Filing Procedures and Delegations of Authority; Unsafe and Unsound Banking Practices; Registration of Transfer Agents; International Banking; Management Official Interlocks; and Golden Parachutes and Indemnification Payments

[Federal Register Volume 63, Number 161 (Thursday, August 20, 1998)]

[Rules and Regulations]

[Pages 44686-44751]

From the Federal Register Online via the Government Publishing Office [www.gpo.gov]

[FR Doc No: 98-21487]

[[Page 44685]]

_______________________________________________________________________

Part II

Federal Deposit Insurance Corporation

_______________________________________________________________________

12 CFR Part 303 et al.

Filing Procedures and Delegations of Authority; Unsafe and Unsound

Banking Practices; Registration of Transfer Agents; International

Banking; Management Official Interlocks; and Golden Parachutes and

Indemnification Payments; Final Rule

Applications for Deposit Insurance; Notice

Bank Merger Transactions; Notice

Liability of Commonly Controlled Depository Institutions; Notice

Applications to Establish a Domestic Branch (Includes Remote Service

Facilities); Rescission of Statement of Policy; Notice

Applications to Relocate Main Office or Branch (Includes Remote Service

Facilities); Rescission of Statement of Policy; Notice

Federal Register / Vol. 63, No. 161 / Thursday, August 20, 1998 /

Rules and Regulations

[[Page 44686]]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 303, 333, 337, 341, 347, and 359

RIN 3064-AC02

Filing Procedures and Delegations of Authority; Unsafe and

Unsound Banking Practices; Registration of Transfer Agents;

International Banking; Management Official Interlocks; and Golden

Parachutes and Indemnification Payments

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The FDIC is amending its regulations governing application,

notice and request procedures and delegations of authority by

streamlining, modernizing, and clarifying current policies and

practices. The final rule provides qualifying well-capitalized and

well-managed insured depository institutions and their holding

companies expedited processing procedures for several major types of

filings, including deposit insurance, branch, and merger applications.

The final rule also centralizes substantially all filing procedures

found throughout the FDIC's regulations within this rule for ease of

reference. It reorganizes the requirements of each major filing type

into a separate regulatory subpart that will contain all information

necessary to submit a filing to the agency, as well as any relevant

internal agency delegations of authority. In addition the rule

incorporates statutory changes to its application procedures made by

the Economic Growth and Regulatory Paperwork Reduction Act of 1996

(EGRPRA). Finally, technical changes are being made to related

regulations to conform to these changes.

This action is being taken in accordance with section 303(a) of the

Riegle Community Development and Regulatory Improvement Act of 1994

(CDRIA) which requires the federal banking agencies to review and

streamline their regulations and policies in order to improve

efficiency, reduce unnecessary regulatory burden, eliminate unwarranted

constraints on credit availability, and remove inconsistencies and

outmoded and duplicative requirements.

The final rule seeks to reduce burden on insured depository

institutions by imposing regulatory requirements only where needed to

address safety and soundness concerns or accomplish other statutory

responsibilities of the FDIC. The final rule also strives to more

closely align the FDIC's application processing regulations with those

of the other banking agencies.

DATES: These revisions are effective October 1, 1998. It is not

considered practicable to permit early compliance with these revisions.

FOR FURTHER INFORMATION CONTACT: Division of Supervision: Christie A.

Sciacca, Associate Director, (202) 898-3671; Mark S. Schmidt, Associate

Director, (202) 898-6918; Jesse G. Snyder, Assistant Director, (202)

898-6915; John M. Lane, Assistant Director, (202) 898-6771; Division of

Compliance and Consumer Affairs: Steven D. Fritts, Associate Director,

(202) 942-3454, and Louise N. Kotoshirodo, Review Examiner (202) 942-

3599. Legal Division: Susan van den Toorn, Counsel, Regulation and

Legislation Section (202) 898-8707, and Nancy Schucker Recchia,

Counsel, Regulation and Legislation Section (202) 898-8885. For

administrative enforcement issues: Grovetta N. Gardineer, Counsel,

Compliance and Enforcement Section (202) 898-3728, and Philip P. Houle,

Counsel, Compliance and Enforcement Section (202) 898-3722. For

international banking: Christopher Spoth, Assistant Director, Division

of Supervision, (202) 898-6611, and Jamey G. Basham, Counsel,

Regulation and Legislation Section, Legal Division (202) 898-7265,

Federal Deposit Insurance Corporation, 550 17th Street, NW, Washington,

DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

Part 303 of the FDIC's regulations (12 CFR part 303) generally

describes the procedures to be followed by both the FDIC and applicants

with respect to applications, notices, or requests (collectively

``filings'') required to be filed by statute or regulation. Additional

information concerning processing is contained in related FDIC

statements of policy. Part 303 also sets forth delegations of authority

from the FDIC's Board of Directors to the Directors of the Division of

Supervision (DOS), the Division of Compliance and Consumer Affairs

(DCA), the General Counsel, the Executive Secretary, and, in some

cases, their designees to act on certain filings and enforcement

matters.

The final rule makes comprehensive changes to part 303 as part of

the FDIC's systematic review of its regulations and policy statements

undertaken in accordance with section 303(a) of the CDRIA (12 U.S.C.

4803(a)). Section 303(a) of CDRIA requires the FDIC, the Office of the

Comptroller of the Currency, the Board of Governors of the Federal

Reserve System, and the Office of Thrift Supervision (federal banking

agencies) to streamline and modify their regulations and written

policies in order to improve efficiency, reduce unnecessary costs, and

eliminate unwarranted constraints of credit availability. The statute

also requires each of the federal banking agencies to remove

inconsistencies and outmoded and duplicative requirements from their

regulations and written policies and to work together to make uniform

regulations that implement common statutory or supervisory policies.

II. Discussion

The final rule accomplishes the goals of section 303(a) of the

CDRIA in several important ways.

New expedited processing procedures have been introduced

for certain well-capitalized and well-managed banks. Expedited

procedures will reduce processing time for applications submitted by

qualifying institutions and will add more certainty to the timing of

regulatory action. They will also allow the FDIC to focus its resources

on applications that do not fall within the new expedited review

procedure and therefore are more likely to present safety and soundness

risks or raise CRA or compliance concerns.

Some applications are processed as notices. For example,

applications to establish a branch or relocate a main office or a

branch processed under expedited procedures generally will be deemed

approved 21 days after receipt of a substantially complete application.

Regulations and guidelines issued by the federal banking

agencies implementing common statutes have been made more uniform. This

is particularly true of filings regarding merger transactions, changes

in bank control, and change in directors or senior executive officers.

Filing contents have been clarified and streamlined

wherever practical.

The procedural requirements for virtually all applications

and notices have been centralized in part 303.

Delegations of authority from the FDIC's Board of

Directors to the Directors of DOS and DCA, the General Counsel, and the

Executive Secretary to act on certain filings and enforcement matters

have been updated.

Duplicative and outdated material has been removed from

existing part 303. An example is the elimination of the requirement for

an application to establish or relocate a remote service facility

because a remote service facility is not a branch pursuant to section

2204 of the Economic Growth and Regulatory

[[Page 44687]]

Paperwork Reduction Act of 1996 (12 U.S.C. 36).

Concurrently with the adoption of this final rule, the FDIC is also

publishing elsewhere in today's Federal Register three revised

statements of policy relating to filing procedures. These statements of

policy pertain to Applications for Deposit Insurance, Bank Merger

Transactions, and Liability of Commonly Controlled Institutions.

Additionally, notices of rescission of the statements of policy on

Applications to Establish a Domestic Branch (includes Remote Service

Facilities) and Applications to Relocate Main Office or Branch

(includes Remote Service Facilities) are published elsewhere in today's

Federal Register.

III. General Discussion of Comments

The FDIC published in the Federal Register a notice soliciting

comment on proposed part 303, 62 FR 52810, October 9, 1997. In response

to that request, the FDIC received fifteen comment letters. Eight

comment letters were received from community groups, five from bank

trade associations, one from a law firm, and one from a bank holding

company. Fourteen comment letters were received regarding five notices

to amend, revise or rescind related statements of policy. These notices

were published elsewhere in the Federal Register of October 9, 1997. In

addition, one of the comment letters on part 303 contained comments on

four of the related statements of policy. Final action on the five

related statements of policy is published elsewhere in today's Federal

Register.

The FDIC carefully considered each of the comment letters and made

a number of changes to the final regulation in response to such

comments and suggestions. Virtually all the comments received on the

proposed regulation directly or indirectly addressed the concept of

expedited processing for well-managed and well-capitalized depository

institutions. While numerous commenters expressed strong support for

expedited processing, others expressed a concern that expediting the

application process would have an adverse effect on the enforcement of

the Community Reinvestment Act of 1977 (12 U.S.C. 1811 et seq.) (CRA).

The agency wishes to stress that it is neither the intent nor

effect of expedited processing to weaken review of an applicant's

performance under the CRA. In response to concerns expressed, the FDIC

has increased the period of time during which the public may comment on

an application for federal deposit insurance from 15 days to 30 days.

In addition, the FDIC is committed to placing a listing of all

applications for deposit facilities subject to public comment on the

agency's home page on the World Wide Web. The issues raised regarding

expedited processing are addressed in more detail in the discussion of

comments related to subpart A.

Several commenters suggested that timelines be established for

filings not eligible for expedited processing. On May 6, 1996, the FDIC

issued a Financial Institutions Letter (FIL-26-96) to all FDIC-insured

institutions listing target time frames for each type of filing. The

FDIC intends to monitor processing of applications that do not qualify

for expedited processing in accordance with these internal guidelines.

These guidelines, however, generally do not apply to filings that raise

novel legal or policy issues, are the subject of a CRA protest, or

involve a historic site. It is the intent of the FDIC to act on all

filings as promptly as resources and prudence permit.

The following subpart by subpart discussion identifies and

discusses comments and changes to the proposal that are being adopted.

A table summarizing the sections of chapter 12 that are changed by the

final rule is included at the end of this preamble.

IV. Final Rule

A. Subpart A--Rules of General Applicability

Subpart A of the proposal clarified and simplified the rules

generally applicable to the processing of filings required by

regulation or statute by reorganizing the general rules of procedure

into one subpart. Proposed subpart A explained the availability of

expedited processing by defining which depository institutions would be

eligible for such processing, setting forth the process itself, and the

criteria under which the FDIC might remove a filing from expedited

processing. Proposed subpart A also contained public notice

requirements, provisions for public access to filings, hearing

procedures, and appeals and nullification procedures. Additionally,

subpart A set forth general principles governing delegations of

authority from the Board of Directors to certain FDIC officials and

defined certain terms used throughout the proposed rule.

Definitions. Proposed Sec. 303.2 alphabetized the current

definitions and added several new definitions utilized elsewhere in the

proposal. With the exception of the comments discussed below regarding

the definition of ``eligible depository institution,'' no comments were

received on any of the definitions in proposed Sec. 303.2.

The proposal defined ``eligible depository institution'' to

establish criteria that institutions must meet to qualify for expedited

processing, as set forth in Sec. 303.11. Proposed Sec. 303.2(r) defined

the term ``eligible depository institution'' as a depository

institution that meets the following five criteria: (1) received an

FDIC-assigned composite rating of 1 or 2 under the Uniform Financial

Institutions Rating System (UFIRS) as a result of its most recent

federal or state examination;1 (2) received a satisfactory

or better CRA rating from its primary federal regulator at its most

recent examination; (3) received a compliance rating of 1 or 2 from its

primary federal regulator at its most recent examination; (4) is well-

capitalized as defined in the appropriate capital regulation and

guidance of the institution's primary federal regulator; and (5) is not

subject to a cease and desist order, consent order, prompt corrective

action directive, written agreement, memorandum of understanding, or

other administrative agreement with its primary federal regulator or

chartering authority. In the proposal the FDIC specifically sought

comment on whether the above eligibility standards are appropriate.

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\1\ An FDIC-assigned composite UFIRS rating may be based on the

FDIC's own examination or based on the review of examination reports

prepared by state banking authorities or the other federal banking

agencies.

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The FDIC received numerous comment letters on the definition of

``eligible depository institution.'' The commenters were divided in

their views as to the appropriateness of the eligibility criteria.

Commenters who supported the proposed definition and the concept of

expedited processing confirmed the FDIC's belief that the criteria for

eligibility are appropriate to ensure that only well-capitalized and

well-managed institutions that do not present any supervisory,

compliance or CRA concerns receive expedited processing.

A number of commenters expressed concern that by using CRA ratings

as one of the criteria for an eligible depository institution, the FDIC

was establishing a ``safe harbor'' against public challenge to an

applicant's CRA performance. The commenters were further concerned that

the FDIC's expedited processing of applications meeting the

definitional criteria would have an adverse impact on the CRA and its

enforcement. Two commenters opposing the use of CRA ratings as

eligibility criteria for expedited processing cited concerns that CRA

[[Page 44688]]

ratings are not a suitable criteria because the CRA evaluation

procedures are still being developed and are not yet uniformly

rigorous.

It is neither the purpose nor the effect of the eligible depository

institution concept to adversely affect enforcement of the CRA. In

fact, Sec. 303.11(c)(2) explicitly enables the FDIC to remove a filing

from expedited processing if, among other things, the FDIC receives a

CRA protest that warrants additional investigation or review, or the

appropriate regional director (DCA) determines that the filing presents

a significant CRA or compliance concern. Thus, as discussed in greater

detail below, Sec. 303.11(c)(2) provides that the FDIC will fully and

carefully consider all CRA protests and CRA or compliance concerns that

are determined to be significant.

The FDIC has taken a number of steps to promote consistent

application of the CRA, both internally and on an interagency basis.

Full implementation of the new CRA regulation was delayed for two years

in order to collect uniform lending data upon which to base the FDIC's

examination of large banks and thrifts. To familiarize examiners with

the new standards and to promote their consistent application, the

federal banking agencies conduct regular joint examiner training

sessions. In addition, the agencies have jointly developed written

guidance for examiners, financial institutions and the public. Further,

the agencies are currently initiating an interagency review of a sample

of each agency's CRA performance evaluations for large institutions and

the agencies will also examine a limited number of large institutions

using interagency teams of examiners.

Two other commenters expressed concern that the CRA rating is an

inappropriate criterion for determining the eligibility of a depository

institution for expedited processing for any filing that is not an

application for a deposit facility as defined by the CRA. The FDIC

reserves expedited processing for well-capitalized and well-managed

banks. An institution's performance under the CRA reflects on the

quality of its management. While an institution must have a

satisfactory or better CRA rating to be eligible for expedited

processing, regardless of the type of application being made, the FDIC

will not consider CRA performance in deciding upon the merits of an

application if such application is not for a deposit facility. Proposed

Sec. 303.5 sets forth those filings for which an institution's CRA

record will be taken into account in deciding upon the merits of the

application (deposit insurance, merger transactions, and establishment

or relocation of a branch or main office, including the relocation of

an insured branch of a foreign bank).

