Regulations Implementing the Change in Bank Control Act, 67002-67009 [2024-18187]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 89, Number 160 (Monday, August 19, 2024)]
[Proposed Rules]
[Pages 67002-67009]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-18187]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 89, No. 160 / Monday, August 19, 2024 / 
Proposed Rules

[[Page 67002]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 303

RIN 3064-AG04


Regulations Implementing the Change in Bank Control Act

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is proposing 
to amend its filing requirements and processing procedures for notices 
filed under the Change in Bank Control Act (CBCA) by removing the 
exemption from the notice requirement for acquisitions of voting 
securities of a depository institution holding company with an FDIC-
supervised subsidiary institution for which the Board of Governors of 
the Federal Reserve System (FRB) reviews a notice under the CBCA and by 
making conforming definitional changes. The FDIC also seeks information 
and comment regarding its approach to change in control notices under 
the CBCA with regard to persons who may be directly or indirectly 
exercising control over an FDIC-supervised institution. The FDIC is 
committed to developing an interagency approach to change in control 
notices with the FRB and the Office of the Comptroller of the Currency.

DATES: Comments must be received by October 18, 2024.

ADDRESSES: You may submit comments, identified by RIN 3064-AG04, by any 
of the following methods
     Agency website: https://www.fdic.gov/resources/regulations/federal-register-publications/. Follow instructions for 
submitting comments on the FDIC's website.
     Email: [email protected]. Include ``Change in Bank Control 
Act/RIN 3064-AG04'' in the subject line of the message.
     Mail: James P. Sheesley, Assistant Executive Secretary, 
Attention: Change in Bank Control Act--RIN 3064-AG04, Federal Deposit 
Insurance Corporation, 550 17th Street NW, Washington, DC 20429.
     Hand Delivery: Comments may be hand-delivered to the guard 
station at the rear of the 550 17th Street NW, building (located on F 
Street NW) on business days between 7:00 a.m. and 5:00 p.m. eastern 
time.
     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 this document 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: Annmarie Boyd, Senior Counsel, 202-
898-3714, [email protected]; Gregory S. Feder, Counsel, 202-898-8724, 
[email protected]; Nicholas A. Simons, Senior Attorney, 202-898-6785, 
[email protected]; Legal Division; Derek Sturtevant, Senior Review 
Examiner, 202-898-3693, [email protected]; Division of Risk 
Management Supervision, 550 17th Street NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Policy Objectives

    The policy objective of the proposed rule is to ensure appropriate 
review of transactions that would result in control over FDIC-
supervised institutions by allowing the FDIC to disapprove of a 
proposed acquisition if the proposed transaction would fail to satisfy 
any of the statutory factors enumerated in the CBCA.\1\ Under the 
FDIC's current regulations, an entity is exempt from a notification 
requirement when the FRB reviews a notice under the CBCA. However, 
recent developments in equity markets may be contributing to elevated 
risk of excessive indirect control or concentration of ownership in 
FDIC-supervised institutions. Therefore, the FDIC is proposing to amend 
its regulations governing change in control notifications to remove the 
current exemption in order to ensure appropriate review of certain 
transactions, increasing the likelihood that all the statutory factors 
in the CBCA are met, and reducing the likelihood that certain 
transactions would result in an adverse effect on the Deposit Insurance 
Fund (DIF). The FDIC recognizes the importance of interagency 
collaboration and consistency with respect to the review of 
transactions under the CBCA and is committed to engaging in dialogue 
and coordination with the FRB and Office of the Comptroller of the 
Currency to develop an interagency approach to the issues discussed in 
this proposal.\2\ The FDIC is also seeking public comment on all 
aspects of this proposal, including steps that may be taken on an 
interagency basis to coordinate CBCA notice review.
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    \1\ 12 U.S.C. 1817(j)(7).
    \2\ The FDIC's commitment includes following standard notice and 
comment rulemaking practices should an interagency approach be 
developed and adopted.
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II. Background

A. The Change in Bank Control Act

    The Change in Bank Control Act, section 7(j) of the Federal Deposit 
Insurance Act (FDI Act), generally provides that no person,\3\ acting 
directly or indirectly, or in concert with other persons, may acquire 
control of an insured depository institution (IDI) unless the person 
has provided the appropriate Federal banking agency (AFBA) \4\ prior 
written notice of the proposed transaction and the AFBA has

[[Page 67003]]

not disapproved the transaction within 60 days, as may be extended.\5\ 
``Control'' for purposes of the CBCA means ``the power, directly or 
indirectly, to direct the management or policies of an insured 
depository institution or to vote 25 per centum or more of any class of 
voting securities of an insured depository institution.'' \6\ The 
proposed acquisition may be completed upon receipt of written notice 
that the AFBA does not disapprove of the acquisition or if the AFBA 
fails to act on a substantially complete prior notice within the 
statutory time period.
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    \3\ 12 CFR 303.81(g) defines ``person'' as ``an individual, 
corporation, limited liability company (LLC), partnership, trust, 
association, joint venture, pool, syndicate, sole proprietorship, 
unincorporated organization, voting trust, or any other form of 
entity; and includes each party to a voting agreement and any group 
of persons acting in concert.''
    \4\ 12 U.S.C. 1813(q).
    \5\ 12 U.S.C. 1817(j). The AFBA may, in its discretion, extend 
an additional 30 days the period during which such a disapproval may 
be issued. The period of disapproval may be extended two additional 
times for not more than 45 days each time in certain circumstances. 
See 12 U.S.C. 1817(j)(1)(A) through (D).
    \6\ 12 U.S.C. 1817(j)(8)(B).
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    An AFBA may disapprove a proposed acquisition if it is unable to 
satisfactorily resolve one or more of the statutory factors enumerated 
in the CBCA.\7\ An AFBA may disapprove of a proposed acquisition if the 
acquisition would result in a monopoly or may substantially lessen 
competition and the anticompetitive effects are not clearly outweighed 
by the public interest; the financial condition of any acquiring person 
or the future prospects of the institution is such as might jeopardize 
the financial stability of the institution or prejudice the interests 
of its depositors; the competence, experience, or integrity of any 
acquiring person or any proposed management would not be in the best 
interests of the depositors or the public; any acquiring person 
neglects, fails, or refuses to furnish the AFBA with all required 
information; or the AFBA determines that the proposed transaction would 
result in an adverse effect on the DIF.
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    \7\ 12 U.S.C. 1817(j)(7).
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B. FDIC Rules and Regulation--Part 303

