The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FEDERAL RESERVE BANK
OF NEW YORK
[
Circular No. 10608
January 6, 1993
”1
REGULATION O
— Proposed Amendment Regarding Insider Lending Limits
— Final Amendment Dealing with Lending Transactions by a Member
Bank with its Parent Holding Company
To All Member Banks and Bank Holding Companies in the Second
Federal Reserve District, and Others Concerned:
The Board of Governors of the Federal Reserve System has requested comment on a proposed amendment to
its Regulation O (Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks) in order
to implement recent amendments to Section 2 2(h ) of the Federal Reserve Act concerning aggregate insider lending
limits. In that regard, the Board of Governors is proposing the adoption of three exceptions to those lending limits.
Printed below is the text of the proposal, which has been reprinted from the
comments thereon
should be submitted by January 19, 1993, and may be sent to the Board, as specified in the notice, or to our Domestic
Banking Department.
Federal Register;
In addition, the Board has also amended Regulation O, effective December 17, 1992, in order to exclude from
the coverage of that regulation lending transactions by a member bank with its parent holding company and that company’s
subsidiaries, inasmuch as those transactions are already governed by Section 23A of the Federal Reserve Act.
Enclosed — for member banks, bank holding companies, and others who maintain sets of the Board’s
regulations — is the text of the amendment to Regulation O, which has been reprinted from the
of December 23, 1992. Questions thereon should be directed to our Domestic Banking Department (Tel. No.
212-720-2181).
E. G e r a l d C o r r i g a n ,
Federal Register
Comments should be s u b m itt e d
on or before January 19,1993.
12CFR Part 215
ADDRESSES: Comments, which should
refer to Docket No. R-0785, may be
[Regulation O; Docket No. R-Q785]
mailed to the Board of Governors of the
Loans to Executive Officers, Directors, Federal Reserve System, 20th Street and
and Principal Shareholders of Member Constitution Avenue, NW., Washington,
Banks; Loans to Holding Companies
DC 20551, to the attention of Mr.
and Affiliates
William Wiles, Secretary. Comments
addressed to the attention of Mr. Wiles
AGENCY: Board of Governors of die
may be delivered to the Board’s mail
Federal Reserve System.
room between 8:45 a.m. and 5:15 p.m.,
ACTION: Proposed rule with request for
and to the security control room outside
comment.
of those hours. Both the mail room and
SUMMARY: The Board is proposing to
the security control room are accessible
revise Regulation O to implement recent from the courtyard entrance on 20th
amendments to section 22(h) of the
Street between Constitution Avenue and
Federal Reserve Act, contained in the
C Street, N.W. Comments may be
Housing and Community Development
inspected in room B-1122 between 9
Act of 1992. The Board is requesting
a m. and 5 p.m. weekdays, except as
public comment on three exceptions to
provided in section 261.8 of the Board’s
the aggregate insider lending limit in
Rules Regarding Availability of
Regulation O and is inviting suggestions Information, 12 CFR 261.8.
on additional transactions that would
FOR FURTHER INFORMATION CONTACT:
meet the statutory exemptive criteria,
Gordon Miller, Attorney (202/452-2534),
PRINTED IN NEW YORK, FROM FEDERAL REGISTER, VOL. 57, NO. 247,
FEDERAL RESERVE SYSTEM
DATES:
President.
Legal Division, Board of Governors of
the Federal Reserve System. For the
hearing impaired only.
Telecommunications Device for the Deaf
(TDD), Dorothea Thompson (202/4523544), Board of Governors of the Federal
Reserve System, 20th and C Streets,
NW., Washington, DC 20551,
SUPPLEMENTARY INFORMATION: The
Housing and Community Development
Act of 1992 (HCDA), Pub. L. 102-550,
106 Stat. 3672 (1992), effective October
28,1992, amended section 22(h) of the
Federal Reserve Act (Act), 12 U.S.C. §
375b, to authorize the Board to adopt
exceptions from the definition of
"extension of credit” that pose minimal
risk to the lending bank. The Board is
proposing three exceptions to the
aggregate lending limit in Regulation O
(12 CFR part 215) to implement this
amendment.
Background
The Federal Deposit Insurance
pp. 61016-17
(OVER)
Corporation Improvement Act of 1991
(FDICLA), Pub. L. 102-242,105 Stat.
