Full text of Federal Reserve Bank of New York Circulars : 10670. Regulation O

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FEDERAL RESERVE BANK
OF NEW YORK

[

Circular No.

10670 ”1

December 3 , 1993

REGULATION O
Extension of Interim Rule Regarding Insider
Lending Lim its for Small Banks
To All Member Banks and Bank Holding Companies in the Second
Federal Reserve District, and Others Concerned:

The following statement has been issued by the Board of Governors of the Federal Reserve
System:
The Federal Reserve Board has announced approval of a 90-day extension of an interim provision
in Regulation O permitting adequately capitalized small banks to raise their limit on aggregate lending
to insiders from 100 percent up to 200 percent of unimpaired capital and surplus.
The extension is effective from November 18, 1993, through February 18, 1994.
The extension is made in order to provide Board staff with additional time to review public
comments on whether the interim rule should be made permanent, modified, or permitted to expire.
Printed below is the text of the Board’s notice, which has been reprinted from the Federal
Register of November 23; questions regarding this matter may be directed to our Domestic Banking
Department (Tel. No. 212-720-2181).
W il l ia m J. M c D o n o u g h ,

President.
FOR FURTHER INFORMATION CONTACT:

12 CFR Part 215
[R egulation O; D ocket No. R-0800]

Loans to Executive Officers, Directors,
and Principal Shareholders of Member
Banks

Board of Governors of the
Federal Reserve System.
ACTION: Interim rule.
AGENCY:

The Board is extending
through February 1 8 ,1 9 9 4 , an interim
provision in Regulation O permitting
adequately capitalized small banks to
raise their limit on aggregate lending to
insiders from 100 percent up to 200
percent of unimpaired capital and
surplus. The extension will prevent a
lapse in the availability of the interim
rule while the Board considers
comments about i t
EFFECTIVE DATE: November 1 8 ,1 9 9 3 .
SUMMARY:




Gordon Miller, Attorney (202/452-2534).
Legal Division; William G. Spaniel,
Supervisory Financial Analyst (202/4523469), or Mark Benton, Senior Financial
Analyst (202/452-5205), Division of
Banking Supervision and Regulation,
Board ofCovemors of the Federal
Reserve System. For the hearing
impaired only, Telecommunication
Device for the Deaf (TDD), Dorothea
Thompson (202/452-3544), Board of
Governors of the Federal Reserve
System, 20th & C Street, NW.,
Washington, DC 20551.
SUPPLEMENTARY INFORMATION:

Background
Section 22(h) of the Federal Reserve
Act (12 U.S.C. 375b), as amended by
section 306 of the Federal Deposit
Insurance Corporation Improvement Act
of 1991 (FDICIA), imposes an aggregate
limit on the amount a bank may lend to

its executive officers, directors, and
principal shareholders (insiders) and
their related interests as a class. In
general, the limit is equal to the bank's
unimpaired capital and unimpaired
surplus. 12 U.S.C 375b(5); 12 CFR
215.4(d). Section 22(h) also authorizes
the Board to set a higher limit for banks
with deposits of less than S i 00 million
if the Board determines that the
exception is "important to avoid
constricting the availability of credit in
small communities or to attract directors
of such banks." The statute provides
that the higher limit for smaller banks
may not exceed 200 percent of the
bank’s unimpaired capital and
unimpaired surplus.
Effective May 1 8 ,1 9 9 2 , the Board
adopted an interim rule permitting
adequately capitalized banks with
deposits under 5100 million to adopt a
higher limit, not to exceed 200 percent
of the bank’s unimpaired capital and
(OVER)

Federal Register / Vol. 58. No. 224 / Tuesday. November 23. 1993 / Rules and Regulations
unimpaired surplus. The interim rule
was scheduled to expire May 18,1993.
See 57 FR 22420, May 28.1992. The
Board subsequently extended the
interim rule for six months, through
November 18,1993, in order to obtain
public comments on whether the
interim rule should be made permanent,
modified, or permitted to expire. See 58
FR 28492, May 14,1993.
In response to the notice of the
extension of the interim rule, the Board
received 147 written comments. The
large majority of the comments were
submitted by small banks subject to the
interim rule. The Board also has
received comments from state and
national banking associations, Federal
Reserve Banks, state banking
superintendents, bank directors, bank
holding companies, and law firms. In
addition to written comments, the Board
has reviewed the call reports of small
banks and received relevant information
from other governmental agencies.
The Board is hereby extending the
interim rule for three months, through
February 18,1994. The Board finds that
it is necessary to extend the interim rule
in order to prevent any lapse in its
availability while the information
described above is considered. For the
foregoing reasons, the Board for good
cause finds that notice and public
comment is impracticable, and that the
interim rule should be effective
immediately. See 5 U.S.C. 553(b)(B) and
553(d)(3). The effective date of this
extension is November 18,1993.
Resolutions adopted by small banks to
increase their aggregate lending limits
that by their terms expired on May 18,
1993, or will expire on November 18,
1993, will be considered by the Board
to remain in effect through February 18.
1994.




Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5
U.S.C. 601-612) requires an agency to
publish an initial regulatory flexibility
analysis. Two of the requirements of an
initial regulatory flexibility analysis (5
U.S.C 603(b))—na 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
rulemaking—are contained in the
supplementary information above.
Another requirement of an initial
regulatory flexibility analysis is a
description and, where feasible, an
estimate of the number of small entities
to which the interim rule will apply.
The interim rule imposes an additional
reporting requirement upon small banks
that elect to prepare the board of
directors resolution required in order to
establish a higher aggregate lending
limit for themselves. This resolution,
which sets forth the facts and reasoning
on which the board of directors bases its
action, including the amount of the
bank’s lending to its insiders as a
percentage of the bank’s unimpaired
capital and unimpaired surplus as of the
date of the resolution, must be
submitted to the appropriate federal
banking agency (as defined in 12 U.S.C.
1813(q)) with a copy to the Board. The
rulemaking does not duplicate, overlap,
or conflict with other relevant federal
rules.
Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act of 1980, the interim rule
will be reviewed by the Board under
authority delegated by the Office of
Management and Budget after
consideration of the comments received
during the public comment period. 44
U.S.C. 3507; 5 CFR 1320.130. The
interim rule applies to any adequately

61 8 0 3

capitalized bank with deposits under
$100 million that chooses to adopt a
higher aggregate lending limit. As of
December 31,1992, 8,643 banks were
potentially subject to the interim rule.
During the 18-month period in which
the interim rule has been in effect, 48
banks have chosen to adopt this policy,
and it is not expected that this number
will change significantly over the next
three months. For banks that choose to
adopt a higher aggregate lending limit,
the burden per respondent is estimated
to be 0.75 hours. Therefore, the
estimated aggregate burden is not
deemed to be significant.
List of Subjects in 12 CFR Part 215
Credit, Penalties, Reporting and
recordkeeping requirements.
For the reasons set forth in the
preamble, the Board amends title 12 of
the Code of Federal Regulations, part
215, subpart A, 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:
A u th o rity : 12 U .S.C . 2 4 8 (i), 3 7 5 a , 37 5 b ),
I8 1 7 (k ), and 1 972(2)(G )(ii).
2 . Section 215.4 is amended by
removing from paragraph (d)(2)
introductory text the phrase “18-month
period ending November 18,1993” and
adding in its place the phrase “21month period ending February 18,
1 9 9 4 .”
B y o rd er o f th e B o ard o f G overn ors o f the
Fed eral R eserve S y stem , N ovem b er 1 7 ,1 9 9 3 .

W illiam W . W iles,
Secretary' o f the Board.
(FR Doc. 9 3 - 2 8 6 8 6 F ile d 1 1 -2 2 - 9 3 ; 8 :4 5 am )
BILLING CODE 6210-01-P