Clarification of Deposit Insurance Coverage for Legacy Branches of U.S. Banks in the Federated States of Micronesia, the Marshall Islands, and Palau, 65166-65170 [2024-17351]

Download as PDF 65166 Federal Register / Vol. 89, No. 154 / Friday, August 9, 2024 / Rules and Regulations FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 330 RIN 3064–AG06 Clarification of Deposit Insurance Coverage for Legacy Branches of U.S. Banks in the Federated States of Micronesia, the Marshall Islands, and Palau Federal Deposit Insurance Corporation. ACTION: Interim final rule and request for comment. AGENCY: The FDIC is amending its regulations to clarify that it insures the deposits of legacy branches of U.S. insured depository institutions operating in the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau. SUMMARY: The interim final rule is effective August 9, 2024. Comments must be received on or before October 8, 2024. ADDRESSES: You may submit comments, identified by RIN 3064–AG06, by any of the following methods: • FDIC Website: https:// www.fdic.gov/regulations/laws/federal/. Follow instructions for submitting comments on the agency website. • Email: Comments@fdic.gov. Include RIN 3064–AG06 in the subject line of the message. • Mail: James P. Sheesley, Assistant Executive Secretary, Attention: Comments—RIN 3064–AG06, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429. • Hand Delivery to FDIC: Comments may be hand-delivered to the guard station at the rear of the 550 17th Street NW building (located on F Street) on business days between 7 a.m. and 5 p.m. • Public Inspection: Comments received, including any personal information provided, may be posted without change to https://www.fdic.gov/ resources/regulations/federal-registerpublications/. Commenters should submit only information that the commenter wishes to make available publicly. The FDIC may review, redact, or refrain from posting all or any portion of any comment that it may deem to be inappropriate for publication, such as irrelevant or obscene material. The FDIC may post only a single representative example of identical or substantially identical comments, and in such cases will generally identify the number of identical or substantially identical comments represented by the posted example. All comments that have been ddrumheller on DSK120RN23PROD with RULES1 DATES: VerDate Sep<11>2014 16:41 Aug 08, 2024 Jkt 262001 redacted, as well as those that have not been posted, that contain comments on the merits of the proposed rule will be retained in the public comment file and will be considered as required under all applicable laws. All comments may be accessible under the Freedom of Information Act. FOR FURTHER INFORMATION CONTACT: James Watts, Counsel, Legal Division, 202–898–6678, jwatts@fdic.gov; Kathryn Marks, Counsel, Legal Division, 202– 898–3896, kmarks@fdic.gov; Anthony Sinopole, Associate Director, Division of Insurance and Research, 202–898–6507, asinopole@fdic.gov. SUPPLEMENTARY INFORMATION: A. Policy Objectives The Federal Deposit Insurance Corporation (FDIC) has a long history of providing deposit insurance coverage in the island nations that formerly were part of the Trust Territory of the Pacific Islands, which include the Federated States of Micronesia (FSM), the Republic of the Marshall Islands (Marshall Islands), and the Republic of Palau (Palau). Collectively, these three countries are known as the Freely Associated States. At one time, the FDIC provided deposit insurance coverage pursuant to the Federal Deposit Insurance Act (FDI Act) on the basis that these islands were part of the Trust Territory of the Pacific Islands administered by the United States. The FSM, the Marshall Islands, and Palau later became independent nations, and each entered into a Compact of Free Association (Compacts) with the United States that provided among other economic benefits, the availability of the FDIC’s deposit insurance. The unique and somewhat complex legal framework comprised of the Compacts, their relevant subsidiary agreements, implementing legislation, and the FDI Act, is what has allowed the FDIC to insure deposits in the Freely Associated States. The United States recently negotiated, and Congress approved, new agreements related to the Compacts with each of the Freely Associated States. Some of these new agreements include provisions relating to deposit insurance coverage for banks chartered by the Freely Associated States. In light of this, the FDIC believes it would be beneficial to clarify the application of the FDI Act and the deposit insurance regulations to the legacy branches of U.S. insured depository institutions (IDIs) operating in the Freely Associated States. For these reasons, the FDIC is issuing this interim final rule to clarify that it insures the deposits of legacy branches PO 00000 Frm 00002 Fmt 4700 Sfmt 4700 of U.S. IDIs operating in the FSM, the Marshall Islands, and Palau. B. Background The interim final rule implements the FDI Act, rather than the Compacts. However, a brief historical discussion and overview of the Compacts provides helpful context for understanding the interim final rule, which is based upon the special and historic relationship between the United States and the Freely Associated States. The FSM, the Marshall Islands, and Palau were once part of the Trust Territory of the Pacific Islands, established by the United Nations following World War II and administered by the United States pursuant to a trusteeship agreement.1 In 1981, Congress added the Trust Territory of the Pacific Islands to the FDI Act’s definition of ‘‘State,’’ with the result that deposits in banks located in the Trust Territory were eligible to be insured by the FDIC.2 1986 Compacts The FSM, the Marshall Islands, and Palau each adopted a Compact of Free Association with the United States that was subsequently approved by the U.S. Congress. Each of these nations then exited the Trust Territory of the Pacific Islands by becoming an independent nation. Specifically, the U.S. Congress approved a Compact with the FSM and the Marshall Islands through the Compact of Free Association Act of 1985, which became effective in 1986.3 The FSM and the Marshall Islands became independent effective October 2, 1986, and November 3, 1986, respectively. Congress approved the Compact with Palau in 1986,4 and Palau became independent effective October 1, 1994.5 These Compacts contained provisions requiring certain agencies of the U.S. Government, including the 1 In addition to the FSM, the Marshall Islands, and Palau, the Trust Territory of the Pacific Islands also included the Northern Mariana Islands. The Northern Mariana Islands became a self-governing commonwealth of the United States in 1986, and has since been added to the FDI Act’s definition of ‘‘State.’’ See 12 U.S.C. 1813(a)(3). 2 Public Law 97–110, sec. 103 (Dec. 26, 1981). 3 Public Law 99–239 (Jan. 14, 1986). 4 Public Law 99–658 (Nov. 14, 1986); Public Law 101–219 (Dec. 12, 1989). 5 Public Law 99–658 was a joint resolution to approve the Palau Compact. Section 101(d) of that Act provided that the Compact would not take effect until, among other things, enactment of a joint resolution authorizing entry into force of the Compact. Public Law 101–219 was that joint resolution. Further delay, until 1994, occurred due to the need for multiple plebiscites to secure approval on Palau for implementation of the Compact. E:\FR\FM\09AUR1.SGM 09AUR1 Federal Register / Vol. 89, No. 154 / Friday, August 9, 2024 / Rules and Regulations FDIC, to provide their programs and services to each nation.6 2003 Compacts The United States, the FSM, and the Marshall Islands eventually renewed negotiations concerning their Compact, resulting in separate amended agreements between the United States and each of these nations that took effect in 2003.7 The amended Compacts included changes to, among other things, the provision of deposit insurance coverage. Specifically, section 221(a)(5) of the amended U.S.-FSM Compact stated that the FDIC would provide deposit insurance ‘‘for the benefit only of the Bank of the Federated States of Micronesia,’’ in accordance with a Federal Programs and Services Agreement executed by the two nations.8 9 By contrast, the corresponding provision of the amended Compact with the Marshall Islands, section 221(a), included no reference to deposit insurance.10 Review of Palau Compact The U.S.-Palau Compact does not include a termination date, but requires formal review of its terms by the 15year, 30-year, and 40-year anniversaries of its effective date. The direct economic assistance provisions of the Compact expired in 2009, and, following the required 15-year review, were renegotiated and signed on September 3, 2010. Congress approved a Compact Review Agreement with respect to the U.S.