The FDIC recently published a final rule which revises and

consolidates its international banking regulations (12 CFR part 347)

and a proposed rule for comment that would revise its regulations

governing the activities and investments of insured state banks and

savings associations (12 CFR part 362). 63 FR 17056, April 8, 1998; 62

FR 47969, September 12, 1997. These rulemakings contain expedited

procedures and definitions of an ``eligible'' type of institution which

generally parallel proposed Sec. 303.2(r). One comment received on

proposed part 347 noted that although a bank must have a satisfactory

or better CRA rating in order to meet that part's definition of

eligibility, ``special purpose'' banks which are exempt from CRA are

not assigned CRA ratings. Under the FDIC's CRA regulations at 12 CFR

part 345, special purpose banks are not subject to examination under

the FDIC's CRA regulations (12 CFR 345.11(c)(3)). The FDIC does not

intend to apply the CRA element of the definition of an eligible

depository institution to a special purpose bank which is not subject

to examination under the FDIC's CRA regulations. Language to this

effect has been added to the definition of ``eligible depository

institution'' in Sec. 303.2 of the final rule.

In the final rule the FDIC includes the term ``organizer'' in the

proposed definition of ``insider,'' in Sec. 303.2(u) to make clear that

the FDIC considers organizers to be insiders, similar to incorporators.

This change is consistent with other provisions of part 303.

The FDIC adopts proposed Sec. 303.2 with the revisions to

Sec. 303.2 (r) and (u) indicated above.

General filing procedures. Proposed Sec. 303.3 set forth general

procedures for submitting filings under part 303, including where forms

may be obtained and to whom they should be sent. Procedures are also

designated for filing when no form is prescribed. Specific filing

requirements are set forth in the appropriate subparts of the rule.

No comments were received on this section. The FDIC adopts this

section as proposed with a minor stylistic change to make the meaning

of the section more clear.

Computation of time. Proposed Sec. 303.4 clarified that the FDIC

uses a calendar day rule and begins computing the relevant period on

the day after an event occurs (for example, the day after receipt of a

filing or newspaper publication).

No comments were received on this section. The FDIC adopts this

section as proposed.

Effect of CRA performance on filings. Proposed Sec. 303.5 stated

that CRA performance will be considered in connection with applications

to establish a domestic branch or relocate a domestic branch or main

office, merger applications, and deposit insurance applications, and

clarified that CRA applies to applications to relocate an insured

branch of a foreign bank. Although this information is currently

contained in 12 CFR Part 345 (Community Reinvestment Act), the FDIC

believes that an explicit statement concerning the filings covered by

CRA better serves the public and the banking industry than providing a

cross-reference.

The only specific comment received on proposed Sec. 303.5 found

that the information contained in proposal was useful information worth

highlighting in subpart A. The FDIC adopts this section as proposed.

Investigations and examinations. Proposed Sec. 303.6 made clear

that certain FDIC officials have general delegated authority to examine

or investigate and evaluate facts related to any filing under chapter

12. This provides needed flexibility to evaluate factual and legal

issues that arise during the course of a filing.

No comments were received on this section. The FDIC adopts this

section as proposed.

Public notice requirements. Proposed Sec. 303.7 set forth the

general requirements for providing notice of a filing to the public.

The proposal required an applicant to provide prior notice of, and the

opportunity to comment on, a filing to establish a domestic branch,

relocate a domestic branch or the main office, relocate an insured

branch of a foreign bank, engage in a merger transaction or other

business combination, initiate a change of control transaction, or

request deposit insurance. Where applicable, specific publication

requirements appear in the appropriate paragraphs of part 303.

No comments were received on proposed paragraphs (a), (b), (d) or

(e). The FDIC adopts these paragraphs as proposed with minor stylistic

changes to make the meaning of the paragraphs clearer. In particular,

Sec. 303.7(b) has been refined in the final rule to make clear that

where the notice of filing has been published prior to submission of

the filing to the FDIC, the applicant should include confirmation of

such publication with the filing. This will

[[Page 44689]]

further ensure that possible delays due to defective notices are

avoided.

Proposed Sec. 303.7(c) provided applicants with the choice of

giving public notice by using a sample notice or drafting a notice that

incorporates certain specified information and is tailored to the needs

of the institution. This choice was designed to reduce burden on the

banking industry by providing more flexibility in the required form of

notice while, at the same time, requiring all applicants to provide the

public with the same basic information.

Two comments were received on this paragraph, both of which were

generally favorable. Both commenters supported the flexibility that the

FDIC proposed to offer to banks to meet their notification

requirements. One of the commenters urged the FDIC to monitor the

notices being used to ensure that all parties operate on the same basis

and so there is no confusion about the content of the notice. The FDIC

seeks to ensure that applicants comply consistently with public notice

requirements by requiring each applicant to submit a copy of the public

notice for content verification.

The FDIC has made minor modifications to Sec. 303.7(c). The

language of the final rule clarifies that applications to relocate a

main office are included within the notice requirement. The language

has been further modified to make clear that the public notice must

state that photocopies of nonconfidential portions of an application

will be provided by the appropriate regional office upon request. This

requirement is included in current Sec. 303.6(f)(4).

The FDIC adopts proposed Sec. 303.7(c) with the revisions discussed

above.

The final rule includes a provision at Sec. 303.7(f) that was not

included in the proposal. Section 303.7(f) provides that where public

notice is required, the FDIC may determine on a case by case basis that

unusual circumstances surrounding a particular filing warrant

modification of publication requirements. This new provision was added

in response to a comment on subpart D, pertaining to merger

transactions. The comment suggested that the FDIC require notices

regarding merger transactions to be published in languages other than

English in communities with significant non-English speaking

populations.

The FDIC appreciates the concern reflected in this comment. Rather

than limit applicability to situations involving merger applications

and non-English publication, however, the FDIC has instead added a more

broadly-focused provision. Under the new Sec. 307.7(f) the FDIC may

determine on a case-by-case basis that unusual circumstances

surrounding a particular filing warrant modification of the publication

requirements. It is intended that this provision will be applied

sparingly and with the purpose of making publication more meaningful,

not as a means of altering the publication requirements to suit the

convenience of the parties or as a means of curing defective

publications.

Public Access to Filings. Proposed Sec. 303.8 set forth the

procedures by which the FDIC makes the non-confidential portions of

filings that are subject to a public notice requirement available to

the public. Under the proposed rule, the FDIC makes such portions

available for inspection upon request, not more than one business day

after the regional office receives such request.

A number of the commenters made specific suggestions as to how the

FDIC might make applications and filings more accessible to the public.

These suggestions included making a list of pending applications

available on the FDIC's World Wide Web page; providing copies of

filings within three days of receiving a request for filings; and

mailing notices of all pending applications to all individuals and

groups who request to be included on a mailing list.

The FDIC has adopted various of the commenters' suggestions for

expediting the public's receipt of information related to the filing of

applications. The FDIC currently has a World Wide Web site with

significant information of interest to the public. The FDIC will

include at its World Wide Web site a page that will provide the public

with prompt notice of all applications filed for deposit facilities

that are subject to public comment. This page will be available when

the final rule becomes effective and may be found at www.fdic.gov. In

addition, the FDIC is committed to mailing the public portions of an

application file to a requester within three business days of the

appropriate regional office's receipt of the request to view the file.

In some instances this may result in a filing becoming public prior to

the publication of notice required by Sec. 303.7.

The FDIC also will continue existing practices designed to provide

information to the public on applications that are subject to the CRA.

The FDIC will continue to provide updated lists of pending applications

on a regular basis to all individuals or groups who have submitted a

request to the appropriate regional director (DOS) to be included on

this mailing list. In addition, it will continue to be the policy of

the FDIC to provide the non-confidential portions of application files

for public inspection at the appropriate regional office. The final

rule adds language to clarify this latter policy. The FDIC believes

that these practices will facilitate the public's ability to provide

meaningful comments.

In addition, the final rule adds a reference to part 309 of the

FDIC rules and regulations. This regulation sets forth the FDIC's

procedures for processing requests for information pursuant to the

Freedom of Information Act (FOIA) (5 U.S.C. 552). Part 309 of the FDIC

rules and regulations was recently revised to reflect changes to the

FOIA as a result of the Electronic Freedom of Information Act

Amendments of 1996 (63 FR 29, January 2, 1998).

The FDIC believes that these changes to its procedures and

continued commitment to existing practices will greatly facilitate the

public's access to filings made to the FDIC and the public's ability to

consider and comment upon such filings.

Public comments. Currently, interested parties may comment on a

pending filing until the date of final disposition. Proposed

Sec. 303.9(a) provided that comments would be accepted only during a

defined comment period in order to add certainty to the filing process

for both the public and the applicant. The FDIC believes that closing

the comment period on a date certain eliminates the risk of final

action being delayed due to a late comment or of final action being

taken while a comment is being transmitted to the FDIC.

Currently, the only basis for extension of the comment period is

for ``good cause.'' In order to provide the public with adequate time

to submit meaningful comments, proposed Sec. 303.9(b)(2) granted the

appropriate regional director (DOS) three bases upon which to extend or

reopen the public comment period: (1) if the applicant failed to file

all required information on a timely basis to permit review by the

public or made a request for confidential treatment not granted by the

FDIC that delayed the public availability of that information; (2) if

any person requesting an extension of time satisfactorily demonstrated

to the FDIC that additional time was necessary to develop factual

information that might materially affect the application; or (3) for

good cause.

Further, proposed Sec. 303.9(b)(4) clarified that the FDIC will

provide copies of all comments to the applicant

[[Page 44690]]

and that the applicant will be given an opportunity to respond.

Several of the commenters fully supported the proposed defined

comment period because it will reduce the current level of uncertainty

that applicants face in making applications to the FDIC. Two of these

commenters suggested that the defined comment period in the proposal

would create a desirable shift of focus from enforcing CRA through the

applications process to enforcing CRA through the examination process.

One of these commenters believed that the ``good cause'' basis for an

extension of the comment period is unnecessary because the other

conditions for an extension are sufficiently comprehensive. Another

commenter recommended that the FDIC take all possible regulatory action

necessary to ensure that public notice is made so as to ensure that

public commenters cannot seek delay based upon allegations of

inadequate notice.

Other commenters were strongly opposed to the proposed defined

periods of time for comment. These commenters stated that the current

flexibility in comment periods has been important in allowing the

public to comment on applications covered by CRA. These commenters were

concerned that the streamlined process will not provide enough time and

opportunity to discover the filing of an application, conduct the

necessary analysis and research and to write and submit any comments to

the FDIC. They also question whether the FDIC's current decision making

process has been delayed because of open public comment periods. Some

of these commenters focused on the role that the applications process

plays in enforcing CRA and were concerned that the proposal would

weaken an enforcement tool that has been important to community groups.

The commenters were also divided on their beliefs as to whether the

actual periods of time permitted for public comment in the specific

subparts were adequate. The commenters who supported the proposed

revision generally believed that the comment periods provided for in

the various subparts were sufficient. The commenters who opposed

proposed Sec. 303.9 generally believed that the specific time periods

were too short.

The FDIC believes that proposed Sec. 303.9 strikes an appropriate

balance between providing more certainty and expediency in the

applications process and giving the public an opportunity to comment on

an institution's CRA performance. The public comment period prompted by

an application is not intended to be the exclusive opportunity for the

public to inform the FDIC of concerns. Comments may be submitted to the

FDIC at any time if an individual or a group has a concern about an

institution's CRA program. It is not necessary to wait for an

application to be filed. All CRA comments will be considered by DCA. By

closing the comment period, the FDIC will eliminate delaying final

action because of late comments. In addition, the DOS regional director

or deputy director may extend or reopen the comment period as discussed

above. The FDIC believes that this flexibility will enable it to

consider all relevant information as part of the decision making

process and to complete that process in a timely manner.

As discussed previously, the FDIC has adopted certain suggestions

of commenters to make filings and applications more accessible to the

public in a more expeditious manner. Listing applications on the FDIC's

World Wide Web site, providing access to public files within one day of

receipt of a request, and mailing copies of public files within three

days of receiving a request are all designed to make it easier for the

public to provide timely comments. The FDIC believes these measures

will help offset any adverse effect of defined comment periods.

The FDIC adopts this section as proposed with a minor stylistic

change to make the intent clear.

Hearings and other meetings. Proposed Sec. 303.10 simplified the

current rules concerning hearing procedures contained in Sec. 303.6

(h), (i), and (j) and updated those provisions to reflect current FDIC

practices. Proposed Sec. 303.10 (c) and (d) provided that the

appropriate regional director (DOS) may grant or deny a request for a

hearing and that the regional director's denial of such a request is a

final agency determination that is not appealable to the FDIC Board of

Directors.

One commenter endorsed the proposal to allow community groups to

request public hearings on pending applications because they afford

opportunities for public housing residents, persons with limited

literacy skills, and other citizens unlikely to submit written comments

to offer their views. This and another commenter suggested that FDIC

adopt a mandatory hearing procedure like that of the Office of Thrift

Supervision (OTS).

A third commenter appreciated the publication of procedures in

proposed Sec. 303.10 as a source of clarity for community groups and

other commenters. This commenter recognized that informal meeting

procedures might prove helpful in providing additional avenues for

commenters to pursue and hoped that the informal meetings would not

preclude the use of hearings. This commenter sought assurance that

hearings will serve the purpose of providing additional opportunity for

commenters to develop the record and insure that such venue is readily

accessible. This commenter opposed the preclusion of appeals of

decisions denying hearing requests, believing that the Board of

Directors is better suited to weigh competing issues, consider overall

public interest, and ensure that the standards for judging hearing

requests are consistently and fairly applied.

The FDIC believes that proposed Sec. 303.10 represents an equitable

and balanced approach because it continues to provide a basis for an

individual to request a hearing, but provides more clarity with respect

to the circumstances under which the FDIC will grant such a request.

Delegation of authority to the regional director (DOS) places the

authority to make decisions closer to the specific situation. The

regional director is the most senior-level regional official and will

have direct knowledge of the record of the institution or institutions

and communities involved. The FDIC believes the regional director (DOS)

is thus well suited to decide whether additional submissions would

benefit the decision making process. The OTS hearing procedure

emphasizes informal meetings as prerequisites to formal hearings. If

the issues are not resolved at such meetings OTS will conduct formal

meetings. The FDIC's procedure also provides for informal meetings. The

FDIC generally will grant a request for a hearing only if the FDIC

determines that written submissions would be insufficient or that a

hearing otherwise would be in the public interest.

