Expanded Examination Cycle for Certain Small Insured Depository Institutions and U.S. Branches and Agencies of Foreign Banks
| Published date | 28 December 2018 |
| Citation | 83 FR 67033 |
| Record Number | 2018-28267 |
| Section | Rules and Regulations |
| Court | The Comptroller Of The Currency Office |
Federal Register, Volume 83 Issue 248 (Friday, December 28, 2018)
[Federal Register Volume 83, Number 248 (Friday, December 28, 2018)]
[Rules and Regulations]
[Pages 67033-67035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-28267]
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Rules and Regulations
Federal Register
________________________________________________________________________
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.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 83, No. 248 / Friday, December 28, 2018 /
Rules and Regulations
[[Page 67033]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 4
[Docket ID OCC-2018-0014]
RIN 1557-AE37
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 211
[Docket No. R-1615]
RIN 7100-AF09
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Parts 337 and 347
RIN 3064-AE76
Expanded Examination Cycle for Certain Small Insured Depository
Institutions and U.S. Branches and Agencies of Foreign Banks
AGENCY: Office of the Comptroller of the Currency (OCC), Treasury;
Board of Governors of the Federal Reserve System (Board); and Federal
Deposit Insurance Corporation (FDIC).
ACTION: Final rules.
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SUMMARY: On August 29, 2018, the OCC, Board, and FDIC (collectively,
the agencies) issued interim final rules that were effective
immediately to implement section 210 of the Economic Growth, Regulatory
Relief, and Consumer Protection Act (Economic Growth Act), which was
enacted on May 24, 2018. The agencies are now adopting the interim
final rules as final without change. The interim final rules and final
rules implement section 210 of the Economic Growth Act, which amended
section 10(d) of the Federal Deposit Insurance Act (FDI Act) to permit
the agencies to examine qualifying insured depository institutions
(IDIs) with under $3 billion in total assets not less than once during
each 18-month period. In addition, these final rules adopt as final the
parallel changes to the agencies' regulations governing the on-site
examination cycle for U.S. branches and agencies of foreign banks,
consistent with the International Banking Act of 1978 (IBA).
DATES: These final rules are effective on January 28, 2019.
FOR FURTHER INFORMATION CONTACT:
OCC: Enice Thomas, Senior Advisor to Senior Deputy Comptroller,
Midsize and Community Bank Supervision, (202) 649-5420; and Deborah
Katz, Assistant Director, Melissa J. Lisenbee, Senior Attorney, or
Christopher Rafferty, Attorney, Chief Counsel's Office, (202) 649-5490;
for persons who are deaf or hearing impaired, TTY, (202) 649-5597.
Board: Division of Supervision and Regulation--Richard Naylor,
Associate Director, (202) 728-5854; Jonathan Rono, Manager, (202) 721-
4568; Assetou Traore, Supervisory Financial Analyst, (202) 974-7066;
Virginia Gibbs, Manager, (202) 452-2521; or Alexander Kobulsky,
Supervisory Financial Analyst, (202) 452-2031; and Legal Division--
Laurie Schaffer, Associate General Counsel, (202) 452-2277; Victoria
Szybillo, Senior Counsel, (202) 475-6325; or Mary Watkins, Senior
Attorney, (202) 452-3722.
FDIC: Policy Branch Division of Risk Management and Supervision--
Thomas F. Lyons, Chief, Policy and Program Development, (202) 898-6850,
tlyons@FDIC.gov; Karen J. Currie, Senior Examination Specialist, (202)
898-3981, Policy and Program Development, Division of Risk Management
Supervision; Legal Division--Suzanne J. Dawley, Counsel, (202) 898-
6509; or Gregory S. Feder, Counsel, (202) 898-8724.
SUPPLEMENTARY INFORMATION:
I. Background
Section 210 of the Economic Growth Act \1\ amended section 10(d) of
the FDI Act \2\ to permit the agencies to examine qualifying IDIs
(generally, those IDIs that are well capitalized and well managed) with
under $3 billion in total assets not less than once during each 18-
month period, rather than not less than once during each 12-month
period. Prior to the enactment of the Economic Growth Act, only
qualifying IDIs with under $1 billion in total assets were eligible for
an 18-month on-site examination cycle.\3\
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\1\ Public Law 115-174, 132 Stat. 1296 (2018).
\2\ 12 U.S.C. 1820(d).
\3\ See section 83001 of the Fixing America's Surface
Transportation Act (the FAST) Act, enacted on December 4, 2015.