    Subpart E of 12 CFR part 303 of the FDIC Rules and Regulations 
(subpart E) \8\ implements the CBCA and sets forth the FDIC's filing 
requirements and processing procedures for notices filed pursuant to 
the CBCA (notices).\9\ Subpart E requires notice to the FDIC before any 
person, acting directly or indirectly, alone or in concert with others, 
acquires control of a ``covered institution,'' unless the acquisition 
is exempt. The FDIC is the AFBA for insured State nonmember banks and 
insured State savings associations.\10\ Because the CBCA applies to 
direct or indirect acquisitions of control, for purposes of the CBCA, 
the FDIC also may review a notice for an acquisition of control of any 
company that directly or indirectly controls an insured State nonmember 
bank or an insured State savings association.\11\ Subpart E therefore 
defines ``covered institution'' to include an insured State nonmember 
bank, an insured State savings association, and any company that 
controls, directly or indirectly, an insured State nonmember bank or an 
insured State savings association and exempts certain holding companies 
in situations for which the FDIC does not currently require a 
notice.\12\
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    \8\ 12 CFR 303.80 through 303.88.
    \9\ The FDIC's requirements and procedures are consistent with 
those of the other Federal banking agencies. See 12 CFR 5.50 (Office 
of the Comptroller of the Currency); 12 CFR 225.41 through 225.44 
(FRB).
    \10\ 12 U.S.C. 1813(q).
    \11\ Industrial loan companies, which in most cases are State 
nonmember banks, are not ``banks'' as defined in the Bank Holding 
Company Act so their parent companies are not required to become 
bank holding companies. 12 U.S.C. 1841(c)(2)(H).
    \12\ 12 CFR 303.81(e) (citing 12 CFR 303.84(a)(3) and (8)). 
Section 303.84(a)(3) exempts transactions described in sections 
2(a)(5), 3(a)(A), or 3(a)(B) of the Bank Holding Company Act (12 
U.S.C. 1841(a)(5), 1842(a)(A), and 1842(a)(B)) by a person described 
in those provisions because shares held in such capacities do not 
confer control upon such holding companies. Section 303.84(a)(8) 
exempts acquisitions of voting securities of a depository 
institution holding company for which the FRB reviews a notice 
pursuant to the CBCA.
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    While the CBCA does not describe what constitutes the power to 
direct the management or policies of a covered institution, the Federal 
banking agencies have determined that a shareholder who owns or 
controls a significant block of voting securities generally will have 
influence in a banking organization. Thus, the FDIC's regulations 
contain a rebuttable presumption that an acquisition of voting 
securities of a covered institution constitutes control and triggers 
the notice requirement if, immediately after the transaction, the 
acquiring person will own, control, or hold the power to vote 10 
percent or more of any class of voting securities, and either the 
institution has registered securities under section 12 of the 
Securities Exchange Act of 1934, or no other person will own, control, 
or hold a greater percentage of that class of voting securities after 
the transaction.\13\ An acquiring person may rebut this presumption of 
control in writing.\14\
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    \13\ 12 CFR 303.82(b)(1). See also 12 CFR 5.50(f)(2)(iii) (OCC); 
12 CFR 225.41(c)(2) (FRB).
    \14\ 12 CFR 303.82(b)(4).
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    In practice, for transactions above the regulatory threshold of 10 
percent of voting securities but below the 25 percent statutory 
threshold for control, an acquiring person generally will file a notice 
with the FDIC or rebut the presumption of control. To rebut the 
presumption of control, the acquiring person generally will set forth 
factors that demonstrate that it will not have the power, directly or 
indirectly, to direct the management or policies of the covered 
institution. These factors may include, for example, commitments by the 
acquiring person not to seek representation on the board of directors 
of the covered institution, not to take certain actions to influence 
the policies of the institution, or not to acquire further voting 
securities above a certain threshold. The documents describing the 
actions the acquiring person will or will not take to rebut the 
presumption of control may be called ``certifications,'' ``passivity 
agreements,'' or ``passivity commitments'' (passivity commitments). The 
FDIC generally is a party to such passivity commitments, and these 
agreements by their terms constitute a ``written agreement'' entered 
into with a Federal banking agency and enforceable under sections 8 and 
50 of the FDI Act.\15\ It has long been the policy of the FDIC that any 
passivity commitments executed in connection with an acquisition of 
voting securities must be tailored to the facts and circumstances of 
each situation.\16\
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    \15\ 12 U.S.C. 1818 and 1831aa.
    \16\ 80 FR 65889, 65894 (Oct. 28, 2015).
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    The FDIC has entered into passivity commitments in limited cases 
with asset managers investing in publicly traded FDIC-supervised 
institutions. The FDIC currently has in force four passivity 
commitments with three asset management companies. These commitments 
are published on the FDIC's website.\17\
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    \17\ https://www.fdic.gov/regulations/applications/resources/change-in-control.html.
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    Certain transactions are exempt from the notice requirements of 
subpart E pursuant to Sec.  303.84(a). Among the exempt transactions 
are the acquisition of voting securities of a depository institution 
holding company for which the FRB reviews a notice.\18\ Subpart E 
currently codifies the FDIC's policy that it does not require a notice 
when the FRB actually reviews a notice to acquire voting securities of 
a depository institution holding company under the CBCA.\19\ However, 
the exemption does not extend to FRB determinations to accept a 
passivity commitment in lieu of a notice. In such cases, the FDIC 
evaluates the facts and circumstances to determine whether a notice is 
required to be filed with the FDIC for the indirect acquisition of 
control of an FDIC-supervised institution.\20\
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    \18\ 12 CFR 303.84(a)(8).
    \19\ 80 FR 65897.
    \20\ Id.