Proposed Sec. 303.10 has been revised to specifically include

hearings and other proceedings in connection with nullification,

revocation, amendment, withdrawal, and suspension of decisions on

filings discussed below and in Sec. 303.11(g). Additionally, the final

rule makes clear that Legal Division consultation is required prior to

taking action on a hearing request pursuant to Sec. 303.10(c) or

denying a hearing request pursuant to Sec. 303.10(d). In addition,

Sec. 303.10(e)(2) has been modified slightly to clarify that the

presiding officer in a hearing under this section shall be the regional

director (DOS or DCA) or his or her designee or such other person as

may be named by the FDIC Board of Directors or the

[[Page 44691]]

Director (DOS or DCA). This restates the FDIC's current practice as set

forth in current part 303.

The FDIC adopts Sec. 303.10 as proposed with the revisions

discussed above and other minor stylistic changes to make the intent

clear.

Decisions on filings. Proposed Sec. 303.11 contained general

provisions governing the process of deciding upon filings made under

part 303, including the general procedures related to the decision

making process; the authority of the FDIC Board of Directors to modify

any of the procedures contained in part 303; and new provisions

concerning multiple transactions, abandonment of filings, and

nullification of decisions.

No comments were received on proposed Sec. 303.11 (a), (b), (d),

(e), (g). The FDIC adopts these paragraphs as proposed.

Proposed Sec. 303.11(c) set forth the general provisions pertaining

to expedited processing. Under the proposal, expedited processing is

automatically given to institutions meeting the definition of an

``eligible depository institution'' (with a few exceptions where other

conditions apply) unless the appropriate regional director or deputy

regional director (DOS) removes the filing from expedited processing.

Therefore, an applicant need not request expedited processing or even

identify itself as an eligible institution. A filing may be removed

from expedited processing pursuant to proposed Sec. 303.11(c)(2) if:

(1) for filings subject to public notice, an adverse comment is

received that warrants additional investigation or review; (2) for

filings subject to evaluation of CRA performance, a CRA protest is

received that warrants additional investigation or review, or the

appropriate regional director (DCA) determines that the filing presents

a significant CRA or compliance concern; (3) for any filing, the

appropriate regional director (DOS) determines that the filing presents

a significant supervisory concern, or raises a significant legal or

policy issue; or (4) for any filing, the appropriate regional director

(DOS) determines that other good cause exists for removal. Under the

proposal, if a filing is removed from expedited processing, the

applicant will be promptly informed in writing of the reason. With the

exception of filings made under subpart J (International Banking),

proposed Sec. 303.11(c)(1) provided that for filings where the

appropriate regional director has not been delegated approval

authority, the filing will generally be removed from expedited

processing.

As discussed above, the general concept of expedited processing

generated numerous comments both in support of the proposal and opposed

to it. The final rule is designed to balance the concerns of removing

undue delays from the application process with the need to assess

legitimate CRA concerns fairly.

One commenter recommended that the mandatory removal from expedited

processing of any application that is subject to a substantial CRA

protest or otherwise meets the standards of Sec. 303.11(c)(2). This

commenter also believed that the FDIC's clarification of ``significant

CRA protest'' in Sec. 303.11(c)(3) of the proposed rule established a

dual standard for distinguishing between areas in which the institution

seeks to expand and areas where it currently has a presence but is not

expanding. This commenter believed that if an institution's CRA

performance is less than satisfactory in any geographic area, that fact

alone should be grounds for its application to be removed from

expedited processing, not whether the application is for expansion in

that area or some other area.

It is the policy and practice of the FDIC to investigate all CRA

protests to the extent considered necessary. As a practical matter this

will require the majority of protested applications to be removed from

expedited processing. It may be possible to resolve some protests

during the expedited processing period. This is especially true of

applications for deposit insurance which have an expedited processing

period of sixty days. The FDIC provided guidance on what will

constitute a ``significant CRA concern'' under Sec. 303.11(c)(2) by way

of example. In that paragraph the FDIC recognized that an applicant's

overall CRA rating could be satisfactory, but the applicant could also

have a less than satisfactory rating or performance in the particular

geographic area to be affected by the filing. In such a circumstance

the FDIC might require additional time to fully and fairly evaluate the

filing and, if necessary, would remove the filing from expedited

processing. The FDIC believes that the proposal provided the

flexibility to fully evaluate local CRA concerns without undermining

the intent of expedited processing.

Two commenters recommended the proposed rule be revised to include

a requirement for an abbreviated CRA examination in the case of a CRA

protest.

The FDIC believes that the proposed regulation and FDIC practice

provides the FDIC with the flexibility to conduct a targeted CRA

examination if such is necessary or appropriate under the

circumstances. DCA's standard review of an applicant's record will

include a review of current and previous CRA examination reports, the

applicant's correspondence file, any complaints filed against the

applicant, and any other pertinent information available. In addition,

Sec. 303.6 allows the Board of Directors, the Director, Deputy

Director, associate directors, appropriate regional directors and

deputy regional directors (DOS and DCA) to examine or investigate and

evaluate facts related to any filings under this chapter to the extent

necessary to reach an informed decision.

The same two commenters that suggested an abbreviated CRA

examination also requested that the FDIC provide a detailed written

statement of the basis for acting on protested applications.

The FDIC included in the proposed rule several opportunities for

the applicant and the public to obtain written information regarding

disposition of a filing. Proposed Sec. 303.11(a) provided that the FDIC

will notify both the applicant and any person who makes a written

request of the final disposition of a filing. When the FDIC denies a

filing, proposed Sec. 303.11(a) provides that the FDIC will immediately

notify the applicant in writing of the reasons for the denial. This

written notification is placed in the public file and remains available

at the appropriate regional office for 180 days after the final

decision. For any filing covered by the hearing procedures of

Sec. 303.10, Sec. 303.10(k) requires the FDIC to notify the applicant

and all participants of the final disposition of a filing and provide a

statement of the reasons for the final disposition. By adopting these

provisions in the final rule, the FDIC believes it has appropriately

balanced the interests of those seeking information on filing

disposition with those who seek a streamlined process. Additionally, it

has been the FDIC's recent practice and will continue to be the

agency's practice to prepare an Order and Statement in conjunction with

the approval or denial of any application subject to an unresolved CRA

protest. Orders and Statements are available to the public as part of

the public file of an application and are available in the FDIC's

public reading room.

The FDIC adopts Sec. 303.11(c) as proposed with minor technical

changes to Sec. 303.11(c)(1) and (3) to clarify the intended meaning of

those paragraphs.

Appeals and requests for reconsideration. Proposed Sec. 303.11(f)

contained the FDIC's procedures governing petitions for reconsideration

of a denied filing. The proposal clarified

[[Page 44692]]

that these procedures cover only requests for reconsideration of

filings that do not otherwise have appeal procedures provided by other

regulation or written guidance, and that decisions to deny a hearing

request are nonappealable. No comments were received on proposed

Sec. 303.11(f).

The proposal modified the FDIC's appeals process. Under the

proposal, a regional director or deputy regional director (DOS or DCA)

could approve, but not deny, a petition for reconsideration. However,

the Director or Deputy Director (DOS or DCA) could approve or deny a

petition. If the petition were granted, the filing would be

reconsidered by the Board of Directors if the filing was originally

denied by the Board of Directors or denied by the Director, Deputy

Director, or an associate director (DOS or DCA). The Director or Deputy

Director (DOS or DCA) could reconsider the filing if the filing was

originally denied by a regional director or deputy regional director.

All decisions on requests for reconsideration and all reconsideration

of denied filings require consultation with or the concurrence of the

Legal Division. Proposed Sec. 303.11(f) also clarified that a decision

on a petition for reconsideration by the Director or Deputy Director

(DOS or DCA) is a final agency decision and is not appealable to the

Board of Directors.

The final rule changes the proposal regarding the FDIC officials

who will act upon requests for reconsideration that are granted.

Section 303.11(f)(5)(i) of the proposed rule provided that where

reconsideration was granted for a filing within the scope of

Sec. 303.11(f) that was originally denied by the Director, Deputy

Director or associate director (DOS or DCA), the appeal of the denial

would be decided by the Board of Directors. Section 303.11(f)(5)(ii) of

the final rule provides that such appeals will be decided by the FDIC's

Supervisory Appeals Review Committee (SARC). The SARC is an existing

committee established by the Board of Directors with delegated

authority to consider appeals of material supervisory determinations

such as examination ratings, material disputed asset classifications,

determinations regarding violations of laws and regulations, as set

forth in the Federal Register on March 25, 1995, 60 FR 15923. These

existing functions of the SARC continue unchanged by the revision to

Sec. 303.11(f).

The FDIC believes that the SARC is an appropriate body to

reconsider the original denial of a filing made by the Director, Deputy

Director or associate director (DOS or DCA). The SARC includes the

FDIC's most senior managers with expertise in the areas necessary to a

comprehensive understanding of the issues presented by the

reconsideration of denied filings. The SARC is comprised of the

following FDIC officials: Vice Chairperson of the Board of Directors,

the General Counsel, the Director of DOS, the Director of DCA, the

Director of the Division of Insurance, and the Ombudsman.

The proposed rule did not contain time frames within which the FDIC

should act on requests for reconsideration. Although no comments were

received that specifically raised this issue, the final rule includes

such time frames to assist applicants. Newly added Sec. 303.11(f)(6)

provides that the appropriate regional director (DOS or DCA) will

notify an applicant of the FDIC's decision to grant or deny a request

for reconsideration within 15 days of receipt of the request for

reconsideration. If the FDIC grants a request for reconsideration, it

will notify the applicant of its final decision within 60 days of the

receipt of the request for reconsideration.

The FDIC adopts Sec. 303.11(f) with revisions discussed above and

certain minor stylistic changes to the language to make the intent

clear.

Nullification, withdrawal, revocation, amendment, and suspensions

of decisions on filings. The FDIC received no comments on proposed

Sec. 303.11(g). The final rule has been modified to clarify the FDIC's

authority and procedures regarding nullification of decisions on

filings and related actions. These changes are a logical extension from

the proposed rule. The final rule clarifies the scope of the FDIC's

nullification authority to include the authority to withdraw, revoke,

amend, and suspend decisions on filings (collectively

``nullification'').

As proposed, Sec. 303.11(g) would have authorized the FDIC to

nullify a decision on a filing whenever: (a) the FDIC became aware of

any material misrepresentation or omission by an applicant after the

FDIC rendered a decision on a filing, (b) an applicant failed to inform

the FDIC of a material change in circumstances which arose after the

filing had been submitted to the FDIC and before the FDIC's decision on

it, or (c) a decision on a filing was contrary to law, regulation, or

FDIC policy, or was granted due to clerical or administrative error, or

to a material mistake of law or fact.

The final rule refines the substantive criteria necessary for the

FDIC to take one of these actions and states in more detail the

procedures to be followed. The substantive grounds have been refined by

eliminating matters contrary to ``FDIC policy'' and ``material mistakes

of law or fact'' from the final rule. The FDIC has determined that a

nullification should continue to extend to decisions on filings that

are contrary to law or regulation and that the latter is inclusive of

``material mistakes of law and fact.'' The FDIC has also clarified one

of the grounds for action contained in Sec. 303.11(g). The proposed

rule would have given the FDIC authority to issue a nullification on a

filing if the applicant failed to inform the FDIC of a material change

in circumstance which arose after the filing was submitted to the FDIC

and before the FDIC's decision on it. Under the final rule, the FDIC

may issue a nullification on a filing if at anytime the FDIC becomes

aware of any material misrepresentation or omission relating to the

filing, or of material change in circumstance that occurred prior to

the consummation of the transaction or commencement of the activity

authorized by the decision on the filing, or if the decision on the

filing is contrary to law or regulation or was granted due to clerical

or administrative error. The grounds for nullification are contained in

revised Sec. 303.11(g)(1).

The FDIC has added procedures for use in nullification actions in

Sec. 303.11(g)(2) and (3) to insure that the rights of the applicant

are protected in that the applicant will receive notice of the FDIC's

intent to nullify a decision on a filing and will have an opportunity

to respond to the notice. The final rule also details the manner in

which the FDIC would provide written notification of the proposed

action and the reason therefor to the applicant. Final

Sec. 303.11(g)(2) also provides that the FDIC may in certain cases

issue temporary orders without issuing a prior notice of intent to an

applicant. In such cases, the applicant is still provided an

opportunity to respond after issuance of the order.

Final Sec. 303.11(g)(3) has been redesignated ``Response to notice

of intent or temporary order.'' This section provides that an applicant

may file a written response to a notice of intent within 15 days of

service of the notice. A written response should include: (a) an

explanation as to why the proposed action is not warranted and (b) any

other relevant information, mitigating circumstances, documentation, or

other evidence. As a general rule, it is expected that these matters

will be resolved on written submissions. An applicant may request a

hearing with oral arguments and testimony under Sec. 303.10, although

such hearings will not usually be granted unless resolution on the

basis of written submissions is inadequate. Final Sec. 303.11(g)(3)

also

[[Page 44693]]

provides that an applicant's failure to file a written response within

the 15-day period constitutes a waiver of the opportunity to respond

and consent to the nullification, whether or not a temporary order had

been issued.

Final Sec. 303.11(g) did not discuss whether authority was to be

delegated in connection with the exercise of the authority to nullify

decisions on filings. In final Sec. 303.11(g)(5), the FDIC Board of

Directors retains the authority to issue a notice of intent to nullify

if the decision on the filing was originally made by the Board. For

decisions on filings under this Sec. 303.11(g) that were not originally

acted on by the Board, authority is delegated to the Director and

Deputy Director (DOS and DCA) and, where confirmed in writing by the

appropriate Director, to an associate director, to issue notices of

intent and temporary and final orders, after consultation with the

Legal Division. The appropriate Director may also designate regional

directors and deputy regional directors to issue notices of intent and

final orders. Delegated authority is to be exercised by the official

who acted on the original filing or by an official or equivalent or

higher authority.

General delegations of authority. Proposed Sec. 303.12 consolidated

the general principles governing delegations of authority from the

Board of Directors to FDIC officials. Specific delegations of authority

are contained in appropriate subparts.

No comments were received on this section. Changes were made to

proposed Sec. 303.12(a), (c), (e) to limit the application of

Sec. 303.12 to part 303 rather than to the entire chapter as proposed.

