recipient maintains an 
internet website.
    (2) If, after adopting an excessive or luxury expenditures policy, 
the board of directors of the ECIP recipient makes any material 
amendments to such policy, within ninety days of the adoption of the 
amended policy the board of directors must provide the amended policy 
to the Department of the Treasury and the ECIP recipient's appropriate 
Federal banking agency and post the amended policy on its internet 
website, if the ECIP recipient maintains an internet website.
    (3) The ECIP recipient must maintain, and continue the disclosure 
of any material amendments to, the excessive or luxury expenditures 
policy during the ECIP period, unless the Department of the Treasury 
determines that discontinuation of the policy would not be contrary to 
the public interest.
    (d) Material changes in policies or procedures. An ECIP recipient 
must obtain prior approval from the Department of the Treasury before 
making any material change to the policies or procedures that it 
maintains for purposes of compliance with paragraph (a), (b), or (c) of 
this section. A change to the compensation, severance pay, or excessive 
or luxury expenditures policies or procedures will be considered 
material for purposes of this section if the change is likely to have a 
negative effect on the financial condition of the ECIP recipient, limit 
the ability of the ECIP recipient to make payments under the terms of 
an ECIP instrument, or otherwise impair the ECIP recipient's ability to 
meet its obligations to the Department of the Treasury under the ECIP.
    (1) A request to make a material change to compensation, severance 
pay or excessive luxury expenditures policies or procedures, must be 
submitted by an ECIP recipient in writing and received by the 
Department of the Treasury at least thirty days prior to the effective 
date of the policy change. The request should describe the change, 
reason for the change, and anticipated financial or other impact of the 
change on the condition of the ECIP recipient.
    (2) The request will be deemed approved thirty days after the ECIP 
recipient has provided a complete request to the Department of the 
Treasury, unless, prior to the expiration of the thirty-day period, the 
Department of the Treasury objects to the proposed change or notifies 
the ECIP recipient that additional time is required in order to 
complete review of the proposed change to policy or procedures


Sec.  35.23  Restrictions on dividends, share buybacks, and other 
capital distributions.

    (a) Restriction on capital distributions due to nonpayment. An ECIP 
recipient shall not make any capital distribution on a non-senior 
security, unless:
    (1) If the ECIP investment is in the form of preferred stock, the 
ECIP recipient has paid in full the dividends for the last completed 
dividend period on the preferred stock; or
    (2) If the ECIP investment is in a form other than preferred stock 
(including, subordinated debt), the ECIP recipient has paid in full the 
principal, interest, and other amounts due and payable under the terms 
of the ECIP investment, and no amount that has been deferred remains 
unpaid.
    (b) Limit on amount of capital distributions. (1) If an ECIP 
recipient is an insured depository institution, bank holding company, 
or savings and loan holding company, the ECIP recipient shall obtain 
the approval of the Department of the Treasury prior to making any 
capital distribution if the total of capital distributions made during 
the calendar year, including the proposed capital distribution, exceeds 
its eligible distributable income; provided, however, that any prior 
approval of a capital distribution by the Department of the Treasury 
does not supersede any applicable regulatory requirements of the ECIP 
recipient's appropriate Federal banking agency, or other actions taken 
by such agency. For purposes of this paragraph, ``eligible 
distributable income'' means the sum of the ECIP recipient's reported 
year-to-date net income as of the end of the most recent calendar 
quarter, plus net income for the two preceding calendar years, less any 
dividends or distributions for the year to date as of the end of the 
most recent calendar quarter and the two preceding calendar years, 
where each amount is calculated in accordance with the instructions to 
the Call Report or applicable reporting form.
    (2) If the ECIP recipient is federally insured credit union, the 
ECIP recipient shall obtain the Department of the Treasury's prior 
approval to make any capital distributions if the distribution would:
    (i) In the case of a dividend, be payable from retained earnings 
(as defined in 12 CFR 702.2(f)) other than undivided earnings; or
    (ii) Cause the ECIP recipient's net worth classification to fall 
below ``adequately capitalized'' (as defined in 12 CFR 702.102(a)(2)).
    (c) Exception for Subchapter S Corporations and other pass-through 
entities. Notwithstanding anything to the contrary in paragraphs (a) 
and (b) of this section, any ECIP recipient that is an S corporation, 
as defined in 26 U.S.C. 1361(a), or other pass-through entity may make 
capital distributions, to the extent reasonably required to cover its 
owners' tax obligations in respect to the entity's earnings. Such 
distributions shall be subject to an annual reconciliation, with any 
surplus or deficiency to be deducted or added to distributions, as 
applicable, in the following year. Any tax-related distributions 
permitted under this paragraph (c) must also comply with any applicable 
limitations or determinations established by an ECIP recipient's 
Federal regulators.


