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Federal R eserve Bank OF DALLAS ROBERT AND D. M C T E E R , J R . P R E S ID E N T C H IE F E X E C U T IV E O F F IC E R Tlllv 7 1QQS J D ALLAS, TEXAS 7 5 2 6 5 -5 9 0 6 Notice 95-62 TO: The Chief Executive Officer of each state member bank and bank holding company in the Eleventh Federal Reserve District SUBJECT Final Amendment to Regulation O (Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks) DETAILS The Board of Governors of the Federal Reserve System has issued an amendment to Regulation O (Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks). The amendment conforms the definition of unimpaired capital and unim paired surplus in Regulation O’s definition of lending limit to the definition of capital and surplus recently adopted by the Office of the Comptroller of the Currency in calculating the limit on loans by a national bank to a single borrower. The rule would also reduce the recordkeeping burden for member banks monitoring lending to their insiders and their related interests. ATTACHMENT A copy of the Board’s notice as it appears on pages 31053-54, Vol. 60, No. 113, of the Federal Register dated June 13, 1995,. is attached. For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas: Dallas Office (800) 333 -4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) MORE INFORMATION For more information, please contact Jane Anne Schmoker at (214) 922-5101. For additional copies of this Bank’s notice, please contact the Public Affairs Department at (214) 922-5254. Sincerely yours, 31053 Rules and Regulations Federal Register Vol. 60, No. 113 Tuesday, June 13, 1995 of a member bank and insider of the bank’s affiliates as an amount equal to the limit on loans to a single borrower established by the National Bank Act (12 U.S.C. 84). That amount is 15 percent of the bank’s unim paired capital and unim paired surplus for loans that The Code of Federal Regulations is sold by are not fully secured, and an additional the Superintendent of Documents. Prices of 10 percent of the bank’s unim paired new books are listed in the first FEDERAL REGISTER issue of each week. capital and unim paired surplus for loans that are fully secured by certain readily marketable collateral.1 FEDERAL RESERVE SYSTEM Although Regulation O adopts the percentage limits used in the National 12 CFR Part 215 Bank Act, Regulation O provides its own definition of w hat constitutes [Regulation O; Docket No. R-0875] unim paired capital and unim paired Loans to Executive Officers, Directors, surplus. Unim paired capital and and Principal Shareholders of Member unim paired surplus have been defined as the sum of (i) “total equity capital” Banks; Loans to Holding Companies as reported on the bank’s most recent and Affiliates consolidated report of condition, (ii) any AGENCY: Board of Governors of the subordinated notes and debentures that Federal Reserve System. comply with requirem ents of the bank’s ACTION: Final rule. primary regulator for inclusion in the bank’s capital structure and are reported SUMMARY: The Board is adopting an on the bank’s m ost recent consolidated am endm ent to Regulation O to conform report of condition, and (iii) any the definition of unim paired capital and valuation reserves created by charges to unim paired surplus used in calculating the bank’s income and reported on the a bank’s Regulation O lending limit to bank’s most recent consolidated report the definition of capital and surplus of condition. 12 CFR 215.2(i). recently adopted by the Office of the The Office of the Comptroller of the Comptroller of the Currency in Currency (OCC) has recently revised its calculating the lim it on loans by a regulatory definition of unim paired national bank to a single borrower. The capital and unim paired surplus for final rule will reduce the regulatory purposes of im plem enting the single burden for member banks monitoring borrower lim it of the National Bank Act. lending to their insiders. See 60 FR 8,533, February 1 5,1 9 95 . Under that revised definition, a national EFFECTIVE DATE: Effective July 1 ,1 9 9 5 . bank’s “capital and surplus” are equal FOR FURTHER INFORMATION CONTACT: Gregory Baer, Managing Senior Counsel to Tier 1 and Tier 2 capital included in the calculation of the bank’s risk-based (2 0 2 /45 2 -32 3 6 ), or Gordon Miller, capital together w ith the amount of the Attorney (2 02 /45 2 -25 3 4 ), Legal bank’s allowance for loan and lease Division; or William.G. Spaniel, losses not included in this calculation. Assistant to the Director (2 02 /45 2 12 CFR 32.2(b). 3469), Division of Banking Supervision On April 20, 1995 (60 FR 19,689), the and Regulation, Board of Governors of Board proposed to am end Regulation O the Federal Reserve System. For the to conform its definition of unim paired hearing im paired only, Telecommunications Device for the Deaf capital and unim paired surplus to the OCC’s revised definition of capital and (TDD), Dorothea Thompson (2 02 /45 2 surplus. As stated in the notice of 3544). proposed rulemaking, the Board SUPPLEMENTARY INFORMATION: believes that in substantially all cases calculating the insider lending limits of Background Regulation O using the revised The Board’s Regulation O (12 CFR Part 215) im plem ents the insider 1 The le n d in g lim it also in c lu d e s any higher am o u n ts th a t are p e rm itte d by th e exceptions lending prohibitions of section 22(h) of in c lu d e d in 12 U.S.C. 84. W here state law the Federal Reserve Act. Section 215.2(i) estab lish es a low er le n d in g lim it for a state m em ber of the regulation (12 CFR 215.2(i)) ban k , th a t low er le n d in g lim it is the len d in g lim it defines the lim it for loans to any insider for the state m em ber bank. This section of the FEDERAL REGISTER contains regulatory documents having general applicability and legal effect, most of which are keyed to and codified in the Code of Federal Regulations, which is published under 50 titles pursuant to 44 U.S.C. 1510. definition w ould not significantly increase or decrease a bank’s insider lending limit. The elim ination of the separate definition of unim paired capital and unim paired surplus in Regulation O therefore is expected to create m inimal disruption in lending by member banks to their insiders and to insiders of their affiliates, while eliminating confusion and duplication of effort caused by requiring banks to calculate capital two different ways for two regulations. The Board received 24 written comments, including comments from 11 banks, 3 bank holding companies, 6 Federal Reserve Banks, and 4 trade associations. Twenty-three commenters supported the Board’s amendment. All commenters in support felt that the amendment w ould make recordkeeping simpler and more consistent, and several also noted that the amendment would not significantly change their lending level. Two commenters noted that the amendment would both greatly reduce its recordkeeping burden and help its compliance. One commenter opposed the amendment and expressed concern that a bank’s Tier 1 and Tier 2 capital did not include certain intangible assets, and that eliminating these assets could harm some com m unity banks by effectively reducing their lending limits. One bank holding company supporting the amendment also noted that some of its affiliated banks w ould have their lending limits reduced because of the goodwill on their books. The Board believes, however, that few small community banks have a sufficient am ount of intangible assets, such as goodwill or purchased mortgage servicing rights, on their books to cause a significant reduction of their insider lending limits from their current levels. Accordingly, after reviewing the public comments, the Board is adopting the amendment as proposed. Determination of Effective Date Because the final rule adjusts a requirement on insured depository institutions, the final rule will become effective July 1 ,1 9 9 5 , the first day of the Calendar quarter after the date of the final rule’s publication. See 12 U.S.C. 4802(b). For the foregoing reason, the final rule will become effective without regard for the 30-day period provided for in 5 U.S.C. 553(d). 31054 Federal Register / Vol. 60, No. 113 / Tuesday, June 13, 1995 / Rules and Regulations Final Regulatory Flexibility Analysis The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires an agency to publish a final regulatory flexibility analysis when the agency publishes a final rule. Two of the requirements of an initial regulatory flexibility analysis (5 U.S.C. 604(b ))—a succinct statement of the need for, and the objectives of, the rule, and a summary of the issues raised by the public comments received, the agency assessment thereof, and any changes made in response thereto—are contained in the supplem entary information above. No significant alternatives to the final rule were considered by the agency. Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 605(b)), the Board certifies that the amendment to Regulation O w ill not have a significant economic impact on a substantial num ber of small entities, and that any im pact on those entities should be positive. The am endm ent will reduce the regulatory burden for most banks by simplifying the calculation of lending limits w ithout significantly changing the am ount of the limit, and will have no effect in other cases. Paperwork Reduction Act In accordance w ith section 3507 of the Paperwork Reduction Act of 1980 (44 U.S.C. 3507), the Board reviewed the information collection requirements of its amendment to Regulation O under authority delegated to the Board by the Office of Management and Budget (5 CFR Part 1320, A ppendix A) after considering comments received during the public com m ent period. The recordkeeping requirements are authorized by 12 U.S.C. 375a(6) and (10), 375b(7), and 1972(2)(G ). This information is required to prevent preferential lending by a member bank to its executive officers, directors, principal shareholders, and their related interests. The am endm ent is not estimated to change the annual burden of recordkeeping associated with Regulation O for state member banks, w hich is estimated to be 6,255 hours. List of Subjects in 12 CFR Part 215 Credit, Federal Reserve System, Penalties, Reporting and recordkeeping requirements. For the reasons set forth in the preamble, the Board is amending 12 CFR part 215 as follows: PART 215—-LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS OF MEMBER BANKS (REGULATION O) 1. The authority citation for part 215 is revised to read as follows: Authority: 12 U.S.C. 248(i), 375a(10), 375b(9) and (10), 1817(k )(3) and 1972(2)(G )(ii); Pub. L. 1 0 2 -2 42 , 105 Stat. 2236. 2. Section 215.2 is am ended as follows: a. The last sentence of paragraph (i) introductory text is revised; b. Paragraphs (i)(l) and (i)(2) are revised; and c. Paragraph (i)(3 ) is removed. The revisions read as follows: § 2 1 5.2 * Definitions. ■$ * * * (i) * * * A member bank’s unim paired capital and unim paired surplus equals: (1) The bank’s Tier 1 and Tier 2 capital included in the bank’s risk-based capital under the capital guidelines of the appropriate Federal banking agency, based on the bank’s most recent consolidated report of condition filed under 12 USC 1817(a)(3); and (2) The balance of the bank’s allowance for loan and lease losses not included in the bank’s Tier 2 capital for purposes of the calculation of risk-based capital by the appropriate Federal banking agency, based on the bank’s m ost recent consolidated report of condition filed under 12 U.S.C. 1817(a)(3). * * * * * By order of the Board of Governors of the Federal Reserve System, June 7, 1995. William W. Wiles, Secretary o f the Board. [FR Doc. 9 5 -1 4 41 3 Filed 6 -1 2 -9 5 ; 8:45 am] BILLING CODE 6210-01-P
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