Section 303.12(e) of the proposal has been further modified slightly in

the final rule to make clear that actions taken by FDIC officials may

be relied upon by the public as actions authorized by the FDIC. The

FDIC adopts the remainder of the section as proposed.

Delegations of authority to DOS and DCA officials. Proposed

Sec. 303.13 contained delegations of authority to DOS and DCA officials

to enable them to carry out the FDIC's applications function in the

following areas: CRA protests, adequacy of filings, and the National

Historic Preservation Act of 1966, (16 U.S.C. 470 et seq.) (NHPA).

Where a CRA protest is filed and remains unresolved, proposed

Sec. 303.13(a) delegated authority to the regional director or deputy

regional director (DCA) to concur that approval of any filing subject

to CRA is consistent with the purposes of CRA. Previously, receipt of

any CRA protest caused a filing to be forwarded to DCA in Washington

for review. For purposes of determining when to commence processing of

a filing, proposed Sec. 303.13(b) delegated authority to DOS officials

to determine whether a filing is substantially complete. This provision

also clarified that the standard to initiate the processing period is

the receipt of a substantially complete filing.

Several commenters opposed the delegation of authority contained in

proposed Sec. 303.13(a) to make decisions and to act on CRA protested

applications. These commenters objected to the removal of such

authority from the presidentially appointed and accountable Board of

Directors who they believed are in a better position to weigh the

issues involved. These commenters were concerned that the CRA might not

be applied consistently by various FDIC offices and that the increasing

consolidation of the banking industry accompanied by interstate

expansion would result in decisions being made by regional directors

without complete understanding of a particular institution and its CRA

record.

The FDIC is committed to careful and conscientious fulfillment of

its CRA obligations. The FDIC believes there are adequate safeguards

and checks in place to ensure that it is deliberate and fair in its

actions involving consideration of CRA performance in the application

process and to ensure consistency among regional offices. Internal

procedures require regional offices to notify DCA in Washington of the

receipt of a protest within specific time frames. In addition, as

discussed below in the appropriate paragraphs, the FDIC has revised the

delegation of authority where a CRA protest is unresolved. Proposed

Secs. 303.26, 303.46 and 303.184 provided that where a CRA protest was

unresolved at the regional level, the Director or Deputy Director (DOS)

could approve the protested filing. The final rule makes clear that the

Director or Deputy Director (DOS) may approve such a filing only with

the concurrence of the Director or Deputy Director (DCA). This

clarification will ensure that those FDIC officials with relevant

expertise will act together to approve any application under this part

that is subject to an unresolved CRA protest. Moreover, under

Sec. 303.12(b)(1), the Board of Directors has not delegated the

authority to act upon filings involving significant policy concerns,

unique legal issues or other areas meriting special attention. Any

filings involving these concerns would have to be decided by the FDIC

Board of Directors.

Proposed Sec. 303.13(c) contained a delegation of authority

permitting DOS officials to enter into certain memoranda of agreement

to facilitate the FDIC's ability to comply with the National Historic

Preservation Act. No comments were received on this paragraph.

The final rule adds Sec. 303.13(d) to delegate the authority

necessary to modify publication requirements as set forth in

Sec. 303.7(f).

The FDIC adopts Sec. 303.13 as proposed with the addition of

Sec. 303.13(d).

B. Subpart B--Deposit Insurance

Subpart B of the proposal reorganized and clarified the filing and

processing procedures for an applicant to follow in applying for

deposit insurance for a proposed or existing noninsured depository

institution, for an interim depository institution (when required), and

for continuation of deposit insurance for a state bank upon withdrawing

from membership in the Federal Reserve System. Proposed subpart B

updated the regulation to reflect current statutory requirements and

current FDIC policy for processing such applications. Finally, subpart

B of the proposal set forth the delegations of authority and criteria

under which DOS may approve such applications. The final rule should be

read in conjunction with the FDIC's revised statement of policy on

Applications for Deposit Insurance found elsewhere in today's Federal

Register.

Four commenters submitted comments in response to subpart B of the

proposed rule. The FDIC has carefully considered these comments. The

comments are summarized below in the following discussion of

substantive changes to the regulatory text.

Filing procedures. Proposed Sec. 303.21 set forth general

procedures for filing applications for deposit insurance. No comments

were received on this section. The FDIC adopts this section as proposed

with minor changes to Sec. 303.21(b) to make clear that deposit

insurance applications for interim institutions are subject to the

provisions of subpart B and Sec. 303.62(b)(2), and to refine the

intended definition of ``interim institution.'' This change is

described more fully below and at Sec. 303.24.

Processing. Proposed Sec. 303.22(a) provided for the expedited

processing of applications for deposit insurance for proposed

depository institutions which will be subsidiaries of an ``eligible

depository institution'' or an ``eligible holding company.'' Proposed

Sec. 303.22(b) provided for standard processing for those applications

not

[[Page 44694]]

processed pursuant to expedited processing. Under expedited processing,

applications would be processed within 60 days of receipt of a

substantially complete application or 5 days after the expiration of

the comment period, whichever is later. Heretofore, the time period for

processing deposit insurance applications has generally been within 120

days. The proposal provided that final action may be withheld until the

FDIC has assurance that permission to reorganize the proposed

depository institution will be granted by the chartering authority. An

eligible depository institution is defined in Sec. 303.2(r) of the

proposal. An eligible holding company is defined in Sec. 303.22(a) of

the proposal as a bank or thrift holding company which has consolidated

assets of $150 million or more; has an assigned composite rating of 2

or better; and has at least 75 percent of its consolidated depository

institution assets in eligible depository institutions. The proposal

further provided that if the FDIC did not act within the expedited

processing period, such inaction would not constitute an automatic or

default approval.

Three commenters questioned the definition of an ``eligible holding

company.'' One commenter suggested that only the composite rating be

considered. Another commenter suggested that the size criteria be

lowered to $100 million. The FDIC intends to achieve the expedited

processing time frame for acting on applications for deposit insurance

by eligible holding companies by performing a more limited

investigation of the application than for those subject to standard

processing. In order to provide such treatment, the FDIC must be

confident that the sponsoring organization has sufficient financial and

management resources to justify streamlined processing. The composite

rating and size criteria as proposed are meant to be indicators of such

strength. Therefore, the final rule does not change this aspect of the

proposal. In addition, it should be noted that some applications that

appear to meet the expedited criteria as a matter of first impression

may be removed from expedited processing if sufficient management and

capital resources are not present to give the FDIC sufficient comfort

in utilizing expedited procedures. Likewise, the FDIC has the option of

processing an application within the expedited time frame, even if the

sponsor does not technically meet the eligibility definition. The FDIC

intends to process all applications as expeditiously as prudence and

its resources permit.

One commenter observed that it would be possible for an eligible

holding company to receive expedited treatment even if some of its

subsidiary institutions have less than satisfactory ratings. This is

correct; however, if the condition of any of the subsidiary banks

raises a safety or soundness, compliance or CRA concern, the regional

director has the option of removing the application from expedited

processing in accordance with the provisions of Sec. 303.11(c)(2).

One commenter pointed out that a company which does not already

control an insured depository institution cannot receive expedited

treatment. The FDIC does not believe it appropriate to grant expedited

treatment to applicants which do not have an established record of

successfully managing an insured depository institution.

One commenter suggested an expedited processing time of 120 days,

which has been the FDIC's internal time line for all deposit insurance

applications. The FDIC believes it is practical to process an

application from an eligible depository institution or eligible holding

company in 60 days. However, applications for deposit insurance are not

treated as notices, so they are not deemed to be approved by the

passage of time. As set forth in Sec. 303.11(c)(2) the FDIC can remove

an application from expedited processing for a variety of reasons,

including good cause. Removal of an application from expedited

processing enables the FDIC to take additional time to consider a

particular application that might present unique issues.

The FDIC adopts this section as proposed with a technical change to

conform to the longer comment period described below and at

Sec. 303.23.

Public notice and comment period. Proposed Sec. 303.23(a) provided

that notice shall be published as close as practicable to the filing

date but not more than five days before the filing date. This provided

assurance that the public portion of the application file will be

available for inspection during the comment period.

Under the proposal Sec. 303.23(a) would have required interested

parties to file comments with the appropriate regional director (DOS)

on or before the 15th day following the date of publication. Two of the

commenters believed that the proposed 15-day comment period was too

short. In response to this concern, the proposed comment period under

Sec. 303.23(a) has been increased to 30 days in the final rule.

Interested parties are required to file comments with the regional

director on or before the 30th day following the date of publication.

Also, the appropriate regional director (DOS) may extend or reopen the

comment period for good cause.

The FDIC adopts this section with the longer public comment period

discussed above.

Application for deposit insurance for an interim depository

institution. Proposed Sec. 303.24 defined an interim depository

institution as an institution formed or organized solely to facilitate

a merger transaction that would be reviewed by one of the four federal

banking agencies and that would not open for business. The proposal

described the requirements for a filing for deposit insurance for an

interim depository institution and indicated the intent of the FDIC to

take final action on such an application within 21 days after receipt

of a substantially complete application unless the applicant was

advised to the contrary.

No comments were received on this section.

Sections 303.21(b) and 303.24 have been revised in the final rule

to cross-reference appropriate provisions of subpart D (Merger

Transactions) of this part, Sec. 303.60 et. seq. An interim institution

is defined in Sec. 303.21(b) of the final rule as a state or federally

chartered depository institution that does not operate independently

but exists solely as a vehicle to accomplish a merger transaction. A

separate application for deposit insurance for an interim institution

is not required in connection with merger transactions that require

FDIC approval under subpart D. However, subject to the provisions of

Sec. 303.62(b)(2), a separate deposit insurance application is required

for a state chartered interim institution if the related merger

transaction is subject to approval by a federal banking agency other

than the FDIC. Federally chartered interim depository institutions are

deemed to be insured upon the issuance of a charter by the appropriate

federal banking agency and an application for deposit insurance with

the FDIC is not required. The FDIC believes that the changes to these

two sections will ensure consistency among subparts B and D.

The filing required by Sec. 303.24(b) of the final rule consists of

a brief letter application and a copy of the related merger

transaction. It is anticipated that the FDIC will consult with the

federal banking agency reviewing the merger application and that final

action on the deposit insurance application will be taken within 21

days after receipt of a substantially complete application. If

[[Page 44695]]

additional review by the FDIC is warranted, the applicant will be so

advised in writing.

Continuation of deposit insurance upon withdrawing from membership

in the Federal Reserve System. Proposed Sec. 303.25 set forth the

application procedure for the continuation of a state bank's deposit

insurance upon its withdrawal from membership in the Federal Reserve

System. No comments were received on this section. The FDIC adopts this

section as proposed with minor technical revisions to clarify that the

correspondence referred to in Sec. 303.25(a)(1), (2) is with the

appropriate Federal Reserve Bank.

Delegation of authority. Proposed Sec. 303.26 sets forth the

delegations of authority relevant to applications for deposit

insurance. The specific criteria that must be met before delegated

authority can be exercised, such as initial capitalization,

reasonableness of legal fees and other expenses, projected

profitability, investment in fixed assets and financial arrangements

involving insiders, including stock financing arrangements, were

updated to reflect current policy, and are discussed in the revised

statement of policy on Applications for Deposit Insurance published

elsewhere in today's Federal Register. The revised statement of policy

is cross-referenced in the final rule to avoid duplication.

Proposed Sec. 303.26(a)(1) delegated authority to the Director and

the Deputy Director (DOS), and where confirmed in writing, to an

associate director, and the appropriate regional director and deputy

regional director (DOS) to approve applications for deposit insurance

for proposed depository institutions subject to specified criteria. The

criteria set forth in paragraph (v) provided that an application could

be approved by the regional director or deputy regional director (DOS)

only where no CRA protest, as defined in Sec. 303.2(l), had been filed

which remained unresolved, or where such protest remained unresolved,

the appropriate DCA official concurred that approval would be

consistent with purposes of the CRA, and the applicant agreed in

writing to any conditions imposed regarding the CRA. Under the

proposal, where a protested application remained unresolved the

Director, Deputy Director or associate director (DOS) could approve the

application without DCA concurrence. While no commenters specifically

addressed this provision, several commenters raised general concerns

regarding the FDIC's delegation of authority to act upon CRA protested

applications. As discussed above, the FDIC believes that it is

desirable to vest authority to act on protested applications in

officials most likely to be personally familiar with the institution or

institutions and communities involved. Section 303.26(a)(1) has been

revised in the final rule to restrict the authority of the Director,

Deputy Director and associate director (DOS) to act upon CRA protested

applications by requiring them to obtain DCA concurrence before

approving such applications. The FDIC believes that this revision will

ensure that those FDIC officials with relevant expertise will act

together to approve any application under this section that is subject

to an unresolved CRA protest.

The FDIC adopts this section with the revisions discussed above.

Proposed Sec. 303.27 set forth authority retained by the Board of

Directors. No comments were received on this section. The FDIC adopts

this section as proposed.

C. Subpart C--Establishment and Relocation of Domestic Branches and

Offices

The proposal significantly revised the portion of part 303 that

implements section 18(d) of the FDI Act (12 U.S.C. 1828(d)) which

requires insured state nonmember banks to obtain the prior written

consent of the FDIC in order to establish a domestic branch, relocate

the main office, or relocate a branch. The major changes in the

proposal provided for expedited processing for eligible depository

institutions and new definitions for ``messenger service,'' ``mobile,''

``temporary,'' and ``seasonal'' branches. The proposal excluded remote

service units including automated teller machines and automated loan

machines from the definition of a branch. Requirements related to

interstate branching were also addressed in the proposal. Because of

the comprehensive treatment of branches, the proposal also recommended

rescinding the Statements of Policy regarding Applications to Relocate

a Main Office or Branch and Applications to Establish a Domestic

Branch. Both statements were considered obsolete and unnecessary

considering the revisions to subpart C and are rescinded elsewhere in

today's Federal Register.

The FDIC received three comments specifically on this subpart and

numerous comments addressing expedited processing, the public comment

period and the delegations of authority regarding CRA protested

applications. The FDIC carefully considered all the comments, and the

final rule reflects changes made in response to those comments as well

as technical changes to the proposal.

Definitions. Proposed Sec. 303.41(a) clarified that remote service

units, including automated loan machines, are not branches. These

exclusions are a result of statutory changes contained in section 2204

of EGRPRA (12 U.S.C. 36). Two commenters supported this change in the

definition.

With regard to the definition of ``branch relocation,'' two

commenters suggested that the FDIC explicitly make reference to the

Policy Statement Concerning Branch Closing Notices and Policies (2 FDIC

Law, Regulations and Related Acts 5391 (August 10,1993)) within the

definition of ``branch relocation'' in order to ensure that the new

definition is read as incorporating all of the guidance in the policy

statement. The FDIC agrees that it would be useful to make reference to

the policy statement and has provided the reference in the definition

of a branch relocation.

