Definition of Predominantly Minority Neighborhood

RESOLUTION TRUST CORPORATION

12 CFR Part 1630

RIN 3205-AA21

Definition of Predominantly Minority Neighborhood

AGENCY: Resolution Trust Corporation.

ACTION: Interim rule; request for comments.

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SUMMARY: The Resolution Trust Corporation (RTC) is hereby adopting an

interim rule which defines ``predominantly minority neighborhood'' as

used in section 21A(s) of the Federal Home Loan Bank Act (FHLBA) and

section 21A(w)(17) of the FHLBA, as amended by the Resolution Trust

Corporation Completion Act. Section 21A(w)(17) of the FHLBA requires,

among other things, that in considering offers to acquire any insured

depository institution, or any branch of an insured depository

institution, located in a predominantly minority neighborhood (as

defined in regulations prescribed under section 21A(s) of the FHLBA),

the Corporation shall give preference to an offer from any minority

individual, minority-owned business, or a minority depository

institution, over any other offer that results in the same cost to the

Corporation, as determined under section 13(c)(4) of the Federal

Deposit Insurance Act. Section 21A(s) of the FHLBA permits the RTC to

lease to a minority acquiror, on a rent-free basis, subject to certain

conditions, any branch of a failed institution which is located in a

``predominantly minority neighborhood.'' Section 21A(w)(17) of the

FHLBA also generally provides that the RTC may provide to such minority

individual, minority-owned business, or minority depository institution

additional preferences in the form of capital assistance and performing

assets. The interim rule generally defines ``predominantly minority

neighborhood'' as any U.S. Postal Zip Code geographical area in which

50% or more of the persons residing therein are minorities based upon

the most recent Census data, unless the RTC has determined, in its sole

discretion, that other reasonably reliable, readily accessible data

indicates different neighborhood boundaries. The RTC is also seeking

comment on the interim rule.

This interim rule is effective on February 24, 1994.

DATES: Comments must be submitted on or before March 28, 1994.

ADDRESSES: Written comments regarding the interim rule should be

addressed to John M. Buckley, Jr., Secretary, Resolution Trust

Corporation, 801 17th Street, NW., Washington, DC 20434-0001. Comments

may be hand delivered to room 321 on business days between the hours of

9 a.m. and 5 p.m. Comments may also be inspected in the Public Reading

Room, 801 17th Street, NW., during the same business hours. Phone

number: 202-416-6940; FAX number: 202-416-4753.

FOR FURTHER INFORMATION CONTACT:

Robert C. Fick, Counsel, TRC Legal Division, (202) 736-3069; Gregory B.

Smith, Senior Counsel, RTC Legal Division, (202) 736-3013; Mark G.

Flanigan, Senior Attorney, RTC Legal Division, (202) 736-3085; Edward

Thomas, Resolutions Analyst, (202) 416-7179; Sherry Chen, Field

Resolutions Specialist, (202) 416-7209. These are not toll-free

numbers.

SUPPLEMENTARY INFORMATION:

Background

In August 1989, Congress enacted section 501 of the Financial

Institutions Reform, Recovery, and Enforcement Act of 1989, (FIRREA),

(codified as section 21A(b) of the FHLBA, 12 U.S.C. 1441a(b)), which

established the Resolution Trust Corporation (RTC). Pursuant to FIRREA

the RTC has the duty to manage and resolve failed depository

institutions that come under its jurisdiction and to conduct the

operations of the RTC in a manner which ``maximizes the * * * return

from the sale of institutions or assets,'' ``makes efficient use of

funds'' and ``minimizes * * * losses * * * in the resolution of [failed

institutions]''. Section 21A(b)(3) of the FHLBA, as added by section

501(a) of FIRREA. In addition, the RTC is required to resolve all

failed institutions in the ``least costly * * * of all possible

methods'' (collectively Cost Constraints). Section 13(c)(4)(A)(ii) of

the Federal Deposit Insurance Act (FDIA), 12 U.S.C. 1823(c)(4)(A)(ii),

as made applicable by section 21A(b)(4) of the FHLBA, 12 U.S.C.

1441a(b)(4). The RTC is committed, wherever practicable and whenever

consistent with those statutory Cost Constraints, to preserving the

ownership characteristics of historically minority-owned depository

institutions, and to increasing the total number of minority-owned

depository institutions. See, Strategic Plan for the Resolution Trust

Corporation, 54 FR 46574, November 3, 1989.