-Palau Compact in December 2017.11 ddrumheller on DSK120RN23PROD with RULES1 2023 Compact Amendments During 2023, the United States and each of the Freely Associated States concluded new agreements relating to their respective Compacts. The U.S. 6 See Public Law 99–239, sec. 111(a) (making the programs and services of the FDIC available to the FSM and the Marshall Islands); Public Law 99–658, sec. 102(b) (applying sec. 111(a) of Public Law 99– 239 to Palau). The Compacts provided continuing authority for the FDIC to insure banks chartered by the FSM, the Marshall Islands, and Palau, which, due to their exit from the Trust Territory of the Pacific Islands, no longer fell within the FDI Act’s definition of ‘‘State.’’ 7 Public Law 108–188 (Dec. 17, 2003). 8 Public Law 108–188, § 201(a). 9 See Federal Programs and Services Agreement Between the Government of the United States and the Government of the Federated States of Micronesia Concluded Pursuant to Article III of Title One, Article II of Title Two (including Section 222), and Section 231 of the Compact of Free Association, as Amended, available at https:// www.doi.gov/sites/doi.gov/files/uploads/CompactSubsidiary-Agreements-for-the-FSM.pdf. Article XI of this Agreement governed the provision of FDIC programs and services. 10 Public Law 108–188, sec. 201(b). 11 Public Law 115–91, sec. 1259C (2017). VerDate Sep<11>2014 16:41 Aug 08, 2024 Jkt 262001 Congress approved the new agreements in March 2024.12 Some of the new agreements include the provision of deposit insurance by the FDIC. C. Statutory Framework The FDI Act governs the FDIC’s deposit insurance coverage for U.S. banks and savings associations. The statute includes two provisions on foreign deposits that are particularly relevant to the interim final rule. Section 3 The FDI Act defines the ‘‘deposits’’ insured by the FDIC. As early as the Banking Act of 1933, Congress distinguished between domestic and foreign deposits, and the current statutory definition of ‘‘deposit’’ makes clear that foreign branch deposits of IDIs are not deposits for the purposes of the FDI Act except under prescribed circumstances. In particular, section 3(l)(5) of the FDI Act excludes from the definition of ‘‘deposit’’ deposit obligations of a foreign branch of an IDI that would otherwise fall within the definition of ‘‘deposit’’ under section 3(l) of the FDI Act unless they (1) would be deposits if carried on the books and records of the IDI in the United States; and (2) are expressly payable at an office of the IDI located in the United States.13 The FDIC has generally referred to this second prong of subparagraph (A) of section 3(l)(5) of the FDI Act as requiring ‘‘dual payability’’ of a deposit. Section 41 Section 41 of the FDI Act generally prohibits the payment of deposit insurance with respect to certain deposits carried on the books and records of foreign branches of U.S. IDIs.14 Section 41(a) generally prohibits payment of obligations that would have the direct or indirect effect of satisfying any claim against an IDI which would constitute deposits ‘‘but for subparagraphs (A) and (B) of section 3(l)(5).’’ 15 As described above, subparagraph (A) of section 3(l)(5) of the FDI Act excludes an obligation from being considered a ‘‘deposit’’ unless (1) the obligation would constitute a ‘‘deposit’’ if carried on the IDI’s books and records in a State; and (2) the contract expressly provides dual payability. An obligation that constitutes a deposit ‘‘but for’’ subparagraph (A) is one that is excluded from the ‘‘deposit’’ definition only because it does not satisfy the two-part 12 Public Law 118–42, div. G, tit. II. U.S.C. 1813(l)(5)(A). 14 12 U.S.C. 1831r. 15 12 U.S.C. 1831r(a). 13 12 PO 00000 Frm 00003 Fmt 4700 Sfmt 4700 65167 test in subparagraph (A). Put differently, obligations that constitute deposits ‘‘but for’’ subparagraph (A) include those that would constitute a ‘‘deposit’’ if carried on the IDI’s books and records in a State, yet are not expressly payable at a location of the IDI within a State. Section 41 therefore prohibits the FDIC from paying deposit insurance on obligations of IDIs’ foreign branches that are not dually payable. Dual payability is, in effect, a statutory prerequisite for deposit insurance with respect to U.S. IDIs’ foreign branch deposits. D. 2013 Rulemaking on the Definition of ‘‘Insured Deposit’’ While dual payability is a statutory prerequisite for deposit insurance, the FDIC has also used its authority to limit the availability of deposit insurance for IDIs’ foreign branch deposits. In 2013, the FDIC amended its deposit insurance rules to clarify the status of deposits maintained in foreign branches of U.S. banks.16 This action was taken, among other reasons, to address a proposal by the Financial Services Authority of the United Kingdom to prohibit nonEuropean Economic Area banks, including U.S. banks, from accepting deposits in their United Kingdom branches unless claims of United Kingdom depositors were treated the same as domestic depositors in resolution proceedings of the bank. The 2013 rule made clear that if a bank’s deposits carried on the books of its foreign branches were made dually payable under section 3(l)(5)(A) of the FDI Act, this could make them deposits for purposes of depositor preference in resolution proceedings, but would not make them insured deposits. Specifically, the 2013 rule amended 12 CFR 330.3(e) of the FDIC’s deposit insurance regulations to provide that obligations of IDIs payable solely at an office of the IDI located outside any State (as defined in section 3(a)(3) of the FDI Act) are not ‘‘deposits’’ for purposes of 12 CFR part 330. Thus, obligations that are not dually payable may not be considered ‘‘deposits.’’ The 2013 rule further provided that even if such obligations are made dually payable at an office of the IDI located within a State, they are not ‘‘insured deposits’’ for purposes of 12 CFR part 330. The 2013 rule also included a rule of construction for overseas military banking facilities operated under U.S. Department of Defense regulations, stating that such offices would not be considered to be located outside any State. While the focus of the 2013 rule was clarifying the effect of dual 16 See E:\FR\FM\09AUR1.SGM 78 FR 56583 (Sept. 13, 2013). 09AUR1 65168 Federal Register / Vol. 89, No. 154 / Friday, August 9, 2024 / Rules and Regulations payability, the FDIC also discussed the rule’s effect on deposits in the Freely Associated States. Specifically, the FDIC stated that the 2013 rule was not intended to ‘‘affect the status of insured deposits, if any, located in the former Trust Territories.’’ 17 ddrumheller on DSK120RN23PROD with RULES1 E. Statutory Authority for Interim Final Rule The FDIC issues rules and regulations necessary to carry out the statutory mandates of the FDI Act. Providing deposit insurance to IDIs and maintaining public confidence in the banking system through deposit insurance in the event of a U.S. bank’s insolvency are two central functions of the FDIC. In order to permit the FDIC to carry out these functions successfully, the FDIC is authorized to undertake rulemaking to implement the FDI Act effectively, particularly with respect to its deposit insurance functions. The FDI Act contains several provisions granting the FDIC authority to issue regulations to carry out its core functions and responsibilities, which include the duty ‘‘to insure the deposits of all insured depository institutions.’’ Section 11(d)(4)(B)(iv) authorizes the FDIC to promulgate ‘‘such regulations as may be necessary to assure that the requirements of this section [section 11, which addresses the payment of deposit insurance] can be implemented with respect to each insured depository institution in the event of its insolvency.’’ 18 Other grants of FDIC rulemaking authority can be found in section 9(a)(Tenth) of the FDI Act, authorizing the FDIC’s Board of Directors to prescribe ‘‘such rules and regulations as it may deem necessary to carry out the provisions of this chapter,’’ and section 10(g) of the FDI Act, authorizing the FDIC to ‘‘prescribe regulations’’ and ‘‘define terms as necessary to carry out’’ the FDI Act.19 F. Interim Final Rule As noted above, in light of the FDIC’s role in the Freely Associated States under the new Compact-related agreements, the FDIC believes it would be beneficial to clarify the application of the FDI Act and the deposit insurance regulations to the legacy branches of U.S. IDIs operating in the Freely Associated States. The interim final rule clarifies that the FDIC, pursuant to the 17 78 FR 56583, 56587 (Sept. 13, 2013). As explained above, eligibility of a U.S. IDI’s foreign branch obligations for deposit insurance coverage under the FDI Act would depend upon whether the deposits were expressly payable at an office of the IDI located in a State. 18 12 U.S.C. 1821(d)(4)(B)(iv). 