Filing procedures. The proposed regulation at Sec. 303.42(b)(2)

provided filing procedures for messenger services and mobile branches.

Specifically, the FDIC proposed that the geographic location for a

mobile branch be designated as to which community or communities are to

be served. The FDIC sought comment on whether such a designation is

appropriate but received no specific response. The FDIC is, however,

making a clarification in the final regulation to require that filings

specify the community or communities in which the vehicle will operate

and the manner in which it will be used.

One commenter recommended that applications for mobile branches be

subject to abbreviated FDIC review and public notice procedures because

of their unique characteristics and the substantial public convenience

offered by these facilities. The FDIC has carefully considered the

comment but believes that with the adoption of expedited processing for

eligible institutions that a special provision for a more limited

review is unnecessary.

In addition, proposed Sec. 303.42(b) has been modified to include

references to two FDIC statements of policy, one of which gives

guidance on the National Environmental Policy Act of 1969 (42 U.S.C

4321 et seq.) (NEPA) (2 FDIC Law, Regulations and Related Acts 5185,

March 31, 1980), and the other provides guidance on the NHPA (2 FDIC

Law, Regulations and Related Acts 5175 (March 31, 1980). The language

in Sec. 303.42(b)(5) has been modified to simply require a statement as

to whether or not the particular site for a branch or branch relocation

is included, or is eligible for inclusion, in the National Register of

Historic Places, including

[[Page 44696]]

documentation of consultation with the State Historic Preservation

Officer, as appropriate. The proposed regulation required a statement

as to whether or not the particular site is included in or is eligible

for inclusion in the National Register as well as a statement that

clearance has been or will be obtained from the State Historic

Preservation Officer. This change has been made in anticipation of a

programmatic agreement with the Advisory Council on Historic

Preservation and subsequent change in the FDIC's Statement of Policy on

NHPA to reflect exclusions of certain categories of properties from the

NHPA.

With regard to the establishment of certain interstate de novo

branches, the proposal at Sec. 303.42(b)(8) required the applicant to

provide a statement that the applicant has requested that the host

state provide to the appropriate regional director (DOS) written

confirmation that the applicant has complied with the state's filing

requirements and that the applicant has also submitted to the host

state bank supervisor a copy of the filing with the FDIC to establish

and operate a de novo branch. This requirement has been deleted in the

final regulation and the FDIC will make direct requests to the state

supervisor in those limited cases where such confirmation is required.

As a result of this deletion, the remainder of the section has been

renumbered.

Processing. The proposal at Sec. 303.43(a), provided expedited

processing for applications for the establishment and relocation of

domestic branches and offices for eligible depository institutions. The

expedited processing procedures were contained in Sec. 303.11(c), and

provided that an application submitted by an eligible depository

institution as defined in Sec. 303.2(r) will be acknowledged in writing

by the FDIC and receive expedited processing unless the FDIC removes

the application from expedited processing for any of the reasons set

forth in Sec. 303.11(c)(2). Section 303.43(a) provided that the FDIC

may remove an application from expedited processing at any time before

the approval date and will promptly notify the applicant in writing of

the reason for such action. Absent such removal, an application

processed under expedited processing will be deemed approved on the

latest of the following: (1) the 21st day after receipt of a

substantially complete application by the FDIC, (2) the 5th day after

expiration of the comment period described in Sec. 303.44, or (3) in

the case of an application to establish and operate a de novo branch in

a state that is not the applicant's home state and in which the

applicant does not maintain a branch, the 5th day after the FDIC

receives from the host state confirmation that the applicant has both

complied with the filing requirements of the host state and submitted a

copy to the host state bank supervisor of the application filed with

the FDIC. One commenter objected to the expedited processing

provisions, arguing that they treat such filings as notices and would

subvert the spirit of the CRA. The FDIC believes such concerns are

unwarranted since the FDIC intends to carefully review all applications

for CRA and other safety and soundness and compliance concerns

regardless of the expedited processing time frames. The FDIC has also

provided for provisions for removal from expedited processing in

certain circumstances as enumerated in Sec. 303.11(c)(2).

Public notice requirements. The public notice requirements of the

proposal required that to relocate a main office the applicant publish

notice in the community in which the main office is currently located

and in the community to which the main office proposes to relocate, and

that such notice be published at least once each week on the same day

for two consecutive weeks. The proposal provided that for the

relocation of branches, a notice shall be published once in a newspaper

in the community in which the branch is located. One commenter objected

to this provision and recommended that two newspaper publications be

required to conform with the requirement for main office relocation.

The FDIC believes that since a branch relocation can only occur in the

same immediate neighborhood, that only one publication in that

community is necessary. Furthermore, a single publication is consistent

with the requirements of the other federal banking agencies.

In order to eliminate the uncertainty regarding the close of the

comment period, proposed Sec. 303.44 provided that comments must be

received by the appropriate Regional Director (DOS) within 15 days

after the date of the last newspaper publication and proposed

Sec. 303.9 provided for extension or reopening of the comment period in

certain situations. The FDIC received numerous comments on the length

of the comment period. Several comments supported the comment period,

however, a number of commenters objected to the 15-day comment period.

Several commenters suggested that a public comment period of 30 days

after the last publication while one commenter suggested the FDIC adopt

a processing time frame of 45 days as provided in part 5 of the Office

of the Comptroller of the Currency's regulations. One commenter

suggested that the comment period should not commence until the FDIC

has received a complete application. One commenter thought that the

application and notice provisions were generally reasonable, but

suggested that the application review deadline be changed to 15 days

after receipt of a substantially complete application or five days

after the public comment period expires, whichever is later. The

commenter argued that branch applications and relocations are

relatively simple activities and should, therefore, be processed

quickly. On balance, the FDIC believes a 15-day comment period provides

adequate time for the public to comment on the establishment or

relocation of a branch. The regulation provides for two publications

and a 21-day comment period for a main office relocation. The FDIC also

commits to place all applications subject to the CRA on its World Wide

Web site within three days of receipt in order to provide prompt

notification of all filings. The FDIC has also given its regional

directors wide discretion to extend the comment periods in order to

provide the public with an adequate amount of time to submit a

meaningful analysis. With regard to the processing or review deadline

being changed to 15 days after receipt of a substantially complete

application, the FDIC believes the 21 day processing period is

responsive to the industry and that it is not feasible to commit to a

shorter time frame. For these reasons, the FDIC is adopting the

timeframes as proposed.

Special provisions. Section 303.45 of the proposed regulation added

several new provisions regarding procedures for opening temporary

branches in emergency or disaster situations, re-designating a main

office, and providing for the expiration of approved applications.

The proposed regulation at Sec. 303.45(a) clarified procedures for

establishing temporary branches in emergency or disaster situations.

The proposal provided that in the case of an emergency or disaster at a

main office or branch which requires that an office be immediately

relocated to a temporary location, the applicant notify the appropriate

regional director (DOS) within 3 days of such temporary location. In

such limited cases, the FDIC will accept initial notification by

whatever means appropriate. The FDIC is making this limited exception

to allow for the public's need to have uninterrupted access to banking

services. However, the final regulation

[[Page 44697]]

does require that, within 10 days of a such a temporary relocation, the

bank submit a written application to the appropriate regional director

(DOS). The FDIC received one comment specifically supporting the

inclusion of such temporary facilities since it will make it easier for

institutions to relocate a branch or main office in the event of an

emergency.

Proposed Sec. 303.45(b) regarding relocation of a main office and

simultaneous redesignation of an existing office as the main office has

been modified to make clear that in such circumstances only a single

application is required.

Proposed Sec. 303.45(c) provided that approval of an application

expires if a branch has not commenced business or if a relocation has

not been completed within 18 months of approval. One commenter

supported the expiration of the approval but suggested an extension

should be possible where extenuating circumstances warrant. The FDIC

has provided for such extension of time in subpart M of the final

regulation.

Delegation of Authority. Proposed Sec. 303.46 delegated authority

to the Director and Deputy Director, and where confirmed in writing, to

an associate director, and the appropriate regional director and deputy

regional director (DOS) to approve applications listed in this subpart

subject to specific criteria. The criteria set forth in paragraph

(c)(5) provided that an application could be approved by the regional

director or deputy regional director (DOS) only where no CRA protest as

defined in Sec. 303.2(l) had been filed which remained unresolved, or

where such protest remained unresolved, the appropriate DCA official

concurred that approval would be consistent with the purposes of the

CRA and the applicant agreed in writing to any conditions imposed

regarding the CRA. Under the proposal, where a protested application

remained unresolved the Director, Deputy Director or associate director

(DOS) could approve the application without DCA concurrence. While no

commenters specifically addressed this provision, several commenters

raised general concerns regarding the FDIC's delegation of authority to

act upon CRA protested applications. As discussed above, the FDIC

believes that it is desirable to vest authority to act on protested

applications in officials most likely to be personally familiar with

the institution or institutions and communities involved. Section

303.46(c)(5) has been revised in the final rule to restrict the

authority of the Director, Deputy Director and associate director (DOS)

to act upon CRA protested applications by requiring them to obtain DCA

concurrence before approving such an application. The FDIC believes

that this revision will ensure that those FDIC officials with relevant

expertise will act together to approve any application under this

subpart that is subject to an unresolved CRA protest.

Modification has been made to Sec. 303.46(c)(7) to reflect the

deletion of proposed Sec. 303.42(b)(8) which had required applicants to

request and provide a statement from the host state which provided

certain confirmations. As noted above, the FDIC will make such

inquiries.

After consideration of the comments, the FDIC adopts subpart C with

the above-noted modifications.

D. Subpart D--Merger Transactions

Proposed subpart D consolidated and reorganized the various

provisions of part 303 governing transactions subject to FDIC approval

under section 18(c) of the FDI Act (12 U.S.C. 1828(c)) (Bank Merger

Act). The primary changes reflected in the proposal were the addition

of an expedited processing procedure, the addition of various

definitions applicable to merger transactions, and the addition of

references to other statutory or regulatory provisions often applicable

to merger transactions.

The FDIC received three comments specifically addressing proposed

subpart D and numerous comments addressing expedited processing and the

delegations of authority regarding CRA protested applications. The FDIC

has carefully considered these comments. The comments are summarized

below in the following discussion of the regulatory text.

First, however, the FDIC notes that the title of this subpart has

been changed from ``Mergers'' to ``Merger Transactions.'' The use of

the term ``merger transaction'' is meant to be inclusive of all types

of transactions (including mergers, consolidations, and transfers of

deposit liabilities) covered by the Bank Merger Act. When the term

``merger'' is used in the regulation, it is used to reference only a

true merger.

Scope. Proposed Sec. 303.60 set forth the scope of the subpart. One

commenter suggested that a cross reference to the FDIC's Statement of

Policy on Bank Merger Transactions be added to the proposal. Section

303.60 of the final rule includes such a reference to the Statement of

Policy which is also published in today's issue of the Federal

Register. The FDIC adopts this section with the suggested reference.

Definitions. Proposed Sec. 303.61 added definitions regarding

merger transactions. No comments were received regarding the

definitions. The FDIC adopts this section as proposed, with minor,

nonsubstantive editorial changes.

Transactions requiring prior approval. Proposed Sec. 303.62

detailed the types of transactions requiring the prior written approval

of the FDIC under subpart D. No comments were received regarding the

transactions covered. The FDIC adopts this section as proposed with

minor editorial changes.

Filing procedures. Proposed Sec. 303.63 provided guidance regarding

the filing procedures for applications required under the subpart. No

comments were received on the filing procedures. The FDIC adopts this

section as proposed, with minor, nonsubstantive editorial changes.

Processing. Proposed Sec. 303.64 included the addition of an

expedited processing procedure. This procedure would be available when

all parties to a merger transaction are eligible depository

institutions (as defined in Sec. 303.2(r)), and the resulting

institution would be well-capitalized immediately after the merger

transaction.

One commenter suggested that the expedited processing period of 45

days be reduced to 30 days for smaller, less complex transactions where

the total assets of the resultant institution would be less than $500

million. Another commenter recommended that the expedited processing

period be increased to 60 days. The final rule retains the 45 day

processing time line. The FDIC believes that this provides sufficient

time to act on applications that do not raise unique issues or are not

subject to CRA protests. Protested applications or applications which

raise unique issues generally would be removed from expedited

processing. While it might be possible to resolve all relevant safety

and soundness issues arising in the context of smaller merger

transactions in less than 45 days, the statutory requirement of a 30

day publication period and the requirement to consult with the Attorney

General and other bank regulatory agencies regarding the competitive

factors does not make it feasible to establish a shorter time frame for

action.

One commenter generally supported the expedited processing proposal

but suggested that the eligibility criteria be expanded to include

otherwise eligible proposals where an ineligible target institution has

core deposits equal to 10 percent or less of the acquiror's core

deposits. In response to this comment, a provision has been added in

the final

[[Page 44698]]

rule that permits expedited processing for transactions involving an

eligible acquiror and an ineligible seller if the amount of total

assets to be transferred to the acquiror is no more than 10 percent of

the acquiror's total assets. The FDIC believes that, absent other

issues, such a transaction would be less likely than larger

acquisitions to raise safety and soundness concerns.

The FDIC adopts this section with the changes noted above, along

with limited minor changes.

Public notice requirements. Section 303.65 of the proposal set

forth the requirements for providing public notice of merger

transactions, the required content of such notices, and a predictable

period of 35 days during which the public may submit comments on

proposed non-emergency merger transactions. In addition, the proposal

permitted the initial public notice of a proposed transaction to be

published up to 5 days before the merger application is filed with the

FDIC. Under the existing regulations, the notice could not be published

until the application had been filed with the FDIC.

One commenter opposed the proposal to permit merger applicants to

publish notice of a proposed transaction before a completed application

has been filed with the FDIC. Another commenter generally supported the

proposal but objected to the 35 day comment period. One commenter also

suggested a shorter comment period for smaller and less complex

transactions, such as those resulting in an institution with less than

$500 million in combined assets. In contrast, another commenter urged a

longer comment period than that proposed. This commenter suggested that

the public comment period should extend through the fifth day prior to

FDIC action on the application (specifically, 5 days before the end of

the 60-day minimum processing period urged by the commenter).

The final rule continues to provide for a fixed comment period. The

FDIC believes this will provide prospective commenters the assurance

that they will have a definite number of days for submitting comments

after publication of the last notice of a proposed transaction. The

final regulation revises the length of the public comment period to a

30-day public comment period rather than the 35-day period proposed.