2355 (1991), amended section 22(h) of
the Act, effective May 18,1992, by
establishing a new 100 percent of
capital limit on the aggregate amount of
credit a member bank may extend to its
insiders and their related interests as a
class.1 Unlike the single borrower
lending limit under section 22(h), the
new aggregate lending limit did not
incorporate the exceptions from the loan
to one borrower rule found in the
National Bank Act. See 12 U S C § 84.
..
In addition, FDICLA eliminated the
Flexibility the Board previously had
enjoyed under section 22(h) to exclude
from coverage credit transactions that
posed no risk to the bank. As a result,
a bank was required to include certain
loans when calculating its aggregate
insider lending limit under Regulation
O that it was not required to include
when calculating its single borrower
lending limit under Regulation O.
In order to reduce this inconsistency
between the individual and aggregate
lending limits in Regulation O, the
Board recommended that Congress
restore to the Board the ability to make
exceptions to the lending limit.
Congress responded in HCDA by
granting the Board the authority to make
exceptions by regulation to the
definition of “extension of credit’’ in
section 22(h) of the Act for transactions
that the Board determines pose minimal
risk. The legislative history of this
provision states that the Board should
make a “zero-based review” of ail
exceptions, rather than to adopt the
excerptions under the National Banking
Act as a whole. See 138 Cong. Rec.
S i7,914-15 {daily ed. CM. 8,1992).
Discussion of Issues
Under the concentration of credit
rules of the National Bank Act, certain
categories of loans or extensions of
credit are deemed, as a result of the
manner in which they are collateralized,
to pose minimal risk of loss to a bank,
and the ability of a national bank to
engage in such transactions is made
subject to relaxed quantitative
limitations or is not subject to any
quantitative limitations at all. See 12
U.S.C. § 84. The Board proposes to
adopt three of these categories as
exceptions from the definition of
“extension of credit” as it applies to the
1 FDIC1A also authorized the Board by regulation
to make exceptions to this limit, subject to certain
requirements and restrictions, for member banks
with less than $100 million in deposits. See 12
U.S.C. § 375b(5)(C). The Board has exercised this
authority for the one-year period ending May 10,
1993. 12 CFR 215.4(d)(2).
aggregate lending limit at section
215.4(d) of Regulation O. These three
categories are:
(1) Extensions of credit secured by
obligations of the United States or other
obligations fully guaranteed as to
principal and interest by the United
States;
(2) Extensions of credit to or secured
by commitments or guarantees of the
United States or its agencies; and
(3) Extensions of credit secured by a
segregated deposit account with the
lending bank.
The Board therefore proposes and
requests public comment on these three
categories as an initial group of
exceptions to the aggregate lending limit
under Regulation O. The Board also
requests public comment on any other
categories of extensions of credit w'hich
should be included, either with or
without quantitative limitations, as
additional exceptions to the aggregate
lending limit.
By making these exceptions effective
only with respect to the aggregate
lending limit, the general prohibitions
in Regulation O on extensions of credit
to insiders, found in §§ 215.4(a) and (b),
remain in effect as safeguards against
abuse of these exceptions.
Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5
U.S.C. § 601 et seq.) requires an agency
to publish an initial regulatory
flexibility analysis with any notice of
proposed rulemaking. Two of the
requirements of an initial regulatory
flexibility analysis, a description of the
reasons why the action by the agency is
being considered, and a statement of the
objectives of. and legal basis for, the
proposed rule (5 U.S.C. § 603(b)), are
contained in the supplementary
information above.
The Board’s proposed rule imposes no
additional reporting or recordkeeping
requirements, nor are there relevant
federal rules that duplicate, overlap, or
conflict with the proposed rule. The
proposed rule will apply to all member
banks, regardless of size. The proposed
rule should not have a negative
economic impact on small institutions.
Instead, the rule should relieve their
regulatory burden and will increase the
ability of small institutions to make
loans and other extensions of credit that
pose little or no risk of loss to the
member bank, and to attract and retain
outside directors to whom such loans
and other extensions of credit may be
made in the same manner and to the
same extent as they may be made to
persons who are not insiders of the
bank.
List of Subjects in 12 CFR Part 215
Credit, Federal Reserve System,
Reporting and recordkeeping
requirements.