Section 21A(s) of the FHLBA permits the RTC to make available to an

acquiror which is either a minority depository institution or a women's

depository institution, on a rent-free lease basis for not less than 5

years, any branch of a failed institution which is located in a

``predominantly minority neighborhood.''

Section 21A(w)(17) of the FHLBA, which was added by section 3(a) of

the Resolution Trust Corporation Completion Act, Pub. L. 103-204 (the

Act), provides that in considering offers to acquire any insured

depository institution, or any branch thereof, located in a

``predominantly minority neighborhood'', (as defined in regulations

prescribed under subsection (s)), the RTC shall give preference to an

offer from a minority individual, minority-owned business, or a

minority depository institution (Minority Acquiror), over any other

offer that results in the same cost to the RTC as determined under

section 13(c)(4)(A) of the FDIA.\1\

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\1\This Act also provides, in connection with such an

acquisition, the following additional preferences: (i) the Minority

Acquiror shall be eligible for minority interim capital assistance

under section 21A(u)(1) of the FHLBA, provided that such assistance

is consistent with section 13(c)(4)(A) of the FDIA; (ii) the RTC may

provide to the Minority Acquiror performing assets under the RTC's

control, in addition to those of the depository institution or

branch to be acquired, in an amount not greater than the amount of

the net liabilities carried on the books of the depository

institution or branch and acquired by the Minority Acquiror; and

(iii) such disposition of the performing assets of the failed

depository institution or branch to the Minority Acquiror shall have

a first priority over a disposition by the RTC of such assets for

any other purpose.

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This interim rule defines ``predominantly minority neighborhood''

as used in sections 21A(s) and 21A(w)(17) of the FHLBA as a geographic

area constituting a United States Postal Service 5-digit Zip Code (Zip

Code) in which 50% or more of the persons residing therein are

minorities, based upon the most recent census data, unless the RTC

determines, in its sole discretion, that other reasonably reliable,

readily accessible data indicates different neighborhood boundaries.

The population data and the minority composition of these Zip Codes are

determined using the most recent (currently 1990 data) Census of

Population data (Census Data) collected and published by the U.S.

Department of Commerce, Economics and Statistics Administration, Bureau

of the Census (Census Bureau).

If the institution or a branch thereof is located in a Zip Code

area for which no significant Census Data is available (e.g., a

business district or office building) the Zip Code of a nearby

geographic area served by the institution or branch, for which such

Census Data is available, will be used as its Zip Code for purposes of

this rule. If the RTC determines, in its sole discretion, based upon

other reasonably reliable and readily accessible data, and subject to

RTC's Cost Constraints, that a different delineation would more

accurately reflect the area served by the financial institution or

branch to be marketed, the RTC will use such delineation as the

boundaries for the relevant neighborhood.

There is no legislative history which might provide clear guidance

in developing a definition of ``predominantly minority neighborhood.''

Consequently, except for the word ``minority'' which is statutorily

defined, the definition of ``predominantly minority neighborhood'' was,

therefore, developed based upon the common or ordinary meanings of the

individual words comprising the phrase, the statutory context in which

they have been used, and based upon readily available data.

One of the ordinary meanings of the word ``predominant'' is ``the

most common.'' WEBSTER'S II NEW RIVERSIDE UNIVERSITY DICTIONARY 927

(1988). Since in the context of this statutory framework a neighborhood

can only be either a minority neighborhood or a non-minority

neighborhood, the most common or prevalent of two categories means a

majority or more than half. Moreover, consistent with the legislative

purpose of preserving and promoting minority ownership and service, in

the case of any exact 50% split between the two categories, minorities

should be viewed as predominant. Therefore, if half or more of the

residents of a neighborhood are minorities, that neighborhood is

predominantly minority.

The word ``minority'' is defined by statute to have the meaning

given such term in section 1204(c)(3) of FIRREA. Sections 21A(s) &

21A(w)(17) of the FHLBA. Section 1204(c)(3) of FIRREA defines

``minority'' to mean ``any Black American, Native American, Hispanic

American, or Asian American.'' This interim rule provides a definition

of the word ``minority'' which incorporates the statutory definition

but permits the use of equivalent classifications used by the Census

Bureau in collecting the Census Data. Among other categories, the

Census Bureau collects and publishes population Census Data by State,

County, County subdivision, Place, Zip Code (available on CD-rom or

tape) Census Tract or block numbering area, Block group, and Block.