Upon reflection, the FDIC does not believe it is necessary to provide

for a longer comment period than required by the Bank Merger Act. The

final rule moves the last publication date for public notice of the

transaction from the 30th day after initial publication to the 25th

day. This ensures that prospective commenters will typically have 5

days after the last publication to express their views on a proposed

merger transaction. The FDIC notes that the final rule provides

flexibility for the FDIC to extend or reopen a comment period for

reasons specified in subpart A of the final rule.

Regarding the suggestion that the comment period be extended to 5

days before the end of the processing period, the FDIC notes that the

expedited processing period in Sec. 303.64(a) is a maximum period, not

a minimum. Thus, simple transactions requiring only the most cursory

review, for example, might be approved sooner than 45 days after the

date of the application. Because the processing time required for any

given application cannot be predicted in advance, the closing date for

comments on the application cannot both be predictable and end a

certain number of days before the FDIC makes a decision on the

application.

Proposed Sec. 303.65(a) provided generally that an applicant for a

merger transaction must publish notice of the proposed transaction on

at least three occasions at approximately two-week intervals. No

comments were received on this provision. The final rule revises this

requirement to provide that such notice must be published on at least

three occasions at approximately equal intervals. The FDIC makes this

change to conform with changing the date of the last publication to the

25th day after the initial publication, as discussed above.

Proposed Sec. 303.65(b)(1) set forth an exception to the

publication requirements where the FDIC determines that an emergency

requires expeditious action. This exception tracks a statutory

exception. Under this provision of the proposal, notice shall be

published twice, with the second of the two notices to be published on

the 10th day after the first publication. The final rule requires the

second notice to be published on the 7th day after the first

publication. Based upon the statutory 10-day processing period, this

change allows the public 3 days to comment after the second

publication.

One commenter suggested that the FDIC require notices regarding

merger transactions to be published in languages other than English in

communities with significant non-English speaking populations. Rather

than limit applicability to situations involving merger applications

and non-English publication, however, the FDIC has instead added a more

broadly-focused provision in subpart A. Specifically, under the new

Sec. 303.7(f) the FDIC may determine on a case-by-case basis that

unusual circumstances surrounding a particular filing warrant

modification of the publication requirements. It is intended that this

provision will be applied sparingly and with the purpose of making

publication more meaningful, not as a means of altering the publication

requirements to suit the convenience of the parties or as a means of

curing defective publications.

The FDIC adopts Sec. 303.65 with the modifications discussed above

and minor, non-substantive, editorial changes.

Delegations of authority. Proposed Sec. 303.66 set forth the

delegations of authority to designated FDIC officials to approve under

the Bank Merger Act any application filed under this subpart for

approval of a merger transaction for which the specified criteria are

satisfied. The specific criteria that must be met before delegated

authority can be exercised, such as capital requirements, competitive

effects and geographic markets were updated to reflect current FDIC

policy.

Proposed Sec. 303.66(b) delegated authority to the Director and

Deputy Director, and where confirmed in writing, to an associate

director, and the appropriate regional director and deputy regional

director (DOS) to approve merger applications, subject to specific

criteria. The criteria set forth in Sec. 303.66(b)(5) provided that an

application could be approved by the regional director or deputy

regional director (DOS) only where no CRA protest as defined in

Sec. 303.2(l) had been filed which remained unresolved, or where such

protest remained unresolved, the appropriate DCA official concurred

that approval would be consistent with the purposes of the CRA, and the

applicant agreed in writing to any conditions imposed regarding the

CRA. Under the proposal, where a CRA protest remained unresolved the

Director, Deputy Director or associate director (DOS) could approve the

application without DCA concurrence. While no commenters specifically

addressed this provision, several commenters raised general concerns

regarding the FDIC's delegation of authority to act upon CRA protested

applications. As discussed above, the FDIC believes that it is

desirable to vest authority to act on protested applications in

officials most likely to be personally familiar with the institution or

institutions and communities involved. Sections 303.66(c) and (d) have

been revised in the final rule to restrict the authority of the

Director, Deputy Director and associate director (DOS) to act upon CRA

protested applications by requiring

[[Page 44699]]

them to obtain DCA concurrence before approving such an application.

The FDIC believes that this revision will ensure that those FDIC

officials with relevant expertise will act together in deciding whether

to approve a merger application that is subject to an unresolved CRA

protest.

Regarding competitive effects which are considered under proposed

Secs. 303.66(f) and (g), one commenter urged that the regulation

provide guidance as to the composition of relevant geographic markets

to be used in analyzing competitive effects. The Statement of Policy on

Bank Merger Transactions (published elsewhere in today's Federal

Register), to which a cross reference has been added in new

Sec. 303.60, includes a discussion on relevant geographic markets.

Relevant geographic markets are best defined on a case-by-case basis,

considering such factors as the location of the offices of the

particular merging parties. Beyond the factors referred to in the

Statement of Policy, the FDIC does not believe that any more specific

factors can be identified that could be applied for all merger

transactions, successfully, accurately, and without undue burden. This

same commenter expressed concern that the benefits of expedited

processing might be undermined if the FDIC waited for the Attorney

General's competitive-factors reports before acting on a merger

application. In response, we note that the Bank Merger Act allows the

Attorney General 30 calendar days to provide a competitive factors

report. The report is commonly provided within or near this period

unless competition issues are raised that the Department of Justice

believes merit more extensive examination. If there are such issues, it

is likely that the application would be removed from expedited

processing.

One commenter further suggested that language be added to the final

rule that would preclude FDIC consideration of any factor unless that

factor is specifically referred to in the regulation. The FDIC believes

such a provision would be ill advised and not in the public interest.

General categories of considerations specified in the Bank Merger Act

and other relevant statutes are identified in the Statement of Policy

on Bank Merger Transactions (published elsewhere in today's Federal

Register). The necessity of expressly enumerating each and every factor

to be considered within these categories would result in a regulation

of unwieldy length.

Proposed Sec. 303.66(f) provided that if the Attorney General does

not provide a competitive factors report and certain delegation

criterion are satisfied, the appropriate regional director (DOS) may

request a written opinion from the FDIC's General Counsel or designee

as to whether the proposed merger might have a significantly adverse

effect on competition. Since the request for a written opinion was

permissive, the language has been deleted from the final rule. The FDIC

notes that nothing would prohibit a regional director from requesting

such an opinion.

The FDIC adopts this section with the revisions discussed above.

Authority retained by the FDIC Board of Directors. Proposed

Sec. 303.27 set forth authority retained by the Board of Directors. No

comments were received on this section. The FDIC adopts this section as

proposed.

E. Subpart E--Change in Bank Control

The proposal substantially reorganized, clarified, and simplified

the FDIC's regulation implementing the Change in Bank Control Act of

1978. The changes, developed in consultation with the other federal

banking agencies, harmonize the scope and procedural requirements of

the FDIC's regulation with those of the other federal banking agencies

and reduce unnecessary burden. In addition, a common form which may be

used to satisfy the notice requirements of the Change in Control Act

has been adopted by the four federal banking agencies and is available

from any FDIC regional office.

The proposal defined the previously undefined term ``acting in

concert'' to clarify the scope of the regulation. It also incorporated

the current FDIC position that the acquisition of a loan in default

that is secured by voting shares of an insured state nonmember bank is

presumed to be an acquisition of the underlying shares. Further, the

proposal lengthened the period of time for notifying the FDIC from 30

to 90 days for shares acquired in satisfaction of a debt previously

contracted in good faith or through testate or intestate succession or

a bona fide gift. In the case of shares acquired in satisfaction of a

debt previously contracted, the proposal added language that reflects

FDIC practice of requiring the acquiror of a defaulted loan secured by

a controlling amount of a state nonmember bank's voting securities to

file a notice before the loan is acquired.

The proposal also reduced regulatory burden on persons whose

ownership percentage increases as the result of a redemption of voting

shares by the issuing bank or the action of a third party not within

the acquiring person's control. In these situations, the proposal

permits the person affected by the bank or third party action to file a

notice within 90 calendar days after receiving notice of the

transaction. Currently, these persons must file notice under the Change

in Bank Control Act prior to the action that increases the person's

percentage ownership, and, because these persons cannot control the

third party action that causes the increased percentage ownership, they

are often put in violation of the Change in Bank Control Act and the

FDIC's Rules and Regulations.

The proposal provided more flexible timing for newspaper

announcements of filings under the Change in Bank Control Act by

permitting notificants to publish the announcement as close as

practicable to filing the notice of change in control. The proposal

removed the requirement that the notificant have confirmation that the

FDIC has accepted the notice before publishing the announcement.

The proposal deleted the provision governing notices filed in

contemplation of a public tender offer which permits an acquiror to

delay publication of the newspaper announcement. None of the other

federal banking agencies has such a provision.

The FDIC received two comments regarding the proposal. One

commenter supported the proposed changes to the regulation and the

other did not object to the changes proposed. The FDIC adopts this

section as proposed.

F. Subpart F--Change of Director or Senior Executive Officer

The proposed rule implemented the amendments to section 32 of the

FDI Act and set forth the circumstances under which an insured state

nonmember bank must give the FDIC prior notice of a change in any

member of its board of directors or any senior executive officer and

the procedures for filing such notice, as well as applicable

delegations of authority. The proposed rule also strived to harmonize

the procedural requirements of the FDIC's regulation with those of the

other federal banking agencies and to reduce any unnecessary regulatory

burden. In addition, a common application form providing the notice

requirements of section 32 has been adopted by the federal banking

agencies and is available from any FDIC regional office.

Section 2208 of EGRPRA (12 U.S.C. 1843) amended section 32 by

eliminating the prior notice requirement for institutions and holding

companies that are chartered for less than two years or that have

undergone a change in control within the preceding two years. However,

institutions and holding companies that are not in compliance with

minimum capital requirements or

[[Page 44700]]

are otherwise in ``troubled condition'' remain subject to the prior

notice requirement. In addition, EGRPRA provided that prior notice will

be required if the agency determines, in connection with its review of

a capital restoration plan required under section 38 of the FDI Act

(governing prompt corrective action) or otherwise, that such prior

notice is appropriate. Also, the EGRPRA amendments provided the

agencies with more latitude to determine the prior notice period and

allowed the agencies up to 90 days to issue a notice of disapproval.

Although the EGRPRA amendments provided the agencies with authority to

increase the prior notice period to 90 days, the proposed subpart F

retained the 30-day prior notice currently required but allowed the

agency to extend the time to act on a notice by up to an additional 60

days. The FDIC specifically sought public comment on the 30-day time

frame.

Two comments were received on the proposal. One commenter generally

supported the changes in the proposal. Another commenter suggested that

any extension of the 30 day processing period be limited to an

additional 30 days rather than 60 days.

The final rule retains the FDIC's ability to extend the 30 day

notice for up to an additional 60 days. The FDIC expects to act on the

vast majority of these cases within 30 days. It is anticipated that

this additional 60-day period would be used infrequently. In all such

cases, the notificant will be advised in writing prior to expiration of

the 30-day prior notice period of the reason the FDIC could not take

action and of the projected additional time needed.

The final rule adopts subpart F as proposed, with minor technical

changes.

G. Subpart G--Activities and Investments of Insured State Banks

The part 303 proposal reserved subpart G for filing procedures

related to activities and equity investments of insured state banks

which are currently contained in part 362 (12 CFR 362). Part 362

implements section 24 of the FDI Act (12 U.S.C. 1831a), which was

created by the Federal Deposit Insurance Corporation Improvement Act of

1991 (Pub. L. 102-242, 105 Stat. 2236), and governs the circumstances

in which insured state banks may engage in activities which are not

permissible for national banks.

The FDIC has an outstanding notice of proposed rulemaking to make

comprehensive revisions to part 362. 62 FR 47969, September 12, 1997.

In connection with these revisions, the FDIC proposes to eliminate

certain application procedures which are outdated, and also to

authorize certain activities to be approved by the FDIC on an expedited

basis. At the time the FDIC issued its part 303 proposal, the FDIC

could not determine whether its 362 proposal or its part 303 proposal

would be finalized first. In order to deal with this problem, the

application procedures which implement the proposed revisions to part

362 concerning state bank activities were issued in subpart E of the

part 362 proposal. The part 303 proposal advised members of the public

taking an interest in the FDIC's application procedures for the

activities of insured state banks under part 362 to review the part 362

proposal for the specifics of such application procedures. Both

proposals also advised the public that it is the FDIC's intent to place

the part 362 application procedures relating to state bank activities

in subpart G of part 303 at such time as both rules are final.

One commenter responding to the part 303 proposal addressed certain

substantive aspects of the part 362 proposal. The FDIC will take this

comment into consideration when the FDIC finalizes part 362.

The final rule for part 303 will continue to reserve subpart G.

When the FDIC issues the final rule for part 362, the final version of

the application procedures proposed in subpart E of the part 362

proposal will be issued as final rule amendments to subpart G of part

303. In the interim, insured state banks operating under the current

version of part 362 will continue to look to the current version of

part 362 itself for application procedures until the revisions to part

362 become effective.

H. Subpart H--Filings by Savings Associations

Subpart H of the proposal was reserved for filing procedures

related to activities of insured savings associations and subsidiaries

of insured savings associations that were, at the time of the proposal,

contained in Sec. 303.13 of part 303 (12 CFR 303.13). Section 303.13

implemented sections 28 and 18(m) of the FDI Act (12 U.S.C. 1831e and

12 U.S.C. 1828(m)) which were both enacted as part of the Financial

Institutions Reform, Recovery, and Enforcement Act of 1989 (Pub. L.

101-73, 103 Stat. 484). Provisions of Sec. 303.13 generally governed

the circumstances in which a state savings association could engage in

activities which are not permissible for a federal savings association,

and also required all insured savings associations to notify the FDIC

prior to establishing or acquiring a subsidiary or engaging in any new

activities through a subsidiary.

As part of the FDIC's currently outstanding notice of proposed

rulemaking to revise part 362, the FDIC proposed to address the

substantive issues covered by Sec. 303.13 as subparts C and D of the

revised part 362. 62 FR 47969, September 12, 1997. The part 362

proposal harmonizes, to the extent possible given the differences in

the underlying statutes, the treatment of activities of insured state

banks and the activities of insured state savings associations. In

addition, the proposal retains the statutory notice procedure for all

savings associations establishing or acquiring subsidiaries or engaging

in any new activities through a subsidiary. In connection with these

revisions, the FDIC proposed to eliminate certain one-time application

procedures that are outdated, and also to authorize certain activities

to be approved by the FDIC on an expedited basis. As noted above, at

the time that the FDIC issued its part 303 and part 362 proposals the

FDIC could not determine whether its part 362 proposal or its part 303

proposal would be finalized first. To compensate for this timing issue,

the application and notice procedures that implement the proposed

revisions to part 362 concerning savings associations were issued in

subpart F of the 362 proposal. The preamble to proposed part 303

advised readers to review the part 362 proposal for the specifics of

such application and notice procedures. Both proposals also advised the

public that it is the FDIC's intent to ultimately place the part 362

application and notice procedures relating to savings associations in

subpart H of part 303 at such time as both rules are final.