Sec.  35.24  Annual certification

    On an annual basis an ECIP recipient shall, in accordance with the 
terms and conditions of its ECIP investment agreement, submit to the 
Department of the Treasury a certification executed by two senior 
executive officers (one of which must be either its principal executive 
officer or principal financial officer) that the ECIP recipient is in 
compliance with each of the excessive compensation, severance pay, and 
excessive or luxury expenditures requirements and restrictions on 
capital distributions set forth in Sec. Sec.  35.22 and 35.23.


Sec.  35.25  Exemptive relief.

    The Department of the Treasury may grant exemptions or waivers from 
some or all of the restrictions on share buybacks and dividend payments 
under this part if such exemption or waiver is necessary or appropriate 
to effectuate the goals of the ECIP or to protect the public interest. 
Such exemptions or waivers may be subject to such terms and conditions 
as deemed necessary or appropriate by the Department of the Treasury.

Appendix A to 31 CFR Part 35--Emergency Capital Investment Program 
Model Excessive or Luxury Expenditures Policy

I. Introduction

    A participant in the Emergency Capital Investment Program (ECIP 
recipient, as defined at 31 CFR 35.21) is required to establish and 
maintain policies designed to eliminate excessive or luxury 
expenditures. The term ``excessive or luxury expenditures'' means 
excessive expenditures on any of the following to the extent such 
expenditures are

[[Page 13458]]

not reasonable expenditures for staff development, reasonable 
performance incentives, or other similar reasonable measures 
conducted in the normal course of the ECIP recipient's business 
operations: (1) Entertainment or events; (2) office and facility 
renovations; (3) aviation or other transportation services; (4) tax 
gross-ups; and (5) other similar items, activities, or events for 
which the ECIP recipient may reasonably anticipate incurring 
expenses, or reimbursing an employee for incurring expenses.
    (1) To facilitate compliance with this requirement, the 
Department of the Treasury is making available a model excessive or 
luxury expenditures policy. An ECIP recipient may refer to this 
model policy for guidance in satisfying the requirement at 31 CFR 
35.22(c) to adopt and maintain an excessive or luxury expenditures 
policy. Alternatively, ECIP recipients may use other forms of, or 
existing policies relating to, excessive or luxury expenditures, 
provided that such other forms or policies satisfy all the 
requirements of the regulation at 31 CFR 35.22(c).
    (2) An ECIP recipient's luxury or excessive expenditure policy 
should be posted on the ECIP recipient's website. Any material 
amendments to an ECIP recipient's excessive or luxury expenditures 
policy must made in accordance with the provisions set forth in 31 
CFR 35.22(d) (Material changes in policies or procedures). If the 
ECIP recipient makes any material amendments to this policy, then 
the ECIP recipient must submit a copy of the amended policy to the 
Department of the Treasury and post the amended policy on the ECIP 
recipient's website. ECIP recipients should refer to 31 CFR part 35, 
subpart B for additional information regarding definitions of terms 
used in the model policy, disclosure, material changes, 
certification, and other compliance requirements.

II. Model Excessive or Luxury Expenditures Policy

A. Purpose

    The purpose of this policy is to establish parameters and 
internal controls governing the expenditures of [NAME OF ECIP 
RECIPIENT] (together with its subsidiaries and controlled 
affiliates, referred to hereafter as the Organization). Expenditures 
of the Organization should be customary, prudent, consistent with 
applicable laws and regulations, and reasonably related to the 
Organization's business objectives and needs. This policy identifies 
expenditures that are excessive or luxury expenditures, creates 
processes that are reasonably designed to eliminate such 
expenditures, and establishes accountability for compliance. Routine 
operating expenses, capital expenditures, and other reasonable 
expenses are not prohibited by this policy.

B. Authority

    The Organization has authority to provide compensation and 
benefits that are reasonable. This policy establishes a prohibition 
on expenditures that are excessive or luxury expenditures as 
required by the Department of the Treasury's Emergency Capital 
Investment Program regulations (31 CFR part 35), and as may be 
required by other statutes and regulations.

C. Responsibility

    This policy is the responsibility of the Organization's board of 
directors (board). The board has approved this policy and will 
review compliance with this policy no less frequently than annually, 
and summary data on excessive or luxury expenditures will be 
reported to the board as part of the compliance review.

D. Scope

    This policy applies to all employees, officers, and directors of 
the Organization with regard to any expenditure of the Organization. 
In making any expenditure on behalf of the Organization, employees, 
officers, and directors should consider whether the expenditure is 
an excessive or luxury expenditure that is prohibited under this 
policy.