Each census of the U.S. population provides data on the minority

composition of those areas in a manner which corresponds with the

statutory definition of ``minority'' in FIRREA. The population

classifications utilized in the Census Data for the 1990 census are:

Hispanic origin and the following racial categories: White; Black;

American Indian, Eskimo, or Aleut; Asian or Pacific Islander; and Other

Race. Bureau of the Census, Economics and Statistics Administration,

U.S. Department of Commerce, 1990 CENSUS OF POPULATION, GENERAL

POPULATION CHARACTERISTICS (1992). Since Census Data is readily

available, its use to determine the minority composition of a

particular geographic area is not only reasonable and efficient, but

also consistent with the RTC's statutory Cost Constraints.

The ordinary dictionary meaning of the word ``neighborhood'' is a

district or area with distinctive characteristics. WEBSTER'S II NEW

RIVERSIDE UNIVERSITY DICTIONARY 789 (1988). Neighborhoods vary in size

and can be contained within each other. Since the only reasonably

reliable population data which is readily available on a nationwide

basis is Census Data, it is both reasonable and cost-efficient to

define ``neighborhood'' in terms of the geographic areas utilized by

the Census Bureau. Census Data, including minority composition, is

available for specific geographic areas, including among others, State,

County, County subdivision, Place, Zip Code, Census Tract, Block and

Block group. Census Tracts and Zip Codes appear to be the only such

categories which might approximate the size and characteristics of a

``neighborhood'' served by an ``institution, or any branch''

thereof.\2\

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\2\The RTC has found no indication that an extensive, customized

survey and analysis of the demographics and other characteristics of

the geographic area surrounding each branch of a failed institution

would yield results significantly different from those obtained by

using Census Data and Zip Codes or Census Tracts. In addition,

reliable population data for individually determined areas is not

readily available on a consistent nationwide basis. The nature of

the RTC's statutory Cost Constraints in marketing and selling a

failed depository institution dictates that the identification of

``predominantly minority neighborhoods'' be accomplished with

relative speed and minimal expense. The failed institutions the RTC

resolves suffer significant operating losses on a daily basis. An

increase in those operating losses due to a delay in the resolution

of the institution caused by the implementation of a definition of

``predominately minority neighborhood'' which is difficult and time

consuming to utilize is clearly inconsistent with the RTC's

statutory duties.

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The United States Postal Service has subdivided the United States

and its territories into discrete geographic areas for purposes of the

distribution of mail, and has designated each such area with a 5-digit

numeric Zip Code. See, U.S. Postal Service, 1993 NATIONAL FIVE-DIGIT

ZIP CODE & POST OFFICE DIRECTORY. The individual areas defined by the

Zip Codes generally correspond to a district or area with distinctive

characteristics. The Zip Code itself is one distinctive characteristic

that ties the area and its residents together. Moreover, most Zip Code

areas are further distinguished by the presence of a postal facility

designed to service those neighborhoods. Accordingly, Zip Codes

constitute an existing, comprehensive system for describing areas that

generally approximate neighborhoods.

Individual Census Tracts and Census Blocks, by their nature, do not

appear to be reasonable alternatives to Zip Codes to utilize on a

general basis. According to the Census Bureau, Census Blocks are small

areas bounded on all sides by visible features such as streets, roads,

streams, and railroad tracks, and by invisible boundaries such as city,

town, township, and county limits, property lines, and short, imaginary

extensions of streets and roads. Bureau of the Census, Economics and

Statistics Administration, U.S. Department of Commerce, 1990 CENSUS OF

HOUSING, GENERAL HOUSING CHARACTERISTICS (1992). Individual Census

Blocks because of their size appear to be inappropriate for determining

the boundaries of a neighborhood served by a financial institution, or

a branch thereof on a general basis. Census Tracts,\3\ although larger

than Census Blocks, are small, relatively permanent statistical

subdivisions of a country which usually have between 2,500 and 8,000

persons, and when first delineated, are designed to be homogeneous with

respect to population characteristics, economic status, and living

conditions. Bureau of the Census, Economics and Statistics

Administration, U.S. Department of Commerce, 1990 CENSUS OF HOUSING,

GENERAL HOUSING CHARACTERISTICS (1992).

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\3\Starting with the 1990 Census those areas which are not

covered by Census Tracts have been subdivided into ``Block Numbering

Areas'' (BNA's). These BNA's are essentially the equivalent of

Census Tracts, except that they have been delineated by a State

agency instead of a local committee.