Public Law 114-94, 129 Stat. 1312 (permitting the agencies to
examine qualifying IDIs with under $1 billion in total assets not
less than once during each 18-month period). The agencies published
interim final rules implementing the FAST Act amendments in February
2016, and final rules in December 2016. See 81 FR 10069 (Feb. 29,
2016) and 81 FR 90949 (Dec. 16. 2016), respectively, codified at 12
CFR 4.6 and 4.7 (OCC), 12 CFR 208.64 and 211.26 (Board), 12 CFR
337.12 and 347.211 (FDIC).
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On August 29, 2018, the agencies issued interim final rules to
implement the Economic Growth Act's amendments to sections 10(d)(4) and
10(d)(10) of the FDI Act \4\ that allow qualifying IDIs with under $3
billion in total assets to benefit from the extended 18-month
examination cycle. In addition, the interim final rules made parallel
changes to the agencies' regulations governing the on-site examination
cycle for U.S. branches and agencies of foreign banks, consistent with
the IBA.\5\
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\4\ 12 U.S.C. 1820(d)(4) and 1820(d)(10).
\5\ 12 U.S.C. 3105(c)(1)(C).
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Section 10(d)(1) of the FDI Act \6\ generally requires the
appropriate Federal banking agency for an IDI \7\ to conduct a full-
scope, on-site examination of an IDI at least once during each 12-month
period. With the enactment of section 210 of the Economic Growth Act,
section 10(d)(4) of the FDI Act authorizes the appropriate Federal
banking agency to extend the on-site examination cycle for an IDI to at
least once during an 18-month period if the IDI (1) has total assets of
less than $3 billion; (2) is well capitalized (as defined in 12 U.S.C.
1831o (prompt corrective action)); (3) was found, at its most recent
examination, to be well managed \8\ and
[[Page 67034]]
to have a composite condition of ``outstanding'' or, in the case of an
IDI with total assets of not more than $200 million, ``outstanding'' or
``good;'' (4) is not subject to a formal enforcement proceeding or
order by the FDIC or its appropriate Federal banking agency; and (5)
has not undergone a change in control during the previous 12-month
period in which a full-scope, on-site examination otherwise would have
been required. The Economic Growth Act also amended section 10(d)(10)
of the FDI Act to give each appropriate Federal banking agency
discretionary authority to extend eligibility for an 18-month
examination cycle, by regulation, to qualifying IDIs with an
``outstanding'' or ``good'' composite condition and total assets not
greater than $3 billion, if the agency determines that this amount
would be consistent with the principles of safety and soundness for
IDIs.\9\
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\6\ 12 U.S.C. 1820(d)(1).
\7\ The Board, FDIC, or OCC. See 12 U.S.C. 1813(q).
\8\ IDIs are evaluated under the Uniform Financial Institutions
Rating System (commonly referred to as CAMELS). CAMELS is an acronym
that is drawn from the first letters of the individual components of
the rating system: Capital adequacy, Asset quality, Management,
Earnings, Liquidity, and Sensitivity to market risk. CAMELS ratings
of ``1'' and ``2'' correspond with ratings of ``outstanding'' and
``good,'' respectively. In addition to having a CAMELS composite
rating of ``1'' or ``2,'' an IDI is considered to be ``well
managed'' for the purposes of section 10(d) of the FDI Act only if
the IDI also received a rating of ``1'' or ``2'' for the management
component of the CAMELS rating at its most recent examination. See
72 FR 17798 (Apr. 10, 2007).
\9\ The Board and the FDIC, as the appropriate Federal banking
agencies for State-chartered insured banks and savings associations,
are permitted to conduct on-site examinations of such IDIs on
alternating 12-month or 18-month periods with an IDI's State
supervisor, if the Board or FDIC, as appropriate, determines that
the alternating examination conducted by the State carries out the
purposes of section 10(d) of the FDI Act. 12 U.S.C. 1820(d)(3).
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In addition, section 7(c)(1)(C) of the IBA provides that a Federal
or a State branch or agency of a foreign bank shall be subject to on-
site examination by its appropriate Federal banking agency or State
bank supervisor as frequently as a national or State bank would be
subject to such an examination by the agency.
II. Description of the Final Rules
The agencies received three comment letters addressing the interim
final rules, two from trade associations and one from a multi-bank
financial holding company. All three letters were supportive of the
interim final rules.
After considering the comments on the interim final rules, the
agencies are adopting the interim final rules as final without change.