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[[Page 67004]]

    In recent years, however, the FDIC typically has not determined 
that notices must be filed with the FDIC when the FRB accepts a 
passivity commitment in lieu of a notice. For the reasons described 
below, developments involving institutional investors and FDIC-
supervised institutions have prompted the FDIC to reconsider its 
procedures regarding transactions exempt from notice requirements 
pursuant to subpart E, the facts and circumstances under which it will 
require a notice, and how to monitor compliance with passivity 
commitments entered into to rebut the presumption of control.

C. Growth in Passive Investments and Implications

    Passive investment vehicles such as index mutual funds and 
exchange-traded funds (ETFs) that aim to replicate the performance of a 
third-party index such as the S&P 500 Index (collectively, ``index 
funds'') have grown in popularity in recent decades. Index funds do not 
hand-pick stocks like actively managed funds do in order to provide a 
return greater than the market; rather, index funds seek to match 
market returns by investing proportionally across stocks in the desired 
index or sector of the national economy. To the extent multiple index 
funds have the same company or related companies that sponsor, manage, 
or advise them, these companies are called ``fund complexes.'' By the 
end of December 2023, according to data released by Morningstar, 
passive funds exceeded active funds in total assets under management 
for the first time, with approximately $13.3 trillion in total assets 
to active funds' $13.2 trillion.\21\ For comparison, when the first ETF 
was listed in 1993, passive funds represented less than 1 percent of 
total fund assets.\22\ Index funds have grown in popularity due to 
lower management fees relative to active funds, the belief that index 
funds match or outperform active funds more frequently and 
consistently, and the growth of target-date funds in retirement 
plans.\23\ Investments in index funds have pulled in more dollars on a 
net basis than active funds every year since 2013, and if fund flows 
continue to follow current trends, then they will further exceed total 
assets in active funds in the future.\24\
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    \21\ U.S. Fund Flows December 2023, Morningstar (Jan. 17, 2024), 
https://research.morningstar.com/articles/1202332/us-fund-flows-december-2023 (login required). See also Adam Sabban, It's Official: 
Passive Funds Overtake Active Funds, Morningstar (Jan. 17, 2024), 
https://www.morningstar.com/funds/recovery-us-fund-flows-was-weak-2023.
    \22\ Sabban, supra note 19.
    \23\ Morningstar, Target-Date Strategy Landscape: 2023 Report 
(Mar. 28, 2023), https://newsroom.morningstar.com/newsroom/news-archive/press-release-details/2023/Morningstars-Target-Date-Strategy-Landscape-Report-Finds-Investors-Stayed-the-Course-Despite-Market-Volatility-in-2022/default.aspx.
    \24\ Sabban, supra note 19.
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    The exponential growth of index funds necessarily implicates the 
statutory and regulatory schemes of the CBCA and other banking laws 
that are based on ownership thresholds and control of banking 
organizations.\25\ As investments in index funds grow, asset management 
companies and other institutional investors engaging in similar 
strategies must continue to invest those funds in the universe of 
stocks that comprise the index, purchasing ever-greater shares of those 
companies and increasing their ownership stakes. The FDIC has observed 
that fund complexes have acquired 10 percent or more of the voting 
securities at FDIC-supervised institutions or their controlling 
affiliates and have continued to increase their ownership percentages 
at more institutions. Additionally, the FDIC in recent years has 
observed a general pattern of more frequent requests for relief to 
rebut the presumptions of control under subpart E.
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    \25\ For example, pursuant to section 22(h) of the Federal 
Reserve Act, 12 U.S.C. 375b, and Regulation O, 12 CFR part 215 (made 
applicable to insured nonmember banks by 12 U.S.C. 1828(j)(2)), 
extensions of credit by banks to ``insiders,'' such as principal 
shareholders, must comply with certain individual and aggregate 
lending limits and other requirements. Over the past several years, 
fund complexes have acquired, or have approached acquiring, more 
than 10 percent of a class of voting securities of banking 
organizations. Upon acquiring more than 10 percent of a class of 
voting securities of a banking firm, a fund complex would be 
considered a ``principal shareholder'' of the bank for purposes of 
Regulation O. Any company in which a principal shareholder fund 
complex owns more than 10 percent of a class of voting securities 
could, in some instances, be presumed to be a ``related interest'' 
of the fund complex. In that event, the fund complex, as a principal 
shareholder of the bank, and any related interests of the fund 
complex would be considered insiders of the bank under Regulation O. 
Accordingly, the bank's lending to the principal shareholder fund 
complex and its controlled portfolio companies would be subject to 
the lending limits and other requirements of Regulation O. Certain 
banking firms expressed concerns about the possible unintended 
consequences of applying Regulation O to these relationships. In 
response, the Federal banking agencies issued a temporary no-action 
position in 2019 to provide time for the FRB, in consultation with 
the other Federal banking agencies, to consider whether to amend 
Regulation O to address concerns about unintended consequences of 
the application of Regulation O to companies that sponsor, manage, 
or advise investment funds and institutional accounts that invest in 
voting securities of banking organizations. FIL-85-2019 (Dec. 27, 
2019), https://www.fdic.gov/news/inactive-financial-institution-letters/2019/fil19085.html. This interagency statement provided that 
the Federal banking agencies will exercise discretion to not take 
enforcement action against either a fund complex that is a principal 
shareholder of a bank, or a bank for which a fund complex is a 
principal shareholder, with respect to extensions of credit by the 
bank to the related interests of such fund complex that otherwise 
would violate Regulation O, provided the fund complexes and banks 
satisfy certain conditions that evidence that there is a lack of 
control by the fund complex over the bank. This statement was 
extended several times, most recently on December 15, 2023, until 
January 1, 2025. FIL-63-2023 (Dec. 15, 2023), https://www.fdic.gov/news/financial-institution-letters/2023/fil23063.html.
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    These developments have prompted the FDIC to reconsider its 
policies under the CBCA and implementing regulations so that the FDIC 
may more appropriately assess the effects of any control exerted over 
the management and policies of FDIC-supervised institutions. The FDIC 
is concerned that fund complexes will continue to increase their 
ownership percentage of FDIC-supervised institutions to potentially 
significant amounts as investments in their respective index funds 
grow. Fund complexes owning such high percentages of voting securities 
of FDIC-supervised institutions may create situations where the 
investor can have an outsized influence over the management or policies 
of an institution.\26\ Such outsized influence may flow naturally from 
exercise of their votes as large shareholders over matters such as 
mergers, or through other indicia of control, such as engagements with 
portfolio companies whereby investors meet with directors or management 
to influence the direction of the company.\27\ Fund complexes may seek 
board representation or management interlocks depending on the nature 
of existing passivity commitments.
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    \26\ See John Coates, The Problem of Twelve: When a Few 
Financial Institutions Control Everything, 27-28 (2023).
    \27\ See id. at 47-48 (describing trends of asset managers 
increasing the number of engagements held with portfolio companies 
and the companies' responses).
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    Additionally, there have been changes to proxy access \28\ and 
discretionary broker voting \29\ that have given fund complexes more 
potential for control over the companies in which they hold a large 
equity stake in voting securities. The potential for fund complexes to 
exercise significant influence or control over management, business 
strategies, or

