Determination of Economically Depressed Regions

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 357

RIN 3064-AB08

Determination of Economically Depressed Regions

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Proposed rule and withdrawal of proposed rule.

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SUMMARY: As part of the FDIC's systematic review of its regulations

under section 303(a) of the Riegle Community Development and Regulatory

Improvement Act of 1994 (CDRI), the FDIC is amending its regulation on

economically depressed regions to reflect changes in the marketplace,

update and streamline the regulation, improve efficiency, and reduce

unnecessary costs. The FDIC also is withdrawing a previous proposed

amendment to the regulation which was published December 18, 1992.

[[Page 40757]]

The FDIC is required by statute to consider proposals for direct

financial assistance by Savings Association Insurance Fund (SAIF)

members having offices located in an economically depressed region and

meeting certain other specified criteria, before grounds exist for the

appointment of a conservator or receiver for the institution. The FDIC

is proposing to amend this regulation, which designates certain

economically depressed regions, by adding guidance to enable applicants

to evaluate their situations before formally applying for assistance.

Rather than periodically designating specific regions in light of

current economic conditions, the proposed rule provides the criteria

that the FDIC will use to determine which regions are economically

depressed.

DATES: Comments must be received by October 7, 1996.

ADDRESSES: Send comments to Jerry L. Langley, Executive Secretary,

FDIC, 550 17th Street, N.W., Washington, DC 20429. Comments may be

hand-delivered to room F-400, 1776 F Street, N.W., Washington, DC

20429, on business days between 8:30 a.m. and 5:00 p.m.; or sent by

facsimile: (202) 898-3838; or by Internet: [email protected] Comments

may be inspected and photocopied in the FDIC Public Information Center,

room 100, 801 17th Street, N.W., Washington, DC 20429, between 9:00

a.m. and 5:00 p.m. on business days.

FOR FURTHER INFORMATION CONTACT: James L. Freund, Chief, Economic

Analysis Section, Division of Research and Statistics, (202) 898-3960,

FDIC, 550 17th Street, N.W., Washington, DC 20429; Michael Phillips,

Counsel, Legal Division, (202) 898-3581, FDIC, 550 17th Street, N.W.,

Washington, DC 20429; or Sandra Comenetz, Counsel, Legal Division,

(202) 898-3582, FDIC, 550 17th Street, N.W., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The proposed rule does not require any collections of paperwork

pursuant to section 3504(h) of the Paperwork Reduction Act (44 U.S.C.

3501 et seq.). Accordingly, no information has been submitted to the

Office of Management and Budget for review.

Regulatory Flexibility Act

Pursuant to section 605(b) of the Regulatory Flexibility Act (5

U.S.C. 601 et seq.), it is certified that the proposed rule will not

have a significant economic impact on a substantial number of small

entities. The rule per se does not impose regulatory compliance

requirements on depository institutions of any size beyond that imposed

by the underlying statute. Moreover, no institutions have filed

assistance proposals since 1990 when the rule was first promulgated.

Discussion

The FDIC is conducting a systematic review of its regulations and

written policies. Section 303(a) of the CDRI (12 U.S.C. 4803(a))

requires each federal banking agency to streamline and modify its

regulations and written policies in order to improve efficiency, reduce

unnecessary costs, and eliminate unwarranted constraints on credit

availability. Section 303(a) also requires each federal banking agency

to remove inconsistencies and outmoded and duplicative requirements

from its regulations and written policies.

As part of this review, the FDIC has determined that part 357 of

its rules and regulations (12 CFR part 357) should be amended to

minimize the cost of implementing the regulation, make it more flexible

regarding market standards, and give institutions more opportunity to

establish that they are located in an economically depressed region.

The FDIC has authority under section 13(c) of the Federal Deposit

Insurance Act (FDI Act) (12 U.S.C. 1823(c)) to provide financial

assistance to prevent the default of an insured depository institution.

Under section 13(k)(5) of the FDI Act (12 U.S.C. 1823(k)(5)), the FDIC

must consider proposals for eligible SAIF member institutions to

receive assistance pursuant to section 13(c) before grounds exist for

the appointment of a conservator or receiver for the institution.

Section 13(k)(5) establishes nine criteria for such eligibility. One of

the criteria is that an institution's offices must be located in an

economically depressed region. In addition, for purposes of assistance

proposals under section 13(k)(5), SAIF member applicants must

separately meet the criteria set by the FDIC for purposes of section

13(c) assistance. However, assistance proposals with respect to SAIF

member institutions under section 13(k)(5) that do not meet all nine of

the criteria set forth in that section may nevertheless be submitted to

the FDIC for consideration under section 13(c). Thus, institutions

whose offices are not located in an economically depressed region under

section 13(k)(5) are not precluded from proposing and receiving open

institution assistance.

The term ``economically depressed region'' is defined in section

13(k)(5)(c) to mean any geographical region which the [FDIC] determines

by regulation to be a region within which real estate values have

suffered serious decline due to severe economic conditions, such as a

decline in energy or agricultural values or prices.

On September 17, 1990, the FDIC issued a final rule (55 FR 38043)

codified at 12 CFR 357.1, which determined that certain geographical

regions were economically depressed regions for purposes of section

13(k)(5) of the FDI Act. In determining which regions were economically

depressed, the FDIC considered the following factors: (1) The ratio of

poor quality real estate assets to total assets in the portfolios of

BIF members; (2) the ratio of poor quality real estate assets to total

assets in the portfolios of SAIF members; and (3) unemployment figures.

The statewide percentages of impaired real estate assets for BIF and

SAIF members and unemployment rates were analyzed with reference to

national levels. These factors are subject to periodic review and

application by the FDIC in light of changing economic conditions.

The FDIC's final rule designated eight individual states as

economically depressed regions for purposes of section 13(k)(5) of the

FDI Act. They were: Alaska, Arizona, Arkansas, Colorado, Louisiana, New

Mexico, Oklahoma, and Texas.

Two years later, having reexamined real estate and employment

conditions based on the most recent information, the FDIC determined

that the eight states previously designated as economically depressed

regions should no longer receive that designation. The FDIC concluded

that the following nine states and the District of Columbia should be

classified as economically depressed regions: California, Connecticut,

Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode

Island, and Vermont. In December 1992, the FDIC published this list of

states in a proposed rule (57 FR 60140, December 18, 1992). The FDIC

had considered, as before, the ratio of poor quality real estate assets

to total assets in the portfolios of BIF and SAIF members, and the

labor market situation. The FDIC considered both the overall

unemployment rate and non-farm employment growth trends.

The December 1992 proposed rule was never adopted, and will be

withdrawn pursuant to an FDIC policy statement which provides that any

proposed rule that has not been the subject of final Board action

within nine months generally should be withdrawn. Statement of Policy

on Development

[[Page 40758]]

and Review of FDIC Rules and Regulations, 49 FR 7288 (Feb. 28, 1984).

Rather than periodically revisiting the criteria used to identify

regions for designation as economically depressed regions, and listing

regions so designated, the FDIC is proposing to revise part 357 to

provide guidance to enable applicants to evaluate their situations

before formally applying for assistance. The proposed rule provides the

criteria the FDIC will use to determine which regions are economically

depressed. Adoption of the rule would mean that the FDIC will no longer

periodically designate specific regions in light of current economic

conditions.

Under the proposed rule, for the purpose of determining

economically depressed areas, the FDIC generally will consider states

as the defined geographical unit. The FDIC will determine whether an

institution qualifies as being located in an economically depressed

region on a case-by-case basis. That determination will be based on

four criteria: (1) high unemployment rates; (2) declines in non-farm

employment; (3) high levels of problem real estate assets at insured

depository institutions; and (4) where a sufficient number of

observations are reported, evidence indicating declining real estate

values from the FDIC's Survey of Real Estate Trends. All data used will

be from statistical sources available to the public. A list of these

data sources is provided in the attached Appendix. Because there are

significant industrial and labor market structural differences across

areas of the United States, national or state benchmarks are not

provided with respect to each of the aforementioned four criteria. This

enables the FDIC to more accurately determine whether a region is

depressed based on specific criteria relevant to an institution's

market area at any time. For example, the FDIC will consider relevant

information provided by institutions on local real estate prices and on

the institution's market area, whether limited to a part of a state or

covering more than one state.

In consideration of the foregoing, the FDIC hereby withdraws the

proposed rule published at 57 FR 60140, December, 18, 1992.

List of Subjects in 12 CFR Part 357

Bank deposit insurance, Grant programs--housing and community

development, Savings associations.

For the reasons set forth in the preamble, part 357 of chapter III

of title 12 of the Code of Federal Regulations is proposed to be

amended as follows:

PART 357--DETERMINATION OF ECONOMICALLY DEPRESSED REGIONS

1. The authority citation for part 357 is revised to read as

follows:

Authority: 12 U.S.C. 1819, 1823(k)(5).

2. Section 357.1 is amended by revising paragraph (b) to read as

follows:

Sec. 357.1 Economically depressed regions.

* * * * *

(b) Economically depressed regions. (1) For the purpose of

determining economically depressed areas, the FDIC in general shall

consider states as the defined geographical unit. The FDIC shall

determine whether an institution qualifies as being located in an

economically depressed area on a case-by-case basis. That determination

will be based on four criteria:

(i) High unemployment rates;

(ii) Significant declines in non-farm employment;

(iii) High delinquency rates of real estate assets at insured

depository institutions; and

(iv) Where a sufficient number of observations are reported,

evidence indicating declining real estate values from the FDIC's Survey

of Real Estate Trends.

(2) All data sources used are in the public record. The appendix to

this part contains a list of such data sources. In addition, the FDIC

will consider relevant information provided by institutions on local

real estate prices and on the institution's market area, whether

limited to a part of a state or covering more than one state.

3. Appendix A to part 357 is added to read as follows:

Appendix A to Part 357--Data Sources Used by the FDIC To Determine

``Economically Depressed Regions''

1. Non-farm employment and unemployment rates. U.S. Department

of Labor, Bureau of Labor Statistics, ``Employment and Earnings,''

Table B.7, Employees on Non-Farm Payrolls by State and Major

Industry; ``Labor Force Status by State,'' Table C.2. Washington, DC

(monthly).

2. Problem real estate assets (noncurrent real estate loans and

leases plus other real estate owned). Federal Financial Institutions

Examination Council, ``FFIEC Call Report.'' Washington, DC

(quarterly).

3. Regional real estate values. Federal Deposit Insurance

Corporation, ``Survey of Real Estate Trends.'' Washington, DC

(quarterly).

By order of the Board of Directors.

Dated at Washington, DC, this 16th day of July 1996.

Federal Deposit Insurance Corporation.

Jerry L. Langley,

Executive Secretary.

[FR Doc. 96-19810 Filed 8-5-96; 8:45 am]

BILLING CODE 6714-01-P