The final rules, like the interim final rules implement section
10(d)(4) of the FDI Act to increase, from $1 billion to $3 billion, the
total asset threshold under which an agency may apply an 18-month on-
site examination cycle for qualified IDIs that have an ``outstanding''
composite rating.
The agencies also are exercising their discretionary authority
under section 10(d)(10) of the FDI Act to extend eligibility for an 18-
month examination cycle, by regulation, to qualifying IDIs with an
``outstanding'' or ``good'' composite rating with total assets under $3
billion. The agencies have determined that increasing the maximum asset
amount limitation for qualifying IDIs with less than $3 billion in
total assets is consistent with the principles of safety and soundness.
In determining whether the reduction in examination frequency is
consistent with the principles of safety and soundness for such IDIs,
the agencies considered several factors. The agencies acknowledge that
extending the examination cycle could make it more likely that there
will be a delay in an agency's ability to detect deterioration in an
IDI's performance. However, the agencies believe that extending the
examination cycle from 12 months to 18 months for these small IDIs with
relatively simple risk profiles should not appreciably increase their
risk of financial deterioration or failure. In addition, the agencies
will continue their off-site monitoring activities and have the ability
to examine IDIs more frequently as necessary or appropriate. The
agencies also note that, in order to qualify for an 18-month
examination cycle, any IDI with total assets under $3 billion--
including one with a composite rating of ``good''--must meet the other
capital, managerial, and supervisory criteria set forth in section
10(d) of the FDI Act and the agencies' implementing regulations.
Considering the agencies' off-site monitoring activities; their
discretion to examine IDIs more frequently as necessary; and the
capital, managerial, and supervisory criteria in section 10(d) of the
FDI Act, the agencies believe that increasing the maximum asset amount
limitation for IDIs from less than $1 billion to less than $3 billion
is consistent with the principles of safety and soundness.
Additionally, the agencies expect that this increase will allow the
agencies to better focus their supervisory resources on the IDIs and
U.S. branches and agencies of foreign banks (collectively, financial
institutions) that may present capital, managerial, or other issues of
supervisory concern, and therefore, the final rules have the potential
to enhance safety and soundness collectively for all financial
institutions. The agencies will continue to monitor financial
institutions in this asset range between examinations and the impact of
the extended examination cycle.
In accordance with section 7(c)(1)(C) of the IBA, the agencies also
are finalizing conforming changes to their regulations governing the
on-site examination cycle for the U.S. branches and agencies of foreign
banks. For the same reasons as discussed above with respect to
qualifying IDIs, the agencies believe that extending similar treatment
to qualifying U.S. branches and agencies of foreign banks is consistent
with the principles of safety and soundness.
Based on data available at publication, the agencies estimate that
the number of banks and savings associations that may qualify for an
extended 18-month examination cycle increased by approximately 430 (241
of which are supervised by the FDIC, 99 by the OCC, and 90 by the
Board), bringing the total number to 4,706 banks and savings
associations since the interim rules took effect.\10\ Approximately 30
U.S. branches and agencies of foreign banks would be eligible for the
extended examination cycle based on the final rules (2 of which are
supervised by the FDIC, 8 by the OCC, and 20 by the Board).\11\
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\10\ Call Report data, Sept. 30, 2018.
\11\ Id.
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For all the reasons described above, the agencies are adopting the
interim final rules as final without change.
Effective Date
The Administrative Procedure Act (APA) generally requires that a
final rule be published in the Federal Register no less than 30 days
before its effective date.\12\ Therefore, the final rules will become
effective on January 28, 2019. The interim final rules will continue to
be in effect until the final rules become effective.
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\12\ 5 U.S.C. 553(d).
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Section 302 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (RCDRIA) requires that each Federal banking
agency, in determining the effective date and administrative compliance
requirements for new regulations that impose additional reporting,
disclosures, or other requirements on IDIs, consider, consistent with
the principles of safety and soundness and the public interest, any
administrative burdens that such regulations would place on depository
institutions, including small depository institutions, and customers of
depository institutions, as well as the benefits of such
regulations.\13\ Further, new regulations that impose additional
reporting, disclosures, or other new requirements on IDIs generally
must 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.\14\ The RCDRIA does not apply to the final rules because the
rules do not impose any additional reporting,
[[Page 67035]]
disclosures, or other new requirements on IDIs.
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\13\ 12 U.S.C. 4802(a).
\14\ 12 U.S.C. 4802(b).
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III. Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act \15\ requires the Federal
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000. The agencies' staff believe the final
rules are presented in a simple and straightforward manner. Having
received no comments with respect to making the interim final rules
easier to understand, the agencies are adopting the final rules without
change.
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\15\ Public Law 106-102, section 722, 113 Stat. 1338, 1471
(1999).
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IV. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) \16\ requires an agency to
consider whether the rules it proposes will have a significant economic
impact on a substantial number of small entities.\17\ The RFA applies
only to rules for which an agency publishes a general notice of
proposed rulemaking pursuant to 5 U.S.C. 553(b). As discussed in the
joint interim final rules, consistent with section 553(b)(B) of the
APA, the agencies determined for good cause that general notice and
opportunity for public comment was unnecessary, and therefore the
agencies did not issue a notice of proposed rulemaking. Accordingly,
the agencies have concluded that the RFA's requirements relating to
initial and final regulatory flexibility analysis do not apply.
Further, the agencies note that no small entities, as defined by the
Small Business Administration's rules implementing the RFA, will be
affected by the final rules' increased asset thresholds.
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\16\ 5 U.S.C. 601 et seq.
\17\ Under regulations issued by the Small Business
Administration, a small entity includes a depository institution,
bank holding company, or savings and loan holding company with total
assets of $550 million or less and trust companies with total assets
of $38.5 million or less.
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V. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 \18\ states that no agency may
conduct or sponsor, nor is the respondent required to respond to, an
information collection unless it displays a currently valid Office of
Management and Budget (OMB) control number. Because the final rules do
not create a new, or revise an existing, collection of information, no
information collection request submission needs to be made to the OMB.
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\18\ 44 U.S.C. 3501-3521.
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VI. OCC Unfunded Mandates Reform Act of 1995 Determination
Consistent with section 202 of the Unfunded Mandates Reform Act of
1995 (UMRA), before promulgating any final rule for which a general
notice of proposed rulemaking was published, the OCC prepares an
economic analysis of the final rules. Because the OCC determined that
the publication of a general notice of proposed rulemaking was
unnecessary, the OCC has not prepared an economic analysis of the joint
final rules under UMRA.
List of Subjects
12 CFR Part 4
Administrative practice and procedure, Freedom of information,
Individuals with disabilities, Minority businesses, Organization and
functions (Government agencies), Reporting and recordkeeping
requirements, Women.
12 CFR Part 208
Accounting, Agriculture, Banks, banking, Confidential business
information, Crime, Currency, Federal Reserve System, Flood insurance,
Mortgages, Reporting and recordkeeping requirements, Safety and
soundness, Securities.
12 CFR Part 211
Exports, Federal Reserve System, Foreign banking, Holding
companies, Investments, Reporting and recordkeeping requirements.
12 CFR Part 337
Banks, banking, Reporting and recordkeeping requirements, Savings
Associations.
12 CFR Part 347
Authority delegations (Government agencies), Bank deposit
insurance, Banks, banking, Credit, Foreign banking, Investments,
Reporting and recordkeeping requirements, U.S. investments abroad.
Office of the Comptroller of the Currency
12 CFR Chapter I
PART 4--ORGANIZATION AND FUNCTIONS, AVAILABILITY AND RELEASE OF
INFORMATION, CONTRACTING OUTREACH PROGRAM, POST-EMPLOYMENT
RESTRICTIONS FOR SENIOR EXAMINERS
0
The interim final rule amending 12 CFR part 4 of chapter I, title 12 of
the Code of Federal Regulations, which was published at 83 FR 43961 on
August 29, 2018, is adopted as a final rule without change.
FEDERAL RESERVE SYSTEM
12 CFR Chapter II
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL
RESERVE SYSTEM (REGULATION H)
PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)
0
The interim final rule amending parts 208 and 211 of chapter II, title
12 of the Code of Federal Regulations, which was published at 83 FR
43961 on August 29, 2018, is adopted as a final rule without change.
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Chapter III
PART 337--UNSAFE AND UNSOUND BANK PRACTICES
PART 347--INTERNATIONAL BANKING
0
The interim final rule amending parts 337 and 347 of chapter III of
title 12 of the Code of Federal Regulations, which was published at 83
FR 43961 on August 29, 2018, is adopted as a final rule without change.
Dated: December 13, 2018.
Joseph M. Otting,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System.
Ann E. Misback,
Secretary to the Board.
Dated at Washington, DC, on December 18, 2018.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
[FR Doc. 2018-28267 Filed 12-27-18; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P