[[Page 67005]]

major policy decisions at publicly traded FDIC-supervised institutions 
could increase the risk profile at such institutions and lead to 
excessive risk-taking to enhance profits, investor returns, or stock 
price. Finally, as fund complexes continue to purchase more shares of 
banking organizations across the market to match the growth of 
investments in index funds, there is the potential to create a 
concentration of ownership that may result in such investors having 
excessive influence or control over the banking industry as a whole.
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    \28\ See Holly J. Gregory, et al., The Latest on Proxy Access, 
Harv. L. Sch. F. on Corp. Governance & Fin. Reg. (Feb. 1, 2019) 
(detailing the increase in proxy access at S&P 500 companies since 
2015).
    \29\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, section 957, 124 Stat. 1376, 1906 (2010) 
(codified at 15 U.S.C. 78f(b)(10)) (prohibiting broker members from 
voting shares on executive compensation, boards of directors, and 
other ``significant matter[s]'').
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    In light of these changes to the economic landscape and ownership 
of FDIC-supervised institutions, the FDIC reviewed its policies under 
the CBCA and implementing regulations and believes it is appropriate to 
amend its current regulations to allow it to review certain 
transactions under the CBCA to address the concerns and potential risks 
outlined above. The FDIC also recognizes the interest in and need for 
collaboration among the Federal banking agencies on these issues to 
ensure consistency in the review of transactions implicating the CBCA. 
Accordingly, the FDIC is committed to engaging in dialogue and 
coordination with the FRB and the Office of the Comptroller of the 
Currency to develop an interagency approach to the issues discussed in 
this proposal and seeks public comment regarding further interagency 
coordination in this area.

III. Proposed Rule

A. Section 303.81(e)--Definitions

    As noted above, the defined term ``covered institution'' excludes a 
holding company that is the subject of an exemption described in either 
Sec.  303.84(a)(3) or (a)(8).\30\ In accordance with the FDIC's 
proposal to remove the exemption at Sec.  303.84(a)(8), as described 
below, the FDIC proposes to remove the reference to holding companies 
and associated exemptions in the definition of ``covered institution.'' 
Therefore, as shown in the proposed regulatory text, the definition of 
``covered institution'' would eliminate the reference to holding 
companies subject to the regulatory exemptions in Sec.  303.84(a)(3) or 
(a)(8).
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    \30\ 12 CFR 303.81(e).
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    As described below, the FDIC proposes to remove the exemption at 
Sec.  303.84(a)(8). The FDIC is not proposing to remove the exemption 
at Sec.  303.84(a)(3), which refers to transactions that are 
statutorily exempt from the CBCA's notice requirements. However, 
because the reference to Sec.  303.84(a)(3) in the definition of 
``covered institution'' refers to statutorily exempt transactions and 
not to holding companies themselves, the FDIC believes it is 
appropriate to remove this reference in the definition of covered 
institution as well. Some depository institution holding companies may 
be considered covered institutions.