E. Excessive or Luxury Expenditures

    ``Excessive or luxury expenditures'' means excessive 
expenditures on any of the following to the extent not reasonable or 
appropriate expenditures for business development, staff 
development, reasonable performance incentives, or other similar 
reasonable measures conducted in the normal course of the 
Organization's business operations:
    (1) Entertainment or events. This category includes fees, dues, 
tickets costs related to social, athletic, artistic and dining 
clubs, activities, celebrations or other events, and similar 
expenditures. Expenditures for charitable contributions and 
charitable events are not prohibited under this policy. 
Entertainment or events expenditures in an amount less than $___ per 
instance, and $___ on an annual aggregate basis per individual, are 
exempt from this policy.
    (2) Office and facility renovations. This category includes 
costs and allowances for office renovation, including expenditures 
related to furniture, art, office personalization, interior 
finishing, design and decoration, and similar expenditures. Office 
and facility renovations expenditures in an amount less than $___ 
per instance, and $___ on an annual aggregate basis per individual, 
are exempt from this policy.
    (3) Aviation or other transportation services. (i) This category 
includes charter fees, tickets, slip or docking fees, vehicle 
installment payments, reservation and travel agent expenses, and 
similar expenditures associated with transportation services (e.g., 
airline, train, rental cars, or vans). Mileage reimbursable 
according to current Internal Revenue Service mileage rates is 
exempt from this policy. Transportation services in an amount less 
than $___ per instance, and $___ on an annual aggregate basis per 
individual, are exempt from this policy.
    (ii) The principal executive officer may establish or delegate 
to an appropriate executive officer the authority to establish 
processes for reimbursement of reasonable travel expenditures, which 
processes must be reviewed by executive management no less 
frequently than annually.
    (4) Tax gross-ups. This category includes any reimbursement of 
taxes owed with respect to any compensation. This category does not 
apply to tax equalization agreements for employees subject to tax 
from a non-U.S. jurisdiction.
    (5) Other similar items, activities, or events for which the 
Organization may reasonably anticipate incurring expenses or 
reimbursing an employee for incurring expenses. (i) Expenditures 
related to other items not listed in the preceding categories are 
exempt from this policy in an amount less than $___ per instance, 
and together with all expenditures permitted under this policy, may 
not exceed $___ on an annual aggregate basis per individual.
    (ii) For the avoidance of doubt, reasonable capital investments 
in technology, equipment, and similar items that expand the long-
term capability of an ECIP recipient to provide products and 
services to its customers and community are not excessive or luxury 
expenditures.
    (iii) The principal executive officer may establish or delegate 
to an appropriate executive officer the authority to establish 
processes for the evaluation and approval of expenditures in the 
preceding categories that are not luxury or excessive expenditures 
and that are not otherwise exempt from this policy. These processes 
must be reviewed by executive management no less frequently than 
annually, as well as any additional threshold expenditure amounts 
per item, activity, or event, or a threshold expenditure amount per 
employee receiving the item or participating in the activity or 
event under this policy. Such approvals must be reported to the 
board of directors (which may be in an appropriate summary form) no 
less frequently than annually.

F. Exceptions or Violations

    (1) Any exception or violation of this policy must be promptly 
reported to the Organization's (i) principal executive officer, (ii) 
officer with primary responsibility for the Organization's 
compliance function, or (iii) officer designated with primary 
responsibility for overseeing the administration, monitoring, and 
compliance with this policy. Exceptions and violations must be 
reported to the board of directors no less frequently than annually, 
or more frequently as the nature and severity of violation may 
warrant. All employees, officers, and directors of the Organization 
must adhere to this policy and will be held accountable for 
compliance. Any employee or officer who violates this policy may be 
subject to disciplinary action up to and including termination of 
employment.
    (2) Any employee or officer that is aware of any circumstance 
that may indicate a violation of this policy is required to report 
such circumstance to their supervisor or the Organization's 
principal compliance officer or compliance group. The Organization 
prohibits retaliation against any employee or officer for making a 
good faith report of actual or suspected violations of the 
Organization's code of conduct, laws, regulations, or other 
Organization policies, including this policy. A finding of 
retaliation against any such employee or officer may result in 
disciplinary action up to and including termination. Failure to 
promptly report known violations by others may also be deemed a 
violation of the Organization's code of conduct.

[[Page 13459]]

    (3) Employees and officers may ask questions, raise concerns, or 
report instances of non-compliance with this policy and/or any of 
the existing underlying relevant policies by contacting the 
following: [COMPLIANCE HELP LINE OR E-MAIL].

G. Certification

    On an annual basis, the ECIP recipient will deliver to the 
Department of the Treasury a certification, executed by two senior 
executive officers (one of which must be either the ECIP recipient's 
principal executive officer or principal financial officer) 
certifying that (i) the Organization is in compliance with this 
policy and (ii) the approval of any expenditure requiring the prior 
approval of any senior executive officer, any executive officer of a 
substantially similar level of responsibility, or the board of 
directors (or a committee of such board), was properly obtained with 
respect to each such expenditure.

David Lebryk,
Fiscal Assistant Secretary.
[FR Doc. 2021-04900 Filed 3-5-21; 11:15 am]
BILLING CODE 4810-AK-P