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Individual Census Tracts or Census Blocks are generally impractical

for use in defining the boundaries of a neighborhood served by a

financial institution, or a branch thereof, on a generally uniform

basis and are inconsistent with the spirit of the legislation. However,

use of Census Tracts or Census Blocks on an individual or aggregate

basis may be appropriate on an exception basis. The Act is intended to

enhance opportunities for Minorities to acquire institutions and

branches which primarily ``serve'' Minority residents. 139 Cong. Rec.

H10899-900 (daily ed. November 22, 1993) (statement of Rep. Mfume). The

people served by a depository institution or branch may be located over

a relatively large geographic area, generally transcending Census Block

boundaries and, most likely, Census Tract boundaries as well. Census

Tracts and Census Blocks tend to be small areas, focused only on

residences and are generally not focused on all residential

neighborhoods served by a local financial institution, or a branch

office thereof.

The Zip Codes (and the boundaries thereof) of offices of a failed

institution tend to be larger areas and are readily ascertainable both

by RTC personnel and by potential bidders. Such is not the case for

Census Tracts. The addresses of each of the offices of a failed

institution already contain the Zip Code, and the boundaries of each

Zip Code area are available at the local Post Office.

Notwithstanding the obvious advantages of a definition based on

fixed methodology, circumstances may arise where that approach fails to

accurately reflect the reality of the relevant neighborhood. For

example, if an institution or branch is physically located within Zip

Code 00001, near the boundary with Zip Code 00002, a mechanical

application of the Zip Code approach would indicate that the branch

serves customers in the neighborhood defined by Zip Code 00001. Or for

example, a rigid application of the Zip Code approach to the individual

offices of an institution might preclude the designation of the whole

institution as being located in a predominantly minority neighborhood,

although other rational bases might exist for a determination that the

institution as a whole is located in a predominantly minority

neighborhood. Therefore, rather than rigidly applying the Zip Code

approach, if the RTC determines, in its sole discretion and subject to

its Cost Constraints, that other reasonably reliable information and

data, that is readily accessible to it, indicates different boundaries

which more accurately reflect the relevant neighborhood, the RTC may

define the relevant neighborhood in terms of those different

boundaries.

Conclusion

The RTC's definition of ``predominantly minority neighborhood'' is

based on readily available, established and accepted information: Zip

Codes and Census Data. A ``predominantly minority neighborhood'' can,

therefore, be identified using existing, objective standards: (1) A Zip

Code to define the geographic area which generally constitutes the

neighborhood and (2) Census Data to determine the minority composition

of that neighborhood. In the event that the RTC, in its sole

discretion, determines that other reasonably reliable information and

data, that is readily accessible to it, indicates more accurate

boundaries for such neighborhood, the RTC will define such neighborhood

using those more accurate boundaries. The proposed definition permits

the RTC to quickly identify ``predominantly minority neighborhoods''

without delaying the resolution of an institution consistent with the

RTC's statutory Cost Constraints. The methodology adopted by this

interim rule constitutes a reasonable basis upon which to define

``predominantly minority neighborhood'' consistent with the purposes of

sections 21A(s) and (w)(17) of the FHLBA and consistent with the RTC's

duties in resolving failed institutions.

Administrative Procedure Act

The RTC is adopting this rule as an interim rule. It will be

effective immediately upon publication in the Federal Register without

the usual notice and comment period or delayed effective date as

provided for in the Administrative Procedure Act, 5 U.S.C. 553. These

requirements may be waived for ``good cause.'' The definition provided

by the interim rule implements the Act. Promulgation of the rule on an

expedited basis is necessary to permit the immediate implementation of

the new statute in order to avoid the additional losses that would

otherwise be incurred due to the delay in the resolution of failed

institutions pending the usual delayed effective date. Thus, the RTC

finds that the benefits to the public in adopting the interim rule

outweigh any possible harm resulting from not seeking comment on the

proposed rule in advance of its effective date. The RTC actively

solicits comment on this interim rule and will consider those comments

in the adoption of the rule as final.

Initial Regulatory Flexibility Analysis

As required by the Regulatory Flexibility Act, 5 U.S.C. 601, et

seq., the following initial regulatory flexibility analysis is

provided:

1. Reasons, objectives, and legal bases underlying the interim

rule. These elements have been discussed above in the Supplementary

Information section.