B. Section 303.84(a)--Transactions That Do Not Require Notice

    Section 303.84(a) currently contains eight transactions that are 
exempt from providing prior notice to the FDIC. The FDIC proposes to 
remove the exemption at Sec.  303.84(a)(8), acquisitions of depository 
institution holding company voting securities for which the Board of 
Governors of the Federal Reserve System reviews a notice pursuant to 
the CBCA.
    The current regulatory exemption only applies when the FRB actually 
reviews a notice under the CBCA, as described above.\31\ Under this 
proposal, investors that propose to acquire voting securities of a 
depository institution holding company in transactions for which the 
FRB reviews a notice would no longer automatically be exempt from 
providing the FDIC prior notice. A change in control at the holding 
company level conveys indirect control over the IDI for which the FDIC 
is the AFBA under the CBCA. The proposal to remove the exemption solely 
because a notice is being reviewed by the FRB would allow the FDIC to 
exercise its authority under the CBCA to require and approve or 
disapprove such a notice at the IDI level.
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    \31\ Supra, note 18 and accompanying text.
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    The FDIC has determined that the original purpose of the current 
exemption, which was to avoid duplicate regulatory review of the same 
transaction by both the FRB and the FDIC,\32\ is no longer warranted in 
light of the widespread impacts resulting from growth in, and changes 
to the nature of, passive investment strategies. As described above, 
fund complexes' increasingly large ownership of voting securities of 
FDIC-supervised institutions or companies that control FDIC-supervised 
institutions, and the evolution of the economic landscape over the past 
few decades, present new risks. Accordingly, the FDIC has determined 
that this proposal is necessary in light of the risks created by 
possible outsized control over and concentration of ownership of FDIC-
supervised institutions. The FDIC must have the ability to require a 
notice so that, as the AFBA for the underlying IDI, it may 
independently review and determine whether the proposed acquisition 
satisfies the statutory factors enumerated in the CBCA for the 
institutions it supervises.\33\ While an acquisition may be disapproved 
if one or more statutory factors in the CBCA are not met, as the 
Federal agency that also administers the DIF, the FDIC has a particular 
interest in reviewing whether a proposed acquisition could result in an 
adverse effect on the DIF.
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    \32\ Id.
    \33\ 12 U.S.C. 1817(j)(7). The Office of the Comptroller of the 
Currency is the AFBA for national banks and the FRB is the AFBA for 
State member banks. Each agency would have a similar interest.
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    While this proposal would allow the FDIC to require a notice to the 
FDIC when the FRB reviews a notice to acquire voting securities of a 
depository institution holding company, the FDIC would consider the 
facts and circumstances when deciding whether to exercise this 
authority for notices filed with the FRB. The FDIC believes it is 
appropriate to review proposed acquisitions under the CBCA more closely 
in order to fully address risks regarding outsized influence and 
increased concentration of ownership, though the FDIC may not do so for 
every proposed acquisition. Rather, the FDIC's proposal would allow it 
to consider the full range of options provided for under the CBCA.
    Under the FDIC's current regulations, when the FRB accepts a 
passivity commitment in lieu of a notice, the FDIC evaluates the facts 
and circumstances of the case to determine whether a notice is required 
to be filed with the FDIC for the indirect acquisition of control of an 
FDIC-supervised institution. Similarly, in cases where the FRB accepts 
a notice, the FDIC under the proposed rule will evaluate the facts and 
circumstances to determine whether to require a notice to be filed with 
the FDIC as well.
    The proposed rule would mean that for transactions resulting in the 
acquiring person owning, controlling, or holding with power to vote 10 
percent or more of any class of voting securities of a depository 
institution holding company with an FDIC-supervised subsidiary 
institution, the FDIC may exercise one of the following options: (1) 
based on the facts and circumstances, require prior written notice to 
the FDIC under the CBCA for the indirect acquisition of control of an 
FDIC-supervised institution; or (2) allow the acquiring person an 
opportunity to

[[Page 67006]]

rebut the presumption of control in writing.\34\
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    \34\ Making passivity commitments is one option the FDIC will 
consider on whether the presumption of control has been rebutted.
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IV. Expected Effects

    As previously discussed, the proposed rule would remove an existing 
regulatory exemption that only applies when the FRB reviews a notice 
under the CBCA. As of the quarter ending March 31, 2024, the FDIC 
supervised 2,920 insured depository institutions.\35\ This proposed 
rule, if promulgated, would likely increase the number of change-in-
control notices submitted by entities seeking to acquire voting 
securities of FDIC-supervised institutions or their parent companies, 
and associated costs. Over the first three months of 2024, the FRB 
received 13 filings from 11 unique entities to indirectly acquire 
voting securities of FDIC-supervised institutions by acquiring voting 
securities of the entity that controls an FDIC-supervised 
institution.\36\ The FDIC expects to receive 52 notices annually as a 
result of the proposed rule and one request to rebut the presumption of 
control annually.\37\ The FDIC estimates that each notice would require 
30.5 labor hours at an hourly cost of $142.40 \38\ and that each 
request to rebut the presumption of control would require 15 labor 
hours at an hourly cost of $111.40.\39\ Therefore, the FDIC estimates 
that the proposed rule could result in average annual recordkeeping, 
reporting, and disclosure compliance costs of up to $227,517.40.\40\ 
However, the FDIC believes that this estimate likely is conservative 
because, as previously stated, the FDIC may not exercise this authority 
for every notice filed with the FRB.
---------------------------------------------------------------------------

    \35\ FDIC Call Report data, March 31, 2024.
    \36\ See 89 FR 471 (Jan. 4, 2024), 89 FR 1575 (Jan. 10, 2024), 
89 FR 3403 (Jan. 18, 2024), 89 FR 5235 (Jan. 26, 2024), 89 FR 5544 
(Jan. 29, 2024), 89 FR 8681 (Feb. 08, 2024), 89 FR 11276 (Feb. 14, 
2024), and 89 FR 18410 (Mar. 13, 2024).
    \37\ Thirteen responses in the first three months of 2024 x (12/
3) = 52 estimated change in control notices submitted annually.
    \38\ To derive this estimate, the FDIC used data from the Bureau 
of Labor Statistics (BLS) Occupational Employment and Wage 
Statistics for executives and managers, lawyers, compliance 
officers, financial analysts, and clerical categories in the 
depository credit intermediation sector as of May 2023. The FDIC 
increased these estimates by approximately 1.53 using the March 2023 
BLS Employer Costs for Employee Compensation data, and then 
multiplied the resulting values by approximately 1.04 to reflect the 
change in the BLS Employment Cost Index between March 2023 and March 
2024.
    \39\ Id.
    \40\ 52 x 30.5 x $142.40 + 1 x 15 x $111.40 = $227,517.40.
---------------------------------------------------------------------------

    If adopted, the FDIC believes that the proposed rule would 
facilitate appropriate review of transactions resulting in control of 
FDIC-supervised institutions and, thereby, would reduce the likelihood 
of outsized influence or control over FDIC-supervised institutions and 
any associated costs. As previously discussed, recent developments in 
equity markets in concert with the FDIC's current practice of exempting 
entities from a notification requirement when the FRB reviews a notice 
under the CBCA may be contributing to elevated risk of excessive or 
indirect control or concentration of ownership of FDIC-supervised 
institutions. The proposed rule would facilitate the FDIC's review of 
certain transactions, thereby increasing the likelihood that all the 
statutory factors in the CBCA are met, and reducing the likelihood that 
certain transactions would result in an adverse effect on the DIF. The 
FDIC does not have the information necessary to quantify such effect.

V. Alternatives Considered

    The primary alternative to this proposed rule that the FDIC 
considered was maintaining the existing regulatory structure in which 
an entity is exempt from submitting a notice to the FDIC when the FRB 
actually reviews a notice to acquire voting securities of a depository 
institution holding company. The FDIC believes that the proposed rule 
is more appropriate because recent developments in the equity markets, 
in concert with the FDIC's current policy of not requiring a notice, 
may be contributing to an elevated risk of excessive indirect control 
of FDIC-supervised institutions. The FDIC also considered the 
alternative of compelling an entity to file a notice with the FDIC in 
each case where the FRB actually reviews a notice to acquire voting 
securities of a depository institution holding company under the CBCA. 
However, the FDIC believes that the proposed rule is more appropriate 
because it would balance the costs associated with duplicate regulatory 
review of the same transaction with the elevated risks associated with 
excessive control or concentration of ownership of FDIC-supervised 
institutions.

VI. Request for Comments

    The FDIC is seeking comment on all aspects of the proposed rule and 
existing regulatory framework that applies to the role played by asset 
managers and other institutional investors with FDIC-supervised 
institutions in the context of the CBCA and passivity agreements. While 
the FDIC continues to perform a comprehensive review of its overall 
regulatory and supervisory approach to issues that arise under the 
CBCA, this proposed rule asks a number of questions and seeks public 
comment regarding monitoring of change in control-related issues, the 
use of passivity commitments, and specific terms and conditions that 
may be appropriate to incorporate into such commitments or non-
objections in the future. In responding to the following questions, the 
FDIC asks that commenters please include quantitative as well as 
qualitative support for their responses, as applicable. The FDIC will 
consider comments submitted anonymously.
    Question 1. Should the FDIC require prior written notice at the 
bank level when a change of control occurs at the holding company 
level? Why or why not?
    Question 2. If the FDIC should require prior written notice when a 
change of control occurs at the holding company level, what steps 
should the FDIC take to avoid duplication of regulatory reviews and 
reduce regulatory burden? What would be the negative impacts of 
inconsistent approaches across the Federal banking agencies?
    Question 3. Should the FDIC and other AFBAs consider an approach 
whereby a notice would be required at either the bank level or holding 
company based on specific criteria, such as the percentage of assets of 
the insured depository institution in relation to the consolidated 
assets of the holding company?
    Question 4. Does the existing and proposed regulatory and 
supervisory framework properly consider all aspects of the role played 
by investors with FDIC-supervised institutions in the context of the 
CBCA? If not, what areas should be addressed?
    Question 5. What, if any, additional requirements or criteria 
should be included in the existing regulatory framework to address the 
concerns of passive investors exerting control, direct and indirect, 
over FDIC-supervised institutions?

[[Page 67007]]

    Question 6. What facts and circumstances should the FDIC consider 
when determining whether to require a notice to be filed with the FDIC 
for an indirect acquisition of control of an FDIC-supervised 
institution? What difference should there be in this determination, if 
any, when a notice is filed at the FRB versus when the FRB determines 
to accept a passivity commitment in lieu of a notice?
    Question 7. Through what methods should the FDIC address the 
rebuttable presumption of control other than through passivity 
commitments? Should the FDIC continue entering into passivity 
agreements, or should it consider a different approach such as other 
passivity commitment arrangements, no-action letters, or agency 
opinions? Please identify the benefits and risks to any proposed 
method.
    Question 8. What should the FDIC consider when determining whether 
a presumption of control has been successfully rebutted?
    Question 9. What types of provisions should passivity commitments 
include and why?
    Question 10. What, if any, provisions should be included in 
passivity commitments to ensure compliance with the written agreements?
    Question 11. Should the FDIC enter into blanket passivity 
agreements with investors that apply to the entire portfolio of the 
FDIC-supervised institutions in the fund complex or require separate 
agreements for each FDIC-supervised institution? What should the FDIC 
consider when making this determination?
    Question 12. Are institutional investors, fund complexes asset 
managers, or other large, passive shareholders directing the management 
or policies of FDIC-supervised institutions as a result of their voting 
securities holdings? If so, how? Are there other situations, investors, 
or risks that the FDIC should consider?
    Question 13. Are investors coordinating voting or otherwise acting 
in concert in ways that the FDIC should be monitoring more closely? If 
so, please provide any available quantitative and qualitative data.
    Question 14. Are there any other considerations for the FDIC in 
evaluating its current regulatory framework as it relates to the filing 
requirements and processing procedures for notices filed under the 
CBCA?
    Question 15. Has concentrated ownership of FDIC-supervised 
institutions and their affiliates affected banking sector competition? 
If so, please identify the impact and how it has impacted the sector.
    Question 16. Has there been any impact on corporate governance, or 
other safety and soundness considerations, of concentrated ownership of 
FDIC-supervised institutions and their affiliates? If so, please 
identify the impact and how it has impacted these areas.
    Question 17. Are there other areas of impact on FDIC-supervised 
institutions and their affiliates as a result of investors owning large 
proportions of voting securities of covered institutions that the FDIC 
should consider?
    Question 18. Should the FDIC limit the voting power of persons who 
acquire 10 percent or more of a class of voting securities of an FDIC-
supervised institution or its parent company? If so, how? What are the 
benefits and costs of various approaches?
    Question 19. How can the FDIC and the other Federal banking 
agencies best ensure consistency in the review of notices under the 
CBCA? What steps should be taken on an interagency basis to ensure the 
appropriate review of transactions involving an indirect acquisition of 
control of an institution?
    Question 20. Are there any expected effects of the proposed rule 
that have not been identified?

VII. Regulatory Analyses

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires an agency, 
in connection with a proposed rule, to prepare and make available for 
public comment an initial regulatory flexibility analysis that 
describes the impact of the proposed rule on small entities.\41\ 
However, an initial regulatory flexibility analysis is not required if 
the agency certifies that the proposed rule will not, if promulgated, 
have a significant economic impact on a substantial number of small 
entities. The Small Business Administration (SBA) has defined ``small 
entities'' to include banking organizations with total assets of less 
than or equal to $850 million.\42\
---------------------------------------------------------------------------

    \41\ 5 U.S.C. 601, et seq.
    \42\ The SBA defines a small banking organization as having $850 
million or less in assets, where an organization's ``assets are 
determined by averaging the assets reported on its four quarterly 
financial statements for the preceding year.'' See 13 CFR 121.201 
(as amended by 87 FR 69118, effective December 19, 2022). In its 
determination, the ``SBA counts the receipts, employees, or other 
measure of size of the concern whose size is at issue and all of its 
domestic and foreign affiliates.'' See 13 CFR 121.103. Following 
these regulations, the FDIC uses an IDI's affiliated and acquired 
assets, averaged over the preceding four quarters, to determine 
whether the IDI is ``small'' for the purposes of RFA.
---------------------------------------------------------------------------

    The proposed rule could impose costs since it would permit the FDIC 
to require certain entities that acquire control of FDIC-supervised 
institutions to file notices with the FDIC. Moreover, should these 
entities rebut the presumption of control, they would likely incur 
costs in order to do so. As of March 31, 2024, the FDIC supervises 
2,920 institutions, of which 2,198 are small entities for the purposes 
of the RFA.\43\ Over the first three months of 2024, 11 different 
investors indirectly acquired voting securities of 13 FDIC-supervised 
institutions, including eight that are small entities for the purposes 
of the RFA,\44\ by acquiring voting securities of the companies that 
controlled those institutions.\45\ The FDIC does not have data with 
which to determine if the acquirers were small entities for the 
purposes of the RFA.
---------------------------------------------------------------------------

    \43\ FDIC Call Report data, March 31, 2024.
    \44\ Id.
    \45\ See supra note 33.
---------------------------------------------------------------------------

    The FDIC estimates this proposed rule would affect as many as 44 
entities annually.\46\ Acquirers of voting securities of FDIC-
supervised institutions over the first three months of 2024 included 
individuals, family trusts, private equity firms, and construction 
companies.\47\ Given the wide range of potential acquirers of voting 
securities of FDIC-supervised institutions, the FDIC believes it is 
unlikely that these 44 entities represent a substantial number of small 
entities. In light of the foregoing, the FDIC certifies that the 
proposed rule would not have a significant economic impact on a 
substantial number of small entities. Accordingly, an initial 
regulatory flexibility analysis is not required.
---------------------------------------------------------------------------

    \46\ 11 x (12/3) = 44.
    \47\ See supra note 33.
---------------------------------------------------------------------------

    The FDIC invites comments on all aspects of the supporting 
information provided in this RFA section. In particular, would this 
proposed rule have any significant effects on small entities that the 
FDIC has not identified?

B. Paperwork Reduction Act

    Certain provisions of the proposed rule contain ``collections of 
information'' within the meaning of the Paperwork Reduction Act (PRA) 
of 1995.\48\ In accordance with the requirements of the PRA, the FDIC 
may not conduct or sponsor, and the respondent is not required to 
respond to, an information collection unless it displays a currently 
valid Office of Management and Budget (OMB) control number. The FDIC's 
OMB control

[[Page 67008]]

number associated with this proposed rule is 3064-0019 and is titled 
``Interagency Notice of Change in Control.''
---------------------------------------------------------------------------

    \48\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------

    As stated above, over the first three months of 2024, the FRB 
received 13 filings from 11 unique filers to indirectly acquire voting 
securities of an FDIC-supervised institution.\49\ The FDIC estimates 43 
annual respondents to the information collection (IC) in this ICR that 
corresponds to notices,\50\ and 52 annual responses \51\ for an average 
of 1.21 responses per respondent annually.\52\ Subject matter experts 
(SMEs) at the FDIC recommend retaining the estimate of 30.5 labor hours 
per response for notices. Further, SMEs at the FDIC estimate that the 
FDIC will receive one request per year from an acquirer to rebut the 
presumption of control, and that an entity would spend, on average, 15 
labor hours to prepare and submit such a request at an average hourly 
cost of $111.40.\53\ The FDIC estimates that change in control 
applicants will incur labor costs at an hourly cost estimate of 
$142.40.\54\ Therefore, the FDIC estimates that the annual reporting 
burden hours associated with this NPR, if finalized, would be 1,601 as 
shown in table 1, and that the annual cost would be $227,517.40.\55\
---------------------------------------------------------------------------

    \49\ See supra note 33.
    \50\ 11 x (12/3) = 44. SMEs at the FDIC estimate that one 
respondent per year would rebut the presumption of change in control 
rather than submit a change in control notice. Therefore, the 
estimated annual number of respondents to the first information 
collection (IC) is 43 (44--1) and the estimated annual number of 
respondents to the second IC is 1.
    \51\ 13 x (12/3) = 52.
    \52\ 52/4335 = 1.21.
    \53\ See supra note 35.
    \54\ Id.
    \55\ 1,586 x $142.40 + 15 x $111.40 = $227,517.40.