Since part 303 is now being finalized and part 362 will be

finalized at a later date, former Sec. 303.13 is being redesignated,

without substantive change, as subpart H of part 303. Savings

associations that were operating under former Sec. 303.13 will now look

to subpart H. At such time as part 362 is finalized, however, these

interim procedures will be replaced with the application procedures

adopted with part 362.

No comments were received regarding the reservation of subpart H.

Comments were received, however, on the proposed part 362, and those

comments are being considered in the course of the part 362 rulemaking.

The procedures being adopted at this time preserve without

substantive change the former Sec. 303.13, and redesignates it as

subpart H, Sec. 303.140 through Sec. 303.148. The subpart makes

[[Page 44701]]

several technical and format changes and deletes obsolete references.

First, it adds a Scope section describing the contents of subpart H.

Second, the final rule inserts subheadings in the text in order to

conform the format with the rest of the final part 303. Third, the

final rule removes obsolete references to filing deadlines that expired

years ago. Fourth, it makes certain technical changes throughout to

conform the terminology used in subpart H with that used in part 303.

For example, ``appropriate regional director (DOS)'' has been

substituted for ``(DOS) regional director for the region in which the

state savings association's principal office is located.''

The FDIC adopts this section with the above-referenced

modifications.

I. Subpart I--Mutual-to-Stock Conversions

Proposed Subpart I contained the procedures for filing and

processing the prior notice required of state-chartered mutual savings

banks that propose to convert to stock form. The proposed regulatory

text was almost identical to that contained in Sec. 303.15; however a

delegation of authority was added to allow the Director and Deputy

Director (DOS) to issue a notice of intent not to object to a proposed

conversion transaction that is determined not to pose a risk to the

institution's safety or soundness, violate any law or regulation,

present a breach of fiduciary duty, and or raise any unique legal or

policy issues. The proposal provided that the substantive regulation

regarding mutual-to-stock conversions remain in Sec. 333.4 of this

chapter (12 CFR Part 333).

The FDIC received three comments on proposed subpart I, which are

summarized below in the following discussion of substantive changes to

the regulatory text.

Filing procedures. As proposed, Sec. 303.161 only stated that a

notice shall provide a description of the proposed conversion and

include all materials that have been filed with any state or federal

banking regulator and any state or federal securities regulator. Copies

of all agreements entered into as part of the conversion process were

also required. An insured mutual savings bank chartered by a state that

does not require the filing of a conversion application was merely

required to notify the FDIC of the proposed conversion and provide any

materials requested by the FDIC. No further guidance was given to

institutions on what the notice should contain. One commenter believed

that FDIC's request of ``any'' materials from a state-chartered mutual

savings bank not required to file a state application is overly broad

and does not provide sufficient guidance. The commenter recommended

that the FDIC specify the types of materials the FDIC may request in

that situation. The FDIC believes the suggestion is well founded and,

upon reflection, believes that it is appropriate to specify the

required content of a notice whether or not a filing is being made with

the chartering authority. As a result, Sec. 303.161 has been expanded

to give more guidance with regard to the content of the filing.

New Sec. 303.161(c), ``Content of notice,'' provides a

comprehensive listing of the materials to be included in a complete

notice. The required contents include the plan of conversion, certified

board resolutions relating to the plan, a business plan, a description

of employee benefit plans, a proxy statement and offering circular, a

copy of the charter and bylaws, etc. The listing in no way expands on

the materials currently required and imposes no new requirements. It is

believed that this comprehensive listing of contents will better enable

applicants to file a substantially complete notice and make it less

likely that FDIC will find it necessary to request additional

information prior to acceptance of an application for processing. The

informational requirements in Sec. 333.4 of this chapter relating to

appraisal reports and business plans are incorporated into the listing.

To further clarify requirements, reference is made to the

possibility that related applications for deposit insurance and mergers

transactions may be required, depending upon how the transaction is

structured. Other editorial changes were made to clarify intent, but in

no way alter the substance of the requirements.

The FDIC adopts this section with the increased guidance as

discussed above.

Waiver from compliance. The proposed regulation did not contain

procedures for requesting a waiver from compliance with the substantive

requirements regarding conversions contained in Sec. 333.4 of this part

since such provisions were contained in Sec. 333.4 of this chapter. The

FDIC has decided to move these provisions relating to the procedural

requirements for requesting a waiver from compliance of the

requirements of Sec. 333.4 of this chapter and subpart I of this part

to the revised Sec. 303.162 so that all notice and waiver provisions

for mutual to stock conversions are contained in one subpart. No

substantive changes were made to the waiver procedures in the transfer

from Sec. 333.4 to Sec. 303.162.

Processing. Proposed Sec. 303.163 lists the factors to be

considered by the FDIC in evaluating the notice filed by an institution

seeking to convert from mutual to stock form.

With regard to processing procedures, two commenters believed that

the proposed 60-day notice processing period, as well as the 60-day

extension, should be shortened. One commenter suggested that the notice

period begin immediately upon filing of the notice.

The FDIC believes the existing 60-day notice period is appropriate.

For notices that involve significant legal or policy issues, a shorter

processing period is not practical. Likewise, the 60-day extension

period is viewed as appropriate; however, the FDIC anticipates that any

extension of the notice period will be only as long as necessary to

accomplish a complete review. The FDIC believes that conversion

transactions not involving significant legal or policy issues generally

can be reviewed by DOS within the initial 60-day period. Regarding

commencement of the 60-day notice period, the FDIC believes it is only

practical to begin the period when substantially all of the material

required to make a decision is readily available for review. The final

rule is modified to clarify that a notice will be accepted when it is

deemed ``substantially complete.''

One commenter suggested that the FDIC staff issue only one set of

written comments that would include comments from all FDIC staff

members reviewing the notice rather than forwarding comments from the

various reviewers as separate communications. The FDIC believes that

combining all the comments from the various offices within the FDIC

would neither expedite processing nor facilitate prompt resolution of

issues, but instead would slow the entire review process. Since a

notice may raise a number of different types of regulatory issues, FDIC

staff with varying areas of expertise are routinely called upon to

evaluate certain aspects of a notice. The current system allows the

notificant to receive comments on an on-going basis and thus begin to

cure any defects in the notice without undue delay.

The FDIC has replaced the term ``notice of intent not to object''

with the term ``letter of non-objection'' to better describe the final

nature of the action.

The FDIC adopts this section with the changes noted above and other

editorial changes to clarify intent.

Delegation of authority. Section Sec. 303.164 of the proposed rule

provided for delegation of authority to the Director (DOS) and the

Deputy Director

[[Page 44702]]

to issue non-objection letters when the proposed conversion is

determined not to pose a risk to the converting institution's safety

and soundness, violate any law or regulation, present a breach of

fiduciary duty, or raise any unique legal or policy issues. Two

commenters viewed the proposed delegation of authority as favorable and

agreed that the proposed delegation of authority would reduce notice

processing times. One of these commenters, however, recommended that

the FDIC provide guidelines in a statement of policy or financial

institution letter specifying what constitutes a ``routine

transaction'' eligible for non-objection under delegated authority. At

this time, the FDIC believes providing specific statements of policy or

financial institution letters on what constitutes a ``routine

transaction'' is not necessary; however, the Board may in the future

consider the issuance of a statement of policy addressing issues

relating to the mutual-to-stock conversion process.

A third commenter objected to any delegation of authority to issue

a letter of non-objection. The Board has acted on numerous conversion

notices over the last four years and has provided staff with

considerable guidance regarding the kinds of transaction that are not

objectionable. Cases which raise unique legal or policy issues or

otherwise do not meet the criteria outlined in the regulation will

continue to be reviewed by the Board.

After careful consideration of the comments, the FDIC is adopting

the delegation of authority as proposed.

J. Subpart J--International Banking

Subpart J centralizes application requirements relating to the

foreign activities of insured state nonmember banks and the U.S.

activities of insured branches of foreign banks.

Proposed Interim Application Procedures

The part 303 proposal contained four interim application

procedures.2 At the time the FDIC issued the part 303

proposal, the FDIC had an outstanding notice of proposed rulemaking to

revise the substantive rules underlying the interim procedures. 62 FR

37748, July 15, 1997 (part 347 proposal). The FDIC could not at that

time determine whether the part 303 proposal would be finalized before

the part 347 proposal, and the interim procedures would have been

necessary in that event. Subpart D of the part 347 proposal contained

the permanent versions of the four application procedures, designed to

work with the substantive revisions made to the FDIC's international

banking operations under the part 347 proposal. However, on April 8,

1998 the FDIC published the final rule for part 347, thus eliminating

the need for the interim procedures. 63 FR 17056, April 8, 1998. The

FDIC received no public comments on the interim procedures.

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\2\ These were procedures for: (1) establishing, moving, or

closing a foreign branch of a state nonmember bank, Sec. 303.182;

(2) investment by state nonmember banks in foreign organizations,

Sec. 303.183; (3) exemptions from the insurance requirement for a

state branch of a foreign bank, Sec. 303.186; and (4) approval for

an insured state branch of a foreign bank to conduct activities not

permissible for federal branches, Sec. 303.187.

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Transfer of Application Procedures from Part 347

The final rule for part 303 transfers the four application

procedures contained in subpart D of part 347 to subpart J of part 303.

Section 347.402 of this chapter, on establishing, moving or closing a

foreign branch of a state nonmember bank under Sec. 347.103 of this

chapter, has been transferred to Sec. 303.182. Section 347.403 of this

chapter, on investment by insured state nonmember banks in foreign

organizations under Sec. 347.108 of this chapter, has been transferred

to Sec. 303.183. Section 347.404 of this chapter, on exemptions from

the insurance requirement for a state branch of a foreign bank under

Sec. 347.306 of this chapter, has been transferred to Sec. 303.186.

Section 347.405, on approval for an insured state branch of a foreign

bank to conduct activities not permissible for federal branches under

Sec. 347.213 of this chapter, has been transferred to Sec. 303.187. The

FDIC has made certain technical changes to the language of the

procedures to integrate them with the rest of part 303, but these

changes in language have not changed the substance of the procedures.

In Sec. 303.183, setting out application procedures for investment

by insured state nonmember banks in foreign organizations under

Sec. 347.108 of this chapter, the FDIC has added one requirement. If an

insured state nonmember bank owns 50 percent or more of the voting

equity interests of a foreign organization or otherwise controls the

organization, and the insured state nonmember bank divests itself of

such ownership, the insured state nonmember bank is required to notify

the FDIC by letter within 30 days. This requirement has been added to

parallel the requirement for notice upon closure of a foreign branch

under Sec. 303.182(d).

In connection with the part 347 rulemaking, the FDIC received

public comments on the four application procedures contained in subpart

D of part 347. The preamble to the final rule for part 347 contains a

discussion of the FDIC's consideration of the comments and a

description of the application processes. 63 FR 17056 April 8, 1998.

Noninterim Application Procedures

Proposed part 303 also contained two application procedures which

are not of an interim nature: the procedure for moving an insured

branch of a foreign bank, and the procedure for merger transactions

involving an insured branch of a foreign bank. The definition of an

``eligible insured branch'' at Sec. 303.181(c)(2) has been modified to

make it consistent with Sec. 303.2(r)(2), clarifying that the CRA

rating requirement does not apply to institutions which are not subject

to CRA examinations.

Moving an Insured Branch of a Foreign Bank

Proposed Sec. 303.184 addressed applications by any insured branch

of a foreign bank which wishes to move from one location to another

under section 18(d)(1) of the FDI Act (12 U.S.C. 1828(d)). The FDIC

proposed that Sec. 303.184 parallel proposed subpart C, since the

FDIC's consent to these applications is legally subject to the same

statutory considerations as applications to establish or relocate a

domestic branch or to relocate the main office of an insured state

nonmember bank. This included expedited processing for an eligible

insured branch, and a definition of ``eligible insured branch'' which

paralleled the general Sec. 303.2(r) definition of ``eligible

depository institution,'' with appropriate changes to take into account

the different supervisory rating system and capital requirements

applicable to insured branches.

The FDIC received no comments on proposed Sec. 303.184.

The FDIC has made two changes to Sec. 303.184 in the final rule.

The language in Sec. 303.184(a)(2)(iv) has been modified to simply

require a statement as to whether or not a particular site for a branch

is included in or eligible for inclusion in the National Register of

Historic Places, including documentation of consultation with the State

Historic Preservation Officer as appropriate. Proposed Sec. 303.184(d)

delegated authority to the Director and Deputy Director, and where

confirmed in writing, to an associate director, and the appropriate

regional director and deputy regional director (DOS) to approve

applications to move an insured branch of a foreign bank, subject to

specific criteria. The criteria set forth

[[Page 44703]]

in paragraph 303.184(d)(1)(v) provided that an application could be

approved by the regional director or deputy regional director (DOS)

only where no CRA protest as defined in Sec. 303.2(l) had been filed

which remained unresolved, or where such protest remained unresolved,

the appropriate DCA official concurred that approval would be

consistent with the purposes of the CRA, and the applicant agreed in

writing to any conditions imposed regarding the CRA. Under the

proposal, where a protested application remained unresolved the

Director, Deputy Director or associate director (DOS) could approve the

application without DCA concurrence. While no commenters specifically

addressed this provision, several commenters raised general concerns

regarding the FDIC's delegation of authority to act upon CRA protested

applications. As discussed above, the FDIC believes that it is

desirable to vest authority to act on protested applications in

officials most likely to be personally familiar with the communities

involved. Section 303.184(d) has been revised in the final rule to

restrict the authority of the Director, Deputy Director and associate

director (DOS) to act upon CRA protested applications by requiring them

to obtain DCA concurrence before approving such an applications. The

FDIC believes that this revision will ensure that those FDIC officials

with relevant expertise will act together to approve any application

under this section that is subject to an unresolved CRA protest.