19 12 U.S.C. 1819(a)(Tenth); 1820(g). VerDate Sep<11>2014 16:41 Aug 08, 2024 Jkt 262001 FDI Act, insures the deposits of legacy branches of U.S. IDIs operating in the FSM, the Marshall Islands, and Palau, better aligning the regulation with the historical coverage provided for these deposits. The interim final rule amends 12 CFR 330.3(e) of the FDIC’s deposit insurance regulations, which governs deposits of IDIs that are payable outside of the United States and certain other locations. Currently under the regulation, an obligation of an IDI that is payable solely at an office of the IDI located outside any State is not considered a ‘‘deposit’’ for purposes of the deposit insurance regulations.20 Where an obligation of an IDI is carried on the books and records of an office of the IDI located outside any State, the regulations provide that it shall not be considered an insured deposit, even if it is also made payable at an office of the IDI located within any State.21 Essentially, where obligations booked outside the U.S. are made dually payable, they may be entitled to depositor preference (payment ahead of the institution’s other creditors), but are not generally eligible for deposit insurance coverage. The regulation at 12 CFR 330.3(e)(3) includes a rule of construction providing a limited exception to these general rules for overseas military banking facilities operated under U.S. Department of Defense regulations. Military banking facilities are not considered to be offices located outside any State under the regulation, meaning that military banking facility deposits are eligible to be insured. The interim final rule amends the rule of construction in 12 CFR 330.3(e) to apply expressly to deposits of legacy branches of U.S. IDIs operating in the FSM, the Marshall Islands, and Palau. Such branches will not be considered to be offices located outside any State for purposes of the deposit insurance rules, meaning that their deposits, if dually payable, would be eligible to be insured by the FDIC pursuant to 12 CFR part 330. The coverage for U.S. IDIs’ legacy branches provided by the rule is intended to function as a limited-scope exception to the general rule that excludes IDIs’ foreign branch deposits from deposit insurance coverage. This limited exception aligns the regulation with the historical coverage that has been provided for banks operating in the Freely Associated States through the special and historical relationship the United States has maintained with each 20 12 21 12 PO 00000 CFR 330.3(e)(1). CFR 330.3(e)(2). Frm 00004 Fmt 4700 Sfmt 4700 of the Freely Associated States. Accordingly, the exception provided by the interim final rule is limited to the legacy branches of U.S. IDIs, meaning the number of branches operated by each U.S. IDI as of the interim final rule’s effective date. Any changes to branch locations remain subject to existing applicable requirements depending on the circumstances.22 The FDIC believes that limiting coverage to legacy branches of U.S. IDIs serves the FDIC’s policy objectives while promoting consistency, to the extent possible, with the rules that generally apply to foreign deposits. As explained above, dual payability is a statutory prerequisite for deposit insurance with respect to U.S. IDIs’ foreign branch deposits. Therefore, deposits of U.S. IDIs’ legacy branches in the Freely Associated States are only eligible for deposit insurance if they have been made dually payable. This means that, under the contract, they are expressly payable at an office of the IDI located in a State (as defined in 12 U.S.C. 1813(a)(3)). Importantly, all dually payable deposits of the legacy branches of U.S. IDIs are eligible for deposit insurance coverage under the interim final rule.23 Coverage is not limited to deposit balances maintained by the depositor as of the rule’s effective date, or limited to deposit accounts opened prior to the rule’s effective date. This aspect of the interim final rule ensures that coverage will be easily understood by consumers and bankers. It also reduces operational complexity for the FDIC in the event of a bank failure that would require a deposit insurance determination. Under the interim final rule, calculation of deposit insurance coverage will be determined by application of the deposit insurance regulations that generally apply to all IDIs, found in 12 CFR part 330. It is important to note that the interim final rule does not affect the provision of deposit insurance to banks chartered by any of the Freely Associated States or branches of such banks. This is because the rule is intended to clarify the application of the FDI Act to branches of U.S.-chartered IDIs. Deposit insurance coverage is provided to certain banks chartered by the Freely Associated States pursuant to separate authority provided by legislation concerning the Compact-related 22 See 12 CFR part 303, subparts C, D, and J. insurance coverage only applies to ‘‘deposits’’ as that term is defined in the FDI Act. Other types of products, such as stocks, bonds, money market mutual funds, securities, commodities, and crypto assets are not insured under the interim final rule. 23 Deposit E:\FR\FM\09AUR1.SGM 09AUR1 Federal Register / Vol. 89, No. 154 / Friday, August 9, 2024 / Rules and Regulations ddrumheller on DSK120RN23PROD with RULES1 agreements as discussed in further detail above.24 G. Expected Effects The interim final rule amends 12 CFR part 330 to clarify that the FDIC insures dually payable deposits of the legacy branches of U.S. IDIs operating in the Freely Associated States. Given that these deposits have historically been and are currently insured, the interim final rule will not change the deposit insurance coverage for these deposits, as compared to a baseline scenario in which the interim final rule had not been promulgated. Thus, the effects of the rule are likely limited to the increased awareness of deposit insurance coverage in the Freely Associated States and the reduced likelihood of confusion regarding such coverage. Any costs imposed by the interim final rule will directly affect IDIs that operate legacy branches in the Freely Associated States. According to recent Summary of Deposit data,25 there are currently three IDIs operating eight total branches in these areas. As of June 30, 2023, these branches hold approximately $731 million in deposits. As discussed previously, the interim rule does not affect the provision of deposit insurance at these branches, so the interim final rule will likely not result in any operational changes at affected IDIs. Costs incurred by these IDIs are likely limited to costs associated with clarifications to the IDIs’ customers regarding the nature of deposit insurance for products offered at these branches. The FDIC does not have data to quantify these costs, but believes they are de minimis. The interim final rule will benefit both IDIs operating branches in the Freely Associated States as well as their customers. The publication of the interim final rule will remind affected IDIs of the statutory prerequisites for deposit insurance under the FDI Act with regards to deposits held in affected legacy branches. To the extent that customers in the Freely Associated States are unclear as to the status of deposit insurance for their deposits, the interim final rule could pose benefits to those customers. The clarity provided by these IDIs to holders of dually payable deposits could reinforce and/or increase awareness of the extent to which or the manner in which the IDIs’ 24 The FDIC currently insures deposits of one bank chartered by the Federated States of Micronesia, the Bank of the Federated States of Micronesia, pursuant to this separate authority. The interim final rule does not affect deposit insurance coverage for this bank. 25 FDIC Summary of Deposits, as of June 30, 2023. VerDate Sep<11>2014 16:41 Aug 08, 2024 Jkt 262001 products are insured by the FDIC. This clarity will help customers more clearly understand when their funds are protected by the FDIC’s deposit insurance. These benefits, in whole, will reinforce the role of FDIC deposit insurance and bolster confidence in the U.S. banking system in the Freely Associated States. Given that dually payable deposits in the Freely Associated States have been treated as FDIC-insured since 1981, the FDIC believes these benefits are likely de minimis.26 The FDIC invites comments on these expected effects. In particular, are there effects of the interim final rule that the FDIC did not consider? H. Request for Comment The FDIC invites comments on all aspects of the interim final rule. In particular, the FDIC requests comment on the following: 1. Is there additional information that would be helpful in further clarifying the scope of the rule? 2. Are there legal or policy considerations regarding deposit insurance coverage for U.S. IDIs’ branches in the Freely Associated States that are relevant, but not discussed in the interim final rule? I. Administrative Law Matters Administrative Procedure Act The FDIC is issuing the interim final rule without prior notice and the opportunity for public comment and the delayed effective date ordinarily prescribed by the Administrative Procedure Act (APA).27 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 therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.’’ 28 The FDIC believes that the public interest would be best served if the interim final rule is effective immediately upon publication in the Federal Register. The interim final rule aligns the FDIC’s regulation with the deposit insurance coverage historically provided by the FDIC for IDIs in the Freely Associated States, clarifying the application of 12 CFR 330.3(e) of the FDIC’s regulations in this context. Moreover, a delayed effective date could lead depositors of IDIs in the Freely 26 Public Law 97–110, sec. 103 (Dec. 26, 1981). U.S.C. 553. 28 5 U.S.C. 553(b)(B). Associated States to question whether their deposits are insured during the comment period. The FDIC has therefore determined that the public notice and participation ordinarily required by the APA before a regulation may take effect would, in this case, be contrary to the public interest and that good cause exists for waiving the customary 30-day delayed effective date. Nevertheless, the FDIC desires to have the benefit of public comment before adopting a permanent final rule, and thus invites interested parties to submit comments during a 60-day comment period. In adopting a final regulation, the FDIC will revise the interim final rule if appropriate in light of the comments received. Riegle Community Development and Regulatory Improvement Act The Riegle Community Development and Regulatory Improvement Act of 1994 generally provides that new regulations or amendments to regulations prescribed by a Federal banking agency that impose additional reporting, disclosure, or other new requirements on IDIs shall 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, unless the agency determines, for good cause published with the rule, that the rule should become effective for such time.29 For the reasons discussed above, the FDIC has determined that good cause exists for the interim final rule to become effective immediately upon publication in the Federal Register. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3521) states that no agency may conduct or sponsor, nor is the respondent required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The interim final rule does not create new or revise any existing information collection requirements, and therefore, the FDIC will make no submissions to OMB in connection with this interim final rule. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) 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 27 5 PO 00000 Frm 00005 Fmt 4700 Sfmt 4700 65169 29 12 E:\FR\FM\09AUR1.SGM U.S.C. 4802. 09AUR1 65170 Federal Register / Vol. 89, No. 154 / Friday, August 9, 2024 / Rules and Regulations 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 notice and opportunity for public comment prior to the rule’s effective date is contrary to the public interest, and therefore is not issuing a notice of proposed rulemaking. Accordingly, the FDIC has concluded that the RFA’s requirements relating to initial and final regulatory flexibility analyses do not apply. Nevertheless, the FDIC is interested in receiving feedback on ways that it could reduce any potential burden of the interim final rule on small entities. might make the proposal easier to understand. ACTION: List of Subjects in 12 CFR Part 330 SUMMARY: Bank deposit insurance, Reporting and recordkeeping requirements, Savings associations. Authority and Issuance For the reasons stated in the preamble, the Board of Directors of the Federal Deposit Insurance Corporation amends part 330 of title 12 of the Code of Federal Regulations as follows: PART 330—DEPOSIT INSURANCE COVERAGE Congressional Review Act For purposes of the Congressional Review Act, the OMB makes a determination as to whether a final rule constitutes a ‘‘major’’ rule. If a rule is deemed a ‘‘major rule’’ by the OMB, the Congressional Review Act generally provides that the rule may not take effect until at least 60 days following its publication. 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 (1) an annual effect on the economy of $100,000,000 or more; (2) a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies or geographic regions, or (3) 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. The OMB has determined that the interim final rule is not a major rule for purposes of the Congressional Review Act. The FDIC will submit the rule and other appropriate reports to Congress and the Government Accountability Office for review. ddrumheller on DSK120RN23PROD with RULES1 Plain Language Section 722 of the Gramm-LeachBliley Act 30 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 the interim final rule is clearly stated and effectively organized and how the FDIC 30 Public Law 106–102, sec. 722, 113 Stat. 1338, 1471 (codified at 12 U.S.C. 4809)). VerDate Sep<11>2014 16:41 Aug 08, 2024 Jkt 262001 1. The authority citation for part 330 continues to read as follows: ■ Authority: 12 U.S.C. 1813(l), 1813(m), 1817(i), 1818(q), 1819(a)(Tenth), 1820(f), 1820(g), 1821(a), 1821(d), 1822(c). 2. Amend § 330.3 by revising paragraph (e)(3) to read as follows: ■ § 330.3 General principles. * * * * * (e) * * * (3) Rule of construction. For purposes of this paragraph (e), the following are not considered to be offices located outside any State, as referred to in paragraph (e)(1) of this section: (i) Overseas Military Banking Facilities operated under U.S. Department of Defense regulations, 32 CFR parts 230 and 231; and (ii) Legacy branches of U.S. insured depository institutions in the Federated States of Micronesia, the Republic of the Marshall Islands, or the Republic of Palau, which for purposes of this paragraph means the number of branches operated by each U.S. insured depository institution as of August 9, 2024. * * * * * Federal Deposit Insurance Corporation. By order of the Board of Directors. Dated at Washington, DC, on July 30, 2024. James P. Sheesley, Assistant Executive Secretary. [FR Doc. 2024–17351 Filed 8–8–24; 8:45 am] BILLING CODE 6714–01–P CONSUMER FINANCIAL PROTECTION BUREAU 12 CFR Chapter X Consumer Financial Protection Circular 2024–04: Whistleblower Protections Under CFPA Section 1057 AGENCY: Consumer Financial Protection Bureau. PO 00000 Frm 00006 Fmt 4700 Sfmt 4700 Consumer financial protection circular. The Consumer Financial Protection Bureau (CFPB) has issued Consumer Financial Protection Circular 2024–04, titled, ‘‘Whistleblower protections under CFPA section 1057.’’ In this circular, the CFPB responds to the question, ‘‘Can requiring employees to sign broad confidentiality agreements violate section 1057 of the Consumer Financial Protection Act (CFPA), the provision protecting the rights of whistleblower employees, and undermine the CFPB’s ability to enforce the law?’’ DATES: The CFPB released this circular on its website on July 24, 2024. ADDRESSES: Enforcers, and the broader public, can provide feedback and comments to Circulars@cfpb.gov. FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory Implementation & Guidance Program Analyst, Office of Regulations, at 202– 435–7700 or at: https:// reginquiries.consumerfinance.gov/. If you require this document in an alternative electronic format, please contact CFPB_Accessibility@cfpb.gov. SUPPLEMENTARY INFORMATION: Question Presented Can requiring employees to sign broad confidentiality agreements violate section 1057 of the Consumer Financial Protection Act (CFPA), the provision protecting the rights of whistleblower employees, and undermine the CFPB’s ability to enforce the law? Response Yes. Although confidentiality agreements can be entered into for legitimate purposes, such as to ensure the protection of confidential trade secrets, such agreements, depending on how they are worded and the context in which they are employed, could lead an employee to reasonably believe that they would be sued or subject to other adverse actions if they disclosed information related to suspected violations of Federal consumer financial law to government investigators. Threats of this nature can lead to violations of section 1057 and impede investigations into potential wrongdoing, including the CFPB’s efforts to uncover violations of the consumer financial protection laws it enforces. Background Public policy in the United States long has recognized the important role that whistleblowing plays in preventing and stopping illegal and unethical E:\FR\FM\09AUR1.SGM 09AUR1

Agencies

FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 89, Number 154 (Friday, August 9, 2024)]
[Rules and Regulations]
[Pages 65166-65170]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-17351]



[[Page 65166]]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 330

RIN 3064-AG06


Clarification of Deposit Insurance Coverage for Legacy Branches 
of U.S. Banks in the Federated States of Micronesia, the Marshall 
Islands, and Palau

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Interim final rule and request for comment.

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SUMMARY: The FDIC is amending its regulations to clarify that it 
insures the deposits of legacy branches of U.S. insured depository 
institutions operating in the Federated States of Micronesia, the 
Republic of the Marshall Islands, and the Republic of Palau.

DATES: The interim final rule is effective August 9, 2024. Comments 
must be received on or before October 8, 2024.

ADDRESSES: You may submit comments, identified by RIN 3064-AG06, by any 
of the following methods:
     FDIC Website: https://www.fdic.gov/regulations/laws/federal/. Follow instructions for submitting comments on the agency 
website.
     Email: [email protected]. Include RIN 3064-AG06 in the 
subject line of the message.
     Mail: James P. Sheesley, Assistant Executive Secretary, 
Attention: Comments--RIN 3064-AG06, Federal Deposit Insurance 
Corporation, 550 17th Street NW, Washington, DC 20429.
     Hand Delivery to FDIC: Comments may be hand-delivered to 
the guard station at the rear of the 550 17th Street NW building 
(located on F Street) on business days between 7 a.m. and 5 p.m.
     Public Inspection: Comments received, including any 
personal information provided, may be posted without change to https://www.fdic.gov/resources/regulations/federal-register-publications/. 
Commenters should submit only information that the commenter wishes to 
make available publicly. The FDIC may review, redact, or refrain from 
posting all or any portion of any comment that it may deem to be 
inappropriate for publication, such as irrelevant or obscene material. 
The FDIC may post only a single representative example of identical or 
substantially identical comments, and in such cases will generally 
identify the number of identical or substantially identical comments 
represented by the posted example. All comments that have been 
redacted, as well as those that have not been posted, that contain 
comments on the merits of the proposed rule will be retained in the 
public comment file and will be considered as required under all 
applicable laws. All comments may be accessible under the Freedom of 
Information Act.

FOR FURTHER INFORMATION CONTACT: James Watts, Counsel, Legal Division, 
202-898-6678, [email protected]; Kathryn Marks, Counsel, Legal Division, 
202-898-3896, [email protected]; Anthony Sinopole, Associate Director, 
Division of Insurance and Research, 202-898-6507, [email protected].

SUPPLEMENTARY INFORMATION:

A. Policy Objectives

    The Federal Deposit Insurance Corporation (FDIC) has a long history 
of providing deposit insurance coverage in the island nations that 
formerly were part of the Trust Territory of the Pacific Islands, which 
include the Federated States of Micronesia (FSM), the Republic of the 
Marshall Islands (Marshall Islands), and the Republic of Palau (Palau). 
Collectively, these three countries are known as the Freely Associated 
States. At one time, the FDIC provided deposit insurance coverage 
pursuant to the Federal Deposit Insurance Act (FDI Act) on the basis 
that these islands were part of the Trust Territory of the Pacific 
Islands administered by the United States. The FSM, the Marshall 
Islands, and Palau later became independent nations, and each entered 
into a Compact of Free Association (Compacts) with the United States 
that provided among other economic benefits, the availability of the 
FDIC's deposit insurance. The unique and somewhat complex legal 
framework comprised of the Compacts, their relevant subsidiary 
agreements, implementing legislation, and the FDI Act, is what has 
allowed the FDIC to insure deposits in the Freely Associated States.
    The United States recently negotiated, and Congress approved, new 
agreements related to the Compacts with each of the Freely Associated 
States. Some of these new agreements include provisions relating to 
deposit insurance coverage for banks chartered by the Freely Associated 
States. In light of this, the FDIC believes it would be beneficial to 
clarify the application of the FDI Act and the deposit insurance 
regulations to the legacy branches of U.S. insured depository 
institutions (IDIs) operating in the Freely Associated States. For 
these reasons, the FDIC is issuing this interim final rule to clarify 
that it insures the deposits of legacy branches of U.S. IDIs operating 
in the FSM, the Marshall Islands, and Palau.

B. Background

    The interim final rule implements the FDI Act, rather than the 
Compacts. However, a brief historical discussion and overview of the 
Compacts provides helpful context for understanding the interim final 
rule, which is based upon the special and historic relationship between 
the United States and the Freely Associated States.
    The FSM, the Marshall Islands, and Palau were once part of the 
Trust Territory of the Pacific Islands, established by the United 
Nations following World War II and administered by the United States 
pursuant to a trusteeship agreement.\1\ In 1981, Congress added the 
Trust Territory of the Pacific Islands to the FDI Act's definition of 
``State,'' with the result that deposits in banks located in the Trust 
Territory were eligible to be insured by the FDIC.\2\
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    \1\ In addition to the FSM, the Marshall Islands, and Palau, the 
Trust Territory of the Pacific Islands also included the Northern 
Mariana Islands. The Northern Mariana Islands became a self-
governing commonwealth of the United States in 1986, and has since 
been added to the FDI Act's definition of ``State.'' See 12 U.S.C. 
1813(a)(3).
    \2\ Public Law 97-110, sec. 103 (Dec. 26, 1981).
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1986 Compacts

    The FSM, the Marshall Islands, and Palau each adopted a Compact of 
Free Association with the United States that was subsequently approved 
by the U.S. Congress. Each of these nations then exited the Trust 
Territory of the Pacific Islands by becoming an independent nation. 
Specifically, the U.S. Congress approved a Compact with the FSM and the 
Marshall Islands through the Compact of Free Association Act of 1985, 
which became effective in 1986.\3\ The FSM and the Marshall Islands 
became independent effective October 2, 1986, and November 3, 1986, 
respectively. Congress approved the Compact with Palau in 1986,\4\ and 
Palau became independent effective October 1, 1994.\5\ These Compacts 
contained provisions requiring certain agencies of the U.S. Government, 
including the

[[Page 65167]]

FDIC, to provide their programs and services to each nation.\6\
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    \3\ Public Law 99-239 (Jan. 14, 1986).
    \4\ Public Law 99-658 (Nov. 14, 1986); Public Law 101-219 (Dec. 
12, 1989).
    \5\ Public Law 99-658 was a joint resolution to approve the 
Palau Compact. Section 101(d) of that Act provided that the Compact 
would not take effect until, among other things, enactment of a 
joint resolution authorizing entry into force of the Compact. Public 
Law 101-219 was that joint resolution. Further delay, until 1994, 
occurred due to the need for multiple plebiscites to secure approval 
on Palau for implementation of the Compact.
    \6\ See Public Law 99-239, sec. 111(a) (making the programs and 
services of the FDIC available to the FSM and the Marshall Islands); 
Public Law 99-658, sec. 102(b) (applying sec. 111(a) of Public Law 
99-239 to Palau). The Compacts provided continuing authority for the 
FDIC to insure banks chartered by the FSM, the Marshall Islands, and 
Palau, which, due to their exit from the Trust Territory of the 
Pacific Islands, no longer fell within the FDI Act's definition of 
``State.''
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2003 Compacts

    The United States, the FSM, and the Marshall Islands eventually 
renewed negotiations concerning their Compact, resulting in separate 
amended agreements between the United States and each of these nations 
that took effect in 2003.\7\ The amended Compacts included changes to, 
among other things, the provision of deposit insurance coverage. 
Specifically, section 221(a)(5) of the amended U.S.-FSM Compact stated 
that the FDIC would provide deposit insurance ``for the benefit only of 
the Bank of the Federated States of Micronesia,'' in accordance with a 
Federal Programs and Services Agreement executed by the two nations.\8\ 
\9\ By contrast, the corresponding provision of the amended Compact 
with the Marshall Islands, section 221(a), included no reference to 
deposit insurance.\10\
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    \7\ Public Law 108-188 (Dec. 17, 2003).
    \8\ Public Law 108-188, Sec.  201(a).
    \9\ See Federal Programs and Services Agreement Between the 
Government of the United States and the Government of the Federated 
States of Micronesia Concluded Pursuant to Article III of Title One, 
Article II of Title Two (including Section 222), and Section 231 of 
the Compact of Free Association, as Amended, available at https://www.doi.gov/sites/doi.gov/files/uploads/Compact-Subsidiary-Agreements-for-the-FSM.pdf. Article XI of this Agreement governed 
the provision of FDIC programs and services.
    \10\ Public Law 108-188, sec. 201(b).
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Review of Palau Compact

    The U.S.-Palau Compact does not include a termination date, but 
requires formal review of its terms by the 15-year, 30-year, and 40-
year anniversaries of its effective date. The direct economic 
assistance provisions of the Compact expired in 2009, and, following 
the required 15-year review, were renegotiated and signed on September 
3, 2010. Congress approved a Compact Review Agreement with respect to 
the U.S.-Palau Compact in December 2017.\11\
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    \11\ Public Law 115-91, sec. 1259C (2017).
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2023 Compact Amendments

    During 2023, the United States and each of the Freely Associated 
States concluded new agreements relating to their respective Compacts. 
The U.S. Congress approved the new agreements in March 2024.\12\ Some 
of the new agreements include the provision of deposit insurance by the 
FDIC.
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    \12\ Public Law 118-42, div. G, tit. II.
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C. Statutory Framework

    The FDI Act governs the FDIC's deposit insurance coverage for U.S. 
banks and savings associations. The statute includes two provisions on 
foreign deposits that are particularly relevant to the interim final 
rule.

Section 3

    The FDI Act defines the ``deposits'' insured by the FDIC. As early 
as the Banking Act of 1933, Congress distinguished between domestic and 
foreign deposits, and the current statutory definition of ``deposit'' 
makes clear that foreign branch deposits of IDIs are not deposits for 
the purposes of the FDI Act except under prescribed circumstances. In 
particular, section 3(l)(5) of the FDI Act excludes from the definition 
of ``deposit'' deposit obligations of a foreign branch of an IDI that 
would otherwise fall within the definition of ``deposit'' under section 
3(l) of the FDI Act unless they (1) would be deposits if carried on the 
books and records of the IDI in the United States; and (2) are 
expressly payable at an office of the IDI located in the United 
States.\13\ The FDIC has generally referred to this second prong of 
subparagraph (A) of section 3(l)(5) of the FDI Act as requiring ``dual 
payability'' of a deposit.
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    \13\ 12 U.S.C. 1813(l)(5)(A).
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Section 41

    Section 41 of the FDI Act generally prohibits the payment of 
deposit insurance with respect to certain deposits carried on the books 
and records of foreign branches of U.S. IDIs.\14\ Section 41(a) 
generally prohibits payment of obligations that would have the direct 
or indirect effect of satisfying any claim against an IDI which would 
constitute deposits ``but for subparagraphs (A) and (B) of section 
3(l)(5).'' \15\
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    \14\ 12 U.S.C. 1831r.
    \15\ 12 U.S.C. 1831r(a).
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    As described above, subparagraph (A) of section 3(l)(5) of the FDI 
Act excludes an obligation from being considered a ``deposit'' unless 
(1) the obligation would constitute a ``deposit'' if carried on the 
IDI's books and records in a State; and (2) the contract expressly 
provides dual payability. An obligation that constitutes a deposit 
``but for'' subparagraph (A) is one that is excluded from the 
``deposit'' definition only because it does not satisfy the two-part 
test in subparagraph (A). Put differently, obligations that constitute 
deposits ``but for'' subparagraph (A) include those that would 
constitute a ``deposit'' if carried on the IDI's books and records in a 
State, yet are not expressly payable at a location of the IDI within a 
State. Section 41 therefore prohibits the FDIC from paying deposit 
insurance on obligations of IDIs' foreign branches that are not dually 
payable. Dual payability is, in effect, a statutory prerequisite for 
deposit insurance with respect to U.S. IDIs' foreign branch deposits.

D. 2013 Rulemaking on the Definition of ``Insured Deposit''

    While dual payability is a statutory prerequisite for deposit 
insurance, the FDIC has also used its authority to limit the 
availability of deposit insurance for IDIs' foreign branch deposits. In 
2013, the FDIC amended its deposit insurance rules to clarify the 
status of deposits maintained in foreign branches of U.S. banks.\16\ 
This action was taken, among other reasons, to address a proposal by 
the Financial Services Authority of the United Kingdom to prohibit non-
European Economic Area banks, including U.S. banks, from accepting 
deposits in their United Kingdom branches unless claims of United 
Kingdom depositors were treated the same as domestic depositors in 
resolution proceedings of the bank.
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    \16\ See 78 FR 56583 (Sept. 13, 2013).
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    The 2013 rule made clear that if a bank's deposits carried on the 
books of its foreign branches were made dually payable under section 
3(l)(5)(A) of the FDI Act, this could make them deposits for purposes 
of depositor preference in resolution proceedings, but would not make 
them insured deposits. Specifically, the 2013 rule amended 12 CFR 
330.3(e) of the FDIC's deposit insurance regulations to provide that 
obligations of IDIs payable solely at an office of the IDI located 
outside any State (as defined in section 3(a)(3) of the FDI Act) are 
not ``deposits'' for purposes of 12 CFR part 330. Thus, obligations 
that are not dually payable may not be considered ``deposits.'' The 
2013 rule further provided that even if such obligations are made 
dually payable at an office of the IDI located within a State, they are 
not ``insured deposits'' for purposes of 12 CFR part 330. The 2013 rule 
also included a rule of construction for overseas military banking 
facilities operated under U.S. Department of Defense regulations, 
stating that such offices would not be considered to be located outside 
any State. While the focus of the 2013 rule was clarifying the effect 
of dual

[[Page 65168]]

payability, the FDIC also discussed the rule's effect on deposits in 
the Freely Associated States. Specifically, the FDIC stated that the 
2013 rule was not intended to ``affect the status of insured deposits, 
if any, located in the former Trust Territories.'' \17\
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    \17\ 78 FR 56583, 56587 (Sept. 13, 2013). As explained above, 
eligibility of a U.S. IDI's foreign branch obligations for deposit 
insurance coverage under the FDI Act would depend upon whether the 
deposits were expressly payable at an office of the IDI located in a 
State.
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E. Statutory Authority for Interim Final Rule

    The FDIC issues rules and regulations necessary to carry out the 
statutory mandates of the FDI Act. Providing deposit insurance to IDIs 
and maintaining public confidence in the banking system through deposit 
insurance in the event of a U.S. bank's insolvency are two central 
functions of the FDIC. In order to permit the FDIC to carry out these 
functions successfully, the FDIC is authorized to undertake rulemaking 
to implement the FDI Act effectively, particularly with respect to its 
deposit insurance functions.
    The FDI Act contains several provisions granting the FDIC authority 
to issue regulations to carry out its core functions and 
responsibilities, which include the duty ``to insure the deposits of 
all insured depository institutions.'' Section 11(d)(4)(B)(iv) 
authorizes the FDIC to promulgate ``such regulations as may be 
necessary to assure that the requirements of this section [section 11, 
which addresses the payment of deposit insurance] can be implemented 
with respect to each insured depository institution in the event of its 
insolvency.'' \18\ Other grants of FDIC rulemaking authority can be 
found in section 9(a)(Tenth) of the FDI Act, authorizing the FDIC's 
Board of Directors to prescribe ``such rules and regulations as it may 
deem necessary to carry out the provisions of this chapter,'' and 
section 10(g) of the FDI Act, authorizing the FDIC to ``prescribe 
regulations'' and ``define terms as necessary to carry out'' the FDI 
Act.\19\
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    \18\ 12 U.S.C. 1821(d)(4)(B)(iv).
    \19\ 12 U.S.C. 1819(a)(Tenth); 1820(g).
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F. Interim Final Rule

    As noted above, in light of the FDIC's role in the Freely 
Associated States under the new Compact-related agreements, the FDIC 
believes it would be beneficial to clarify the application of the FDI 
Act and the deposit insurance regulations to the legacy branches of 
U.S. IDIs operating in the Freely Associated States. The interim final 
rule clarifies that the FDIC, pursuant to the FDI Act, insures the 
deposits of legacy branches of U.S. IDIs operating in the FSM, the 
Marshall Islands, and Palau, better aligning the regulation with the 
historical coverage provided for these deposits.
    The interim final rule amends 12 CFR 330.3(e) of the FDIC's deposit 
insurance regulations, which governs deposits of IDIs that are payable 
outside of the United States and certain other locations. Currently 
under the regulation, an obligation of an IDI that is payable solely at 
an office of the IDI located outside any State is not considered a 
``deposit'' for purposes of the deposit insurance regulations.\20\ 
Where an obligation of an IDI is carried on the books and records of an 
office of the IDI located outside any State, the regulations provide 
that it shall not be considered an insured deposit, even if it is also 
made payable at an office of the IDI located within any State.\21\ 
Essentially, where obligations booked outside the U.S. are made dually 
payable, they may be entitled to depositor preference (payment ahead of 
the institution's other creditors), but are not generally eligible for 
deposit insurance coverage. The regulation at 12 CFR 330.3(e)(3) 
includes a rule of construction providing a limited exception to these 
general rules for overseas military banking facilities operated under 
U.S. Department of Defense regulations. Military banking facilities are 
not considered to be offices located outside any State under the 
regulation, meaning that military banking facility deposits are 
eligible to be insured.
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    \20\ 12 CFR 330.3(e)(1).
    \21\ 12 CFR 330.3(e)(2).
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    The interim final rule amends the rule of construction in 12 CFR 
330.3(e) to apply expressly to deposits of legacy branches of U.S. IDIs 
operating in the FSM, the Marshall Islands, and Palau. Such branches 
will not be considered to be offices located outside any State for 
purposes of the deposit insurance rules, meaning that their deposits, 
if dually payable, would be eligible to be insured by the FDIC pursuant 
to 12 CFR part 330.
    The coverage for U.S. IDIs' legacy branches provided by the rule is 
intended to function as a limited-scope exception to the general rule 
that excludes IDIs' foreign branch deposits from deposit insurance 
coverage. This limited exception aligns the regulation with the 
historical coverage that has been provided for banks operating in the 
Freely Associated States through the special and historical 
relationship the United States has maintained with each of the Freely 
Associated States. Accordingly, the exception provided by the interim 
final rule is limited to the legacy branches of U.S. IDIs, meaning the 
number of branches operated by each U.S. IDI as of the interim final 
rule's effective date. Any changes to branch locations remain subject 
to existing applicable requirements depending on the circumstances.\22\ 
The FDIC believes that limiting coverage to legacy branches of U.S. 
IDIs serves the FDIC's policy objectives while promoting consistency, 
to the extent possible, with the rules that generally apply to foreign 
deposits.
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    \22\ See 12 CFR part 303, subparts C, D, and J.
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    As explained above, dual payability is a statutory prerequisite for 
deposit insurance with respect to U.S. IDIs' foreign branch deposits. 
Therefore, deposits of U.S. IDIs' legacy branches in the Freely 
Associated States are only eligible for deposit insurance if they have 
been made dually payable. This means that, under the contract, they are 
expressly payable at an office of the IDI located in a State (as 
defined in 12 U.S.C. 1813(a)(3)).
    Importantly, all dually payable deposits of the legacy branches of 
U.S. IDIs are eligible for deposit insurance coverage under the interim 
final rule.\23\ Coverage is not limited to deposit balances maintained 
by the depositor as of the rule's effective date, or limited to deposit 
accounts opened prior to the rule's effective date. This aspect of the 
interim final rule ensures that coverage will be easily understood by 
consumers and bankers. It also reduces operational complexity for the 
FDIC in the event of a bank failure that would require a deposit 
insurance determination. Under the interim final rule, calculation of 
deposit insurance coverage will be determined by application of the 
deposit insurance regulations that generally apply to all IDIs, found 
in 12 CFR part 330.
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    \23\ Deposit insurance coverage only applies to ``deposits'' as 
that term is defined in the FDI Act. Other types of products, such 
as stocks, bonds, money market mutual funds, securities, 
commodities, and crypto assets are not insured under the interim 
final rule.
---------------------------------------------------------------------------

    It is important to note that the interim final rule does not affect 
the provision of deposit insurance to banks chartered by any of the 
Freely Associated States or branches of such banks. This is because the 
rule is intended to clarify the application of the FDI Act to branches 
of U.S.-chartered IDIs. Deposit insurance coverage is provided to 
certain banks chartered by the Freely Associated States pursuant to 
separate authority provided by legislation concerning the Compact-
related

[[Page 65169]]

agreements as discussed in further detail above.\24\
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    \24\ The FDIC currently insures deposits of one bank chartered 
by the Federated States of Micronesia, the Bank of the Federated 
States of Micronesia, pursuant to this separate authority. The 
interim final rule does not affect deposit insurance coverage for 
this bank.
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G. Expected Effects

    The interim final rule amends 12 CFR part 330 to clarify that the 
FDIC insures dually payable deposits of the legacy branches of U.S. 
IDIs operating in the Freely Associated States. Given that these 
deposits have historically been and are currently insured, the interim 
final rule will not change the deposit insurance coverage for these 
deposits, as compared to a baseline scenario in which the interim final 
rule had not been promulgated. Thus, the effects of the rule are likely 
limited to the increased awareness of deposit insurance coverage in the 
Freely Associated States and the reduced likelihood of confusion 
regarding such coverage.
    Any costs imposed by the interim final rule will directly affect 
IDIs that operate legacy branches in the Freely Associated States. 
According to recent Summary of Deposit data,\25\ there are currently 
three IDIs operating eight total branches in these areas. As of June 
30, 2023, these branches hold approximately $731 million in deposits. 
As discussed previously, the interim rule does not affect the provision 
of deposit insurance at these branches, so the interim final rule will 
likely not result in any operational changes at affected IDIs. Costs 
incurred by these IDIs are likely limited to costs associated with 
clarifications to the IDIs' customers regarding the nature of deposit 
insurance for products offered at these branches. The FDIC does not 
have data to quantify these costs, but believes they are de minimis.
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    \25\ FDIC Summary of Deposits, as of June 30, 2023.
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    The interim final rule will benefit both IDIs operating branches in 
the Freely Associated States as well as their customers. The 
publication of the interim final rule will remind affected IDIs of the 
statutory prerequisites for deposit insurance under the FDI Act with 
regards to deposits held in affected legacy branches. To the extent 
that customers in the Freely Associated States are unclear as to the 
status of deposit insurance for their deposits, the interim final rule 
could pose benefits to those customers. The clarity provided by these 
IDIs to holders of dually payable deposits could reinforce and/or 
increase awareness of the extent to which or the manner in which the 
IDIs' products are insured by the FDIC. This clarity will help 
customers more clearly understand when their funds are protected by the 
FDIC's deposit insurance. These benefits, in whole, will reinforce the 
role of FDIC deposit insurance and bolster confidence in the U.S. 
banking system in the Freely Associated States. Given that dually 
payable deposits in the Freely Associated States have been treated as 
FDIC-insured since 1981, the FDIC believes these benefits are likely de 
minimis.\26\
---------------------------------------------------------------------------

    \26\ Public Law 97-110, sec. 103 (Dec. 26, 1981).
---------------------------------------------------------------------------

    The FDIC invites comments on these expected effects. In particular, 
are there effects of the interim final rule that the FDIC did not 
consider?

H. Request for Comment

    The FDIC invites comments on all aspects of the interim final rule. 
In particular, the FDIC requests comment on the following:
    1. Is there additional information that would be helpful in further 
clarifying the scope of the rule?
    2. Are there legal or policy considerations regarding deposit 
insurance coverage for U.S. IDIs' branches in the Freely Associated 
States that are relevant, but not discussed in the interim final rule?

I. Administrative Law Matters

Administrative Procedure Act

    The FDIC is issuing the interim final rule without prior notice and 
the opportunity for public comment and the delayed effective date 
ordinarily prescribed by the Administrative Procedure Act (APA).\27\ 
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 therefore in the rules issued) 
that notice and public procedure thereon are impracticable, 
unnecessary, or contrary to the public interest.'' \28\
---------------------------------------------------------------------------

    \27\ 5 U.S.C. 553.
    \28\ 5 U.S.C. 553(b)(B).
---------------------------------------------------------------------------

    The FDIC believes that the public interest would be best served if 
the interim final rule is effective immediately upon publication in the 
Federal Register. The interim final rule aligns the FDIC's regulation 
with the deposit insurance coverage historically provided by the FDIC 
for IDIs in the Freely Associated States, clarifying the application of 
12 CFR 330.3(e) of the FDIC's regulations in this context. Moreover, a 
delayed effective date could lead depositors of IDIs in the Freely 
Associated States to question whether their deposits are insured during 
the comment period. The FDIC has therefore determined that the public 
notice and participation ordinarily required by the APA before a 
regulation may take effect would, in this case, be contrary to the 
public interest and that good cause exists for waiving the customary 
30-day delayed effective date.
    Nevertheless, the FDIC desires to have the benefit of public 
comment before adopting a permanent final rule, and thus invites 
interested parties to submit comments during a 60-day comment period. 
In adopting a final regulation, the FDIC will revise the interim final 
rule if appropriate in light of the comments received.

Riegle Community Development and Regulatory Improvement Act

    The Riegle Community Development and Regulatory Improvement Act of 
1994 generally provides that new regulations or amendments to 
regulations prescribed by a Federal banking agency that impose 
additional reporting, disclosure, or other new requirements on IDIs 
shall 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, 
unless the agency determines, for good cause published with the rule, 
that the rule should become effective for such time.\29\ For the 
reasons discussed above, the FDIC has determined that good cause exists 
for the interim final rule to become effective immediately upon 
publication in the Federal Register.
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    \29\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) states 
that no agency may conduct or sponsor, nor is the respondent required 
to respond to, an information collection unless it displays a currently 
valid Office of Management and Budget (OMB) control number. The interim 
final rule does not create new or revise any existing information 
collection requirements, and therefore, the FDIC will make no 
submissions to OMB in connection with this interim final rule.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) 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

[[Page 65170]]

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 
notice and opportunity for public comment prior to the rule's effective 
date is contrary to the public interest, and therefore is not issuing a 
notice of proposed rulemaking. Accordingly, the FDIC has concluded that 
the RFA's requirements relating to initial and final regulatory 
flexibility analyses do not apply. Nevertheless, the FDIC is interested 
in receiving feedback on ways that it could reduce any potential burden 
of the interim final rule on small entities.

Congressional Review Act

    For purposes of the Congressional Review Act, the OMB makes a 
determination as to whether a final rule constitutes a ``major'' rule. 
If a rule is deemed a ``major rule'' by the OMB, the Congressional 
Review Act generally provides that the rule may not take effect until 
at least 60 days following its publication.
    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 (1) 
an annual effect on the economy of $100,000,000 or more; (2) a major 
increase in costs or prices for consumers, individual industries, 
Federal, State, or local government agencies or geographic regions, or 
(3) 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.
    The OMB has determined that the interim final rule is not a major 
rule for purposes of the Congressional Review Act. The FDIC will submit 
the rule and other appropriate reports to Congress and the Government 
Accountability Office for review.

Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \30\ 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 the interim final rule is clearly stated 
and effectively organized and how the FDIC might make the proposal 
easier to understand.
---------------------------------------------------------------------------

    \30\ Public Law 106-102, sec. 722, 113 Stat. 1338, 1471 
(codified at 12 U.S.C. 4809)).
---------------------------------------------------------------------------

List of Subjects in 12 CFR Part 330

    Bank deposit insurance, Reporting and recordkeeping requirements, 
Savings associations.

Authority and Issuance

    For the reasons stated in the preamble, the Board of Directors of 
the Federal Deposit Insurance Corporation amends part 330 of title 12 
of the Code of Federal Regulations as follows:

PART 330--DEPOSIT INSURANCE COVERAGE

0
1. The authority citation for part 330 continues to read as follows:

    Authority:  12 U.S.C. 1813(l), 1813(m), 1817(i), 1818(q), 
1819(a)(Tenth), 1820(f), 1820(g), 1821(a), 1821(d), 1822(c).


0
2. Amend Sec.  330.3 by revising paragraph (e)(3) to read as follows:


Sec.  330.3  General principles.

* * * * *
    (e) * * *
    (3) Rule of construction. For purposes of this paragraph (e), the 
following are not considered to be offices located outside any State, 
as referred to in paragraph (e)(1) of this section:
    (i) Overseas Military Banking Facilities operated under U.S. 
Department of Defense regulations, 32 CFR parts 230 and 231; and
    (ii) Legacy branches of U.S. insured depository institutions in the 
Federated States of Micronesia, the Republic of the Marshall Islands, 
or the Republic of Palau, which for purposes of this paragraph means 
the number of branches operated by each U.S. insured depository 
institution as of August 9, 2024.
* * * * *

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on July 30, 2024.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2024-17351 Filed 8-8-24; 8:45 am]
BILLING CODE 6714-01-P

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