2. Small entities to which the rule would apply. This rule applies

equally to acquiring institutions of all sizes inasmuch as the RTC has

been given no discretion in this matter by Congress.

3. Impact of the interim rule on small businesses. There is no

burden imposed on small businesses by this rule which merely defines,

pursuant to Congressional direction, a term utilized in the statute.

4. Overlapping or conflicting federal rules. There are no known

federal rules that overlap, duplicate, or conflict with the interim

rule.

5. Alternatives to the interim rule. The RTC has not identified

alternatives that would be less burdensome to small businesses and yet

effectively accomplish the objectives of the rule because there is no

burden imposed on small business.

Request for Public Comment

The RTC is issuing this interim rule in response to statutory

direction to define ``predominantly minority neighborhood.'' The RTC

is, however, hereby requesting comment during a 30-day comment period

on all aspects of the interim rule.

List of Subjects in 12 CFR Part 1630

Savings associations.

For the reasons set out in the preamble, the RTC hereby adds part

1630 to title 12, chapter XVI of the Code of Federal Regulations, to

read as follows:

PART 1630--DEFINITION OF PREDOMINANTLY MINORITY NEIGHBORHOOD

Sec.

1630.1 Purpose and scope.

1630.2 Definitions.

1630.3 Predominantly minority neighborhood.

Authority: 12 U.S.C. 1441a(b)(11), (s) and (w)(17).

Sec. 1630.1 Purpose and scope.

The provisions of this part define ``predominantly minority

neighborhood'' for the marketing, sale and resolution of depository

institutions, and branches thereof, by the Resolution Trust Corporation

(RTC) under the rent-free lease provisions of section 21A(s) of the

Federal Home Loan Bank Act (FHLBA) and the minority preference

provisions of section 21A(w)(17) of the FHLBA.

Sec. 1630.2 Definitions.

(a) Branch means a domestic branch as defined in section 3(o) of

the Federal Deposit Insurance Act, as amended, 12 U.S.C. 1813(o).

(b) Census Bureau means the U.S. Department of Commerce, Economics

and Statistics Administration, Bureau of the Census.

(c) Census Data means the population data, including without

limitation the composition by Race and Hispanic origin of each U.S.

Postal Service Zip Code area, provided by the Census Bureau for the

most recent Census of Population.

(d) Minority means, any Black American, Native American, Hispanic

American, or Asian American, as specified in section 1204(c)(3) of the

Financial Institutions Reform, Recovery and Enforcement Act of 1989 as

utilized in sections 21A(s) and (w)(17) of the Federal Home Loan Bank

Act (12 U.S.C. 1441a) or such other equivalent classifications, as

determined by the Resolution Trust Corporation, including, without

limitation, those used by the Census Bureau for the most recent Census

Data.

(e) Race means a racial classification used by the Census Bureau

pursuant to the guidelines in Federal Statistical Directive No. 15

issued by the Office of Management and Budget, which provides standards

on ethnic and racial categories for statistical reporting to be used by

all Federal agencies. The OMB directive is available from Office of

Administration, EOP Publications, 725 17th Street, NW., room 2200, New

EOB, Washington, DC 20503.

(f) RTC means the Resolution Trust Corporation, in its corporate,

conservatorship or receivership capacities, as applicable.

(g) U.S. Postal Service Zip Code means a five-digit numeric code

that identifies a specific geographic area within the United States and

its territories which is used by the U.S. Postal Service for the

distribution of mail.

Sec. 1630.3 Predominantly minority neighborhood.

The phrase ``predominantly minority neighborhood'' as used in

sections 21A(s), (w)(17) of the Federal Home Loan Bank Act, means an

area delineated by the geographical boundaries of a U.S. Postal Service

Zip Code, in which, according to the most recent Census Data, 50% or

more of the residential population is Minority; unless a different

geographic area has been determined by the RTC, in its sole discretion,

based on readily accessible and reasonably reliable information and

data, to more accurately represent an area having distinctive or shared

characteristics, that is served by the institution, or Branch thereof,

being marketed by the RTC, in which 50% or more of the population is

Minority.

By order of the Chief Executive Officer.

Dated at Washington, DC, this 18th day of February 1994.

Resolution Trust Corporation.

John M. Buckley, Jr.,

Secretary.

[FR Doc. 94-4184 Filed 2-22-94; 11:32 am]

BILLING CODE 6714-01-M