                                   Table 1--Summary of Estimated Annual Burden
----------------------------------------------------------------------------------------------------------------
                                 Type of burden                      Number of       Time per
  Information collection (IC)     (frequency of      Number of     responses per     response      Annual burden
    (obligation to respond)         response)       respondents     respondent        (HH:MM)         (hours)
----------------------------------------------------------------------------------------------------------------
1. Applications for Change in   Reporting (On                 43            1.21           30:30           1,586
 Bank Control, 12 CFR 303.80     occasion).
 et seq. (Mandatory).
2. Requests to rebut the        Reporting (On                  1               1           15:00              15
 presumption of control 12 CFR   occasion).
 303.82(b)(4) (Voluntary).
                                                 ---------------------------------------------------------------
    Total Annual Burden         ................  ..............  ..............  ..............           1,601
     (Hours):.
----------------------------------------------------------------------------------------------------------------
Source: FDIC.
Note: The estimated annual IC time burden is the product, rounded to the nearest hour, of the estimated annual
  number of responses and the estimated time per response for a given IC. The estimated annual number of
  responses is the product, rounded to the nearest whole number, of the estimated annual number of respondents
  and the estimated annual number of responses per respondent. This methodology ensures the estimated annual
  burdens in the table are consistent with the values recorded in OMB's consolidated information system.

    Comments are invited on:
    (a) Whether the collection of information is necessary for the 
proper performance of the FDIC's functions, including whether the 
information has practical utility;
    (b) The accuracy of the estimate of the burden of the information 
collection, including the validity of the methodology and assumptions 
used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    All comments will become a matter of public record. Comments on the 
collection of information should be sent to the address listed in the 
ADDRESSES section of this document. Written comments and 
recommendations for this information collection also should be sent 
within 30 days of publication of this document to www.reginfo.gov/public/do/PRAMain. Find this particular information collection by 
selecting ``Currently under 30-day Review--Open for Public Comments'' 
or by using the search function.

C. Riegle Community Development and Regulatory Improvement Act of 1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act of 1994 \56\ (RCDRIA), in determining the 
effective date and administrative compliance requirements for new 
regulations that impose additional reporting, disclosure, or other 
requirements on IDIs, each Federal banking agency must consider, 
consistent with principles of safety and soundness and the public 
interest, any administrative burdens that such regulations would place 
on affected depository institutions, including small depository 
institutions, and customers of depository institutions, as well as the 
benefits of such regulations. In addition, section 302(b) of the RCDRIA 
requires new regulations and amendments to regulations that impose 
additional reporting, disclosures, or other new requirements on IDIs 
generally to take effect on the first day of a calendar quarter that 
begins on or after the date on which the regulations are published in 
final form.\57\ The FDIC invites comments that will further inform its 
consideration of RCDRIA.
---------------------------------------------------------------------------

    \56\ 12 U.S.C. 4802(a).
    \57\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \58\ requires the Federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The FDIC has sought to present the 
proposed rule in a simple and straightforward manner and invites 
comment on the use of plain language. For example:
---------------------------------------------------------------------------

    \58\ Public Law 106-102, sec. 722, 113 Stat. 1338, 1471 (1999).
---------------------------------------------------------------------------

     Are the requirements in the proposed rule 
clearly stated? If not, how could the proposed rule be more clearly 
stated?
     Does the proposed rule contain language or 
jargon that is not clear? If so, which language requires clarification?
     Would a different format make the proposed rule 
easier to understand? If so, what changes to the format would make the 
proposed rule easier to understand?
     What else could the FDIC do to make the proposed 
rule easier to understand?

[[Page 67009]]

E. Providing Accountability Through Transparency Act of 2023

    The Providing Accountability Through Transparency Act of 2023 \59\ 
requires that a notice of proposed rulemaking include the internet 
address of a summary of not more than 100 words in length of a proposed 
rule, in plain language, that shall be posted on the internet website 
under section 206(d) of the E-Government Act of 2002.\60\
---------------------------------------------------------------------------

    \59\ 5 U.S.C. 553(b)(4).
    \60\ 44 U.S.C. 3501 note.
---------------------------------------------------------------------------

    The FDIC is proposing to amend the current regulation by removing 
one exempt transaction from Sec.  303.84(a) that currently does not 
require prior written notice to the FDIC. Transactions involving the 
acquisition of voting securities of a depository institution holding 
company for which the FRB reviews a notice would no longer be an exempt 
transaction under Sec.  303.84(a). The proposed rule is intended for 
the FDIC to strengthen its review and approval process for acquisitions 
of voting securities that involve FDIC-supervised institutions. The 
proposal and required summary can be found at https://www.fdic.gov/resources/regulations/federal-register-publications/.

List of Subjects in 12 CFR Part 303

    Administrative practice and procedure, Bank deposit insurance, 
Banks, Banking, Change in bank control, Filing procedures, Procedure 
and rules of practice, Reporting and recordkeeping requirements, and 
Savings associations.

Authority and Issuance

    For the reasons set forth in the preamble, the Federal Deposit 
Insurance Corporation proposes to amend 12 CFR part 303 as follows:

PART 303--FILING PROCEDURES

0
1. The authority citation for part 303 continues to read as follows:

    Authority: 12 U.S.C. 378, 1463, 1467a, 1813, 1815, 1817, 1818, 
1819(a) (Seventh and Tenth), 1820, 1823, 1828, 1831i, 1831e, 1831o, 
1831p-1, 1831w, 1831z, 1835a, 1843(l), 3104, 3105, 3108, 3207, 5412; 
15 U.S.C. 1601-1607.

0
2. Amend Sec.  303.81 by revising paragraph (e) to read as follows:


Sec.  303.81  Definitions.

* * * * *
    (e) Covered institution means an insured State nonmember bank, an 
insured State savings association, and any company that controls, 
directly or indirectly, an insured State nonmember bank or an insured 
State savings association.
* * * * *


Sec.  303.84  [Amended]

0
3. Amend Sec.  303.84 by removing paragraph (a)(8).

    By order of the Board of Directors.

    Dated at Washington, DC, on July 30, 2024.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2024-18187 Filed 8-16-24; 8:45 am]
BILLING CODE 6714-01-P