For the reasons set forth in the
preamble, and pursuant to the Board’s
authority under section 22(h) of the
Federal Reserve Act (12 U.S.C. § 375b)
and section 955 of the Housing and
Community Development Act of 1992
(Pub. L. 102-550,106 Stat. 3895 (1992)),
the Board is amending 12 CFR part 215,
part A, as follows:
PART 215— LOANS TO EXECUTIVE
OFFICERS, DIRECTORS, AND
PRINCIPAL SHAREHOLDERS OF
MEMBER BANKS
1. The authority citation for part 2
is revised to read as follows:
Authority: Sections ll(i), 22(g) and 22(h),
Federal Reserve Act (12 U.S.G 248(i), 375a,
375b{7)), 12 U.S.G 1817(k)(3) and
1972(2)(F)(vi), and section 955 of the
Housing and Community Development Act of
1992 (Pub. L. 102-550,106 Stat. 3895 (1992)).
Subpart A— Loana by Member Bankato
Thalr Executive Officers, Directors, end
Principal Shareholders
2. Section 215.4 is amended by
adding a new subparagraph (d)(3) to
read as follows:
$215.4 Genera! prohibitions.
*
(a) * * *
*
*
*
*
(d) * * *
(3)
Exceptions. The general limit
specified in paragraph (d)(1) of this
section does not apply to:
(i) Extensions of credit secured by
bands, notes, certificates of
indebtedness, or Treasury Bills of the
United States or by other such
obligations fully guaranteed as to
principal and interest by the United
States;
(ii) Extensions of credit to or secured
by unconditional takeout commitments
or guarantees of any department,
agency, bureau, board, commission, or
establishment of the United States or
any corporation wholly owned directly
or indirectly by the United States; or
(iii) Extensions of credit secured by a
segregated deposit account in the
member bank.
Board of Governors of the Federal Reserve
System, December 17,1992.
Williams W. Wiles,
Secretary of the Board.
[FR Doc. 92-31125 Filed 12-22-92; 8:45 ami
BILUNG CODE SM0-01-F
Board of Governors of the Federal Reserve System
Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks
A M E N D M E N T TO R EG U LA TIO N O
(Effective December 17, 1992)
FEDERAL RESERVE SYSTEM
12CFR Part 215
[Regulation O; Docket No. R-0784]
Loans to Executive Officers, Directors,
and Principal Shareholders of Member
Banks; Loans to Holding Companies
and Affiliates
Board of Governors of the
Federal Reserve System.
ACTION: Final rule.
AGENCY:
The Board is revising
Regulation O to implement recent
amendments to section 22(h) of the
Federal Reserve Act, contained in the
Housing and Community Development
Act of 1992. The revision will provide
that loans to a holding company parent
and its affiliates are not subject to
Regulation O inasmuch as these
transactions are governed by section
23A of the Federal Reserve Act.
SUMMARY:
EFFECTIVE DATE: December 17,1992.
FOR FURTHER INFORMATION CONTACT:
Gordon Miller, Attorney (202/452-2534),
Legal Division, Board of Governors of
the Federal Reserve System. For the
hearing impaired only.
Telecommunications Device for the Deaf
(TDD), Dorothea Thompson (202/4523544), Board of Governors of the Federal
Reserve System, 20th and C Streets,
NVV., Washington, DC 20551.
The
Housing and Community Development
Act of 1992 (HCDA), Pub. L. 102-550,
106 Stat. 3672 (1992), effective October
28, 1992. has amended section 22(h) of
the Federal Reserve Act (Act), 12 U.S.C.
§ 375b, to exempt from the definition of
"principal shareholder" any holding
company of which the member bank is
a subsidiary and any other subsidiary of
that holding company. The Board is
revising Regulation O (12 CFR part 215),
effective December 17,1992, to conform
to the amendment.
Background
In response to a recommendation of
the Board, Congress in HCDA amended
section 22(h) to exclude from coverage
under that section and Regulation O
lending transactions by a member bank
with its parent holding company and
that company’s subsidiaries, inasmuch
as these transactions are governed
comprehensively by section 23A of the
Act.
The Board has revised the definition
of "principal shareholder" in Regulation
O to exclude from the definition of
"principal shareholder" a "company of
which a member bank is a subsidiary."
This has the effect of excluding from the
coverage of Regulation O loans to a
company that owns, controls, or
exercises a controlling influence over a
member bank, as those relationships are
SUPPLEMENTARY INFORMATION:
defined in section 2(d) of the Bank
Holding Company Act, as well as the
related interests of such a parent bank
holding company. See 12 CFR 215.2(n);
12 U.S.C. § 1841(d). Covered
transactions between a member bank
and its holding company and the other
subsidiaries of the holding company
continue to be governed by section 23A,
which the Board believes
comprehensively regulates such
transactions.
Need for Final Rule Without Comment
The amendment of the statutory
definition of “principal shareholder"
was effective immediately upon
enactment of HCDA, and required no
action on the part of the Board to take
effect. The amendment also removed the
authority of the Board to maintain a
definition of the term that did not
contain the exception contained in
section 22(h). The Board therefore
believes that it is necessary to revise
Regulation O in order to eliminate a
prohibition on lending transactions that
is not authorized by the Act, and to
clarify that member banks may take
immediate advantage of the recent
amendment to section 22(h).
The Board, for good cause, finds that
the notice and public comment
procedure normally required is
impractical and contrary to the public
interest under 5 U.S.C. 553(b)(B). The
PRINTED IN NEW YORK, FROM FEDERAL REGISTER, VOL. 57, NO. 247, pp. 60979-80
For Regulation O to be complete, retain:
1) Pamphlet effective May 18, 1992.
2) This slip sheet.
[Enc. Cir. No. 10608]
(OVER)
Board further finds that, for the same
reasons, there is good cause under 5
U.S.C. 553(d)(3) to make the interim
amendment effective on December 17,
1992, without regard for the 30-day
period provided for in 5 U.S.C. 553(d).
Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5
U.S.C. § 601 et seq.) requires an agency
to publish an initial regulatory
flexibility analysis with any notice of
proposed rulemaking. Two of the
requirements of an initial regulatory
flexibility analysis, a description of the
reasons why the action by the agency is
being considered, and a statement of the
objectives of, and legal basis for, the
proposed rule (5 U.S.C. § 603(b)), are
contained in the supplementary
information above.
The Board’s proposed rule imposes no
additional reporting or recordkeeping
requirements, nor are there relevant
federal rules that duplicate, overlap, or
conflict with the proposed rule. The
proposed rule will apply to all member
banks, regardless of size. The proposed
rule should not have a negative
economic impact on small institutions.
Instead, the rule should relieve the
regulatory burden on all member banks,
and will increase their ability to make
loans and other extensions of credit,
while such transactions remain subject
to the comprehensive regulatory
provisions of section 23A of the Act.
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, and pursuant to the Board’s
authority under section 22(h) of the
Federal Reserve Act (12 U.S.C. § 375b)
and section 955 of the Housing and
Community Development Act of 1992
(Pub. L. No. 102-550,106 Stat. 3895
(1992)), the Board is amending 12 CFR
part 215, part A, as follows:
2.
Section 215.2 is amended by
revising paragraph (1) to read as follows:
§ 215.2 DefInltions.
* * * * *
(1) (1) Principal shareholder means a
person (other than an insured bank) that
directly or indirectly, or acting through
or in concert with one or more persons,
owns, controls, or has the power to vote
more than 10 percent of any class of
voting securities of a member bank or
company. Shares owned or controlled
by a member of an individual’s
immediate family are considered to be
held by the individual.
(2) A principal shareholder of a
member bank includes:
(i) a principal shareholder of a
PART 215— LOANS TO EXECUTIVE
company of which the member bank is
OFFICERS, DIRECTORS, AND
a subsidiary, and
PRINCIPAL SHAREHOLDERS OF
(ii) a principal shareholder of any
MEMBER BANKS
other subsidiary of that company.
1.
The authority citation for part 215 (3) A principal shareholder of a
is revised to read as follows:
member bank does not include a
company of which a member bank is a
Authority: Sections ll(i), 22(g) and 22(h),
subsidiary.
Federal Reserve Act (12 U.S.C 248(i), 375a,
375b(7)), 12 U.S.C 1817(k)(3) and
Board of Governors of the Federal Reserve
1972(2)(F)(vi), and section 955 of the
System, December 17,1992.
Housing and Community Development Act of
1992 (Pub. L. 102-550,106 Stat. 3895 (1992)). William W. Wiles,
Secretary of the Board.
Subpart A— Loans by Mambar Banka to
|FR Doc. 92-31124 Filed 12-22-92; 8:45 am]
Their Executive Officera, Directors, and
Principal Shareholders
BILLING CODE S210-01-F
@FedFRASER