Merger Transactions Involving an Insured Branch of a Foreign Bank

An insured branch of a foreign bank meets the definition of an

insured depository institution under section 3 of the FDI Act (12

U.S.C. 1813) and is therefore subject to the Bank Merger Act. The FDIC

proposed Sec. 303.185, in order to give insured branches conducting

merger transactions which are subject to FDIC approval the benefit of

the same streamlined application processing proposed for domestic

institutions in subpart D of part 303. Proposed Sec. 303.185 clarified

that an eligible insured branch as defined in subpart J generally is

eligible for the expedited processing available to an eligible

depository institution in subpart D. Similarly, Sec. 303.185 clarifies

that a transaction in which an insured branch is merged with other

branches, agencies, or subsidiaries located in the United States of the

same foreign bank parent is eligible for disposition under the enhanced

delegations applicable to corporate reorganizations.3

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\3\ If the foreign bank parent itself is not primarily engaged

in business in the United States, and is involved in some merger

transaction or other combination outside the United States which

does not result in any corresponding merger transaction in the

United States with respect to an insured branch, section 18(c)(11)

of the FDI Act (12 U.S.C. 1828(c)) provides that no approval is

required, since no party to the transaction is primarily engaged in

business in the United States.

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Proposed Sec. 303.185 also incorporated a point explained in

Advisory Opinion FDIC-96-12 (May 13, 1996) concerning the treatment of

an insured branch under section 44 of the FDI Act (12 U.S.C. 1831u) as

added by section 102 of the Interstate Act. Section 44 permits the

responsible federal regulator to approve an interstate merger

transaction involving the acquisition of a branch of an insured bank

without the acquisition of the entire bank, but approval is possible

only if the state in which the branch is located expressly permits out-

of-state banks to acquire a branch of the bank without acquiring an

entire bank. In contrast, section 44 permits the responsible federal

regulator to approve an interstate merger transaction involving the

acquisition of an entire bank if the state in which the bank is located

has not adopted legislation to opt out of interstate merger

transactions. Proposed Sec. 303.185 treated interstate merger

transactions involving an insured branch under the latter approach.

Express state authority permitting out-of-state banks to acquire a

branch of the bank without acquiring the entire bank is required only

if a foreign bank has more than one insured branch in the affected

state and proposes to sell fewer than all of them to the same acquiror.

If such state authority does not exist, the FDIC requires the foreign

bank to sell all of its insured branches in that state to the same

affiliated or unaffiliated acquiror.

The FDIC received no comments on proposed Sec. 303.185.

In the final rule, the FDIC has made no changes to the above-

described portions of Sec. 303.185 governing merger transactions

involving insured branches of foreign banks. However, the FDIC has

added another subsection to the final version of Sec. 303.185. Section

303.185(b) of the final rule addresses certain transactions in which a

U.S. insured depository institution acquires deposits from a foreign

organization at a location in a foreign country, as described below.

The Bank Merger Act (12 U.S.C. 1828(c)) requires these transactions to

be reviewed and approved by the FDIC prior to consummation. Although

these transactions are likely to be rare, the FDIC has added section

303.185(b) to the final rule, highlighting the existence of the

statutory approval requirement in the interest of providing helpful

guidance to the industry. These transactions are subject to Bank Merger

Act approval in accordance with the procedures contained in subpart D

of part 303.

With one exception discussed in the following paragraphs, nothing

in the statutory language or legislative history of the Bank Merger Act

indicates that Congress intended the statute to apply to a U.S. insured

depository institution's acquisitions in foreign countries. The

competitive factors to be analyzed under the Act are by their terms

concerned solely with effects in the U.S. While the financial and

management factors could be germane, most foreign acquisitions are

already subject to approval by federal bank regulators, since section

25 of the Federal Reserve Act (12 U.S.C. 601) or section 18(l) of the

FDI Act requires banking agency approval before an insured bank may

acquire stock (or other evidences of ownership) of foreign banks or

organizations. While certain acquisitions structured as mergers or

purchase and assumption transactions do not involve stock acquisition

subject to approval under these statutes, the insured bank frequently

will establish a foreign branch office in the foreign country as part

of the transaction, requiring federal banking agency approval under

section 25 of the Federal Reserve Act or section 18(d)(2) of the FDI

Act.

Section 18(c)(1)(B) of the Bank Merger Act requires FDIC approval

whenever an insured depository institution assumes liability to pay any

deposits or similar liabilities of any noninsured bank or institution.

Section 18(c)(1)(B), in referring to an assumption of liability to pay

deposits, expressly includes a parenthetical reference to liabilities

which are ordinarily excluded from the statutory definition of a

``deposit'' in section 3(l) of the FDI Act under the proviso in section

3(l)(5) (12 U.S.C. 1813(l)(5)). This reference was added to the Bank

Merger Act in 1978, by the Financial Institutions Regulatory and

Interest Rate Control Act, Pub. L. 95-630 (FIRIRCA). The legislative

history of FIRIRCA states that the reference was added to make it clear

that the FDIC's approval is necessary in connection with an insured

bank's assumption of the deposit liabilities of a foreign noninsured

bank. S. Rep. No. 95-323, 95th Cong., 1st Sess. (1977) at 29; H.R. Rep.

No. 95-1383, 95th Cong., 1st Sess. (1977) at 45.

Section 3(l) defines the term ``deposit'' for purposes of the FDI

Act. At the time of the FIRIRCA amendment,

[[Page 44704]]

the section 3(l)(5) proviso stated that the definition of a deposit, or

an insured deposit, did not include any obligation of a bank which was

payable only at a bank office located in a foreign country. See 12

U.S.C.A. 1813(l)(5) (West 1980). Under the language of the proviso,

there was the potential for the liabilities of the FDIC's insurance

fund to be increased when a U.S. insured bank acquired deposit

liabilities from a foreign bank in a foreign country, such as by

assuming the deposits of a branch of a foreign bank in another country

in connection with acquiring the branch in that country. After the

deposits had been assumed by the U.S. insured bank, the depositors

might be heard to argue their deposits were payable at the insured

bank's home office in the U.S., since it would be unlikely that their

deposit agreements with the foreign bank, which had no U.S. offices,

had contained provisions prohibiting payment in the U.S. Absent the

parenthetical added to section 18(c)(1)(B) by FIRIRCA, these assumption

transactions were arguably not subject to review by the FDIC, since the

liabilities being assumed, in the hands of the foreign bank, did not

meet the deposit definition. The FDIC took the position that section

18(c)(1)(B) would apply, since the deposits might be within the section

3(l) definition upon consummation of the assumption, and Congress, in

an abundance of caution, added the parenthetical to clarify the issue.

By extension, a merger or consolidation resulting in a U.S. insured

bank's acquisition of deposit liabilities also required approval under

section 18(c)(1)(A).4 From approximately 1978 to 1994, the

FDIC gave Bank Merger Act approval to several insured bank acquisitions

abroad.

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\4\ This was because the parenthetical in section 18(c)(1)(B)

established that the term ``noninsured bank or institution'' in

section 18(c)(1)(B) included foreign organizations, and section

18(c)(1)(A) also covers mergers or consolidations with any

``noninsured bank or institution.''

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Subsequent additions to section 3(l)(5) have reduced the potential

for a foreign acquisition to directly increase the liability of the

deposit insurance funds. In 1994, section 326 of CDRIA amended section

3(l)(5), eliminating the proviso and adding a new statutory test. Any

obligation which is carried on the books of an institution's office in

a foreign country is excluded from the definition of deposit unless,

among other things, the contract evidencing the obligation provides by

express terms, and not by implication, that the deposit is payable at

an office in the U.S. See 12 U.S.C. 1813(l)(5)(A) (West Supp. 1998).

The addition of this express contractual element means that depositors

holding foreign bank deposits abroad, whose deposits are assumed by a

U.S. insured depository institution abroad, cannot argue that the

assumption, standing alone, qualifies their claims for treatment as

``deposits'' under the FDI Act. The U.S. insured depository institution

would have to enter into a new contract with the depositor containing

such a term. If a particular transaction involved a U.S. institution's

assumption of foreign bank deposit contracts which contained such a

term prior to the assumption, the deposits might satisfy the section

3(l) definition. But, given industry practices, this scenario is not

likely to arise, and even if it did, the issue would be clearly

apparent to the U.S. institution.

Although CDRIA eliminated the section 3(l)(5) proviso to which the

parenthetical in section 18(c)(1)(B) refers, and CDRIA's additions to

the deposit definition in section 3(l)(5) have narrowed the category of

acquisitions presenting the risk which the section 18(c)(1)(B)

parenthetical was designed to address, the parenthetical in section

18(c)(1)(B) still requires a Bank Merger Act application for any

assumption of foreign deposits from a noninsured foreign institution

which directly increases the potential insured deposit liabilities of

the deposit insurance funds. A merger or consolidation with a

noninsured foreign institution having the same effect also requires

FDIC approval under section 18(c)(1)(A), since section 18(c)(1)(A) uses

the same ``noninsured bank or institution'' language found in section

18(c)(1)(B). In order to highlight this statutory requirement for the

benefit of the industry, the FDIC has added Sec. 347.185(b). This

section states that the FDIC's Bank Merger Act approval is required for

any merger transaction in which an insured depository institution

becomes directly liable for obligations which will, after the merger

transaction, be treated as deposits under section 3(l)(5)(A)(i)-(ii) of

the FDI Act (12 U.S.C. 1813(l)(5)(A)(i)-(ii)), as a result of a merger

or consolidation with a foreign organization or an assumption of

liabilities of a foreign organization. As noted above, such merger

applications are to be submitted and processed under the procedures

contained in subpart D of part 303.

K. Subpart K--Prompt Corrective Action

Section 38 of the FDI Act (12 U.S.C. 1831o), which governs prompt

corrective action, restricts or prohibits certain activities based on

an institution's capital category, and requires an insured institution

to submit a capital restoration plan when it becomes undercapitalized.

Subpart K as proposed set forth procedures for making applications

under section 38.

The FDIC did not receive any comments specifically on subpart K.

The FDIC is adopting the subpart as proposed, with the exception of one

nonsubstantive change.

This change is to Sec. 303.207(b)(6), which requires critically

undercapitalized institutions to obtain the FDIC's approval before

paying excessive compensation or bonuses. The proposed regulatory

language mistakenly cross referenced part 359 of the FDIC's rules as

guidance for evaluating what compensation might be excessive, whereas

it is part 364 of the FDIC's rules that governs excessive compensation.

The final rule correctly cites part 364. The remainder of the paragraph

has been removed, because appropriate guidance is now contained in part

364. See 57 FR 44866, 44883, September 29, 1992.

L. Subpart L--Section 19 of the FDI Act (Consent to Service of Persons

Convicted of Certain Criminal Offenses)

Section 19 of the FDI Act (12 U.S.C. 1829) prohibits any person

convicted of any crime involving dishonesty, breach of trust, or money

laundering, or who has agreed to enter into a pretrial diversion or

similar program in connection with a prosecution for any such offense,

from (i) continuing as or becoming an institution-affiliated party,

(ii) owning or controlling directly or indirectly an insured depository

institution, or (iii) otherwise participating in the conduct of the

affairs of FDIC-insured depository institutions, without the FDIC's

prior written consent.

Proposed subpart L did not substantially amend current section 19

application procedures, but brought together all information on section

19 which was previously contained in various sections of old part 303.

Section 303.222 of the proposal clarified the FDIC's position that the

prior consent of the FDIC is required before a person approved under

section 19 to participate in the affairs of a particular institution

may participate in the affairs of another insured institution.

As stated in the proposal, on July 24, 1997, the FDIC Board of

Directors published for comment a proposed Statement of Policy on

Section 19 which contains interpretations of the statutory language (62

FR 39840). Section L should be read in conjunction with the proposed

policy statement for a more complete understanding of the FDIC's

[[Page 44705]]

position on section 19. When the final Statement of Policy is adopted,

the FDIC may find it necessary to revise subpart L accordingly.

The FDIC received no comments on the proposed subpart L and is

adopting the subpart as proposed.

M. Subpart M--Other Filings

As proposed, subpart M contained the procedural requirements and

delegations of authority for miscellaneous filings which did not

warrant treatment as separate subparts. Under the proposal, all

information relating to a particular filing is brought together in a

self-contained section under a standardized format. The proposal also

provided for new expedited review procedures for certain applications.

Proposed part 303 contemplated that the filing procedures for

requesting an exemption from the statutory bar on management interlocks

pursuant to the Depository Institutions Management Interlocks Act (12

U.S.C. 3207) and the FDI Act (12 U.S.C. 1823(k)) would continue to be

contained in part 348 of this chapter (12 CFR part 348). After further

consideration, and in the interest of placing all of the application

procedures in part 303 to the greatest extent possible, the FDIC has

decided to move the procedural requirements and delegation of authority

for filings for management official interlocks from part 348 to part

303. Such filing requirements are now found in new Sec. 303.250 and the

remainder of the subpart has been renumbered in light of this

additional provision. The inclusion of these filing procedures is

considered a technical change by the FDIC. No substantive changes have

been made to these procedures.

The FDIC and other federal banking agencies are engaged in a

rulemaking to amend their respective management official interlocks

regulations to conform to recent statutory changes, modernize and

clarify rules, and reduce unnecessary regulatory burden where feasible.

Once this rulemaking is completed, the applications procedures and

delegations of authority for management official interlocks will be

revised to bring them into conformity with the amended interlocks

regulations. This will be done subsequent to this part 303 rulemaking

by means of a final rule without notice and comment since such changes

are purely technical in nature.

Reduce or retire capital stock or capital debt instruments. Section

303.241 reorganized and clarified procedures for applications to reduce

or retire capital stock, notes or debentures pursuant to section

18(i)(1) of the FDI Act (12 U.S.C. 1828(i)(1)). The FDIC received one

comment specifically with regard to the expedited review procedures for

these types of applications. The commenter supported the eligibility of

these types of applications for expedited procedures. The FDIC is

adopting this section as proposed.

Exercise of trust powers. The FDIC proposed to amend part 303 to

create a new section relating to trust applications that brings

together all the trust application procedures as well as the related

delegations of authority into one centralized location. The FDIC

received one comment regarding this section which supported the

eligibility of trust applications for expedited procedures. The FDIC is

adopting this section as proposed.

Brokered deposit waivers. The proposal reorganized the regulations

regarding applications to accept brokered deposits by adequately

capitalized insured depository institutions. In the proposal, the

application procedures were placed in Sec. 303.243 and the substantive

rules regarding the acceptance of brokered deposits remained in

Sec. 337.6. The proposal retained expedited processing for brokered

deposit waivers yet modified it to parallel the requirements for an

``eligible depository institution'' in Sec. 303.2(r), with the

exception of the well-capitalized criteria. The FDIC received no

specific comments on this section and is adopting the section as

proposed.

Golden parachutes and severance plan payments. The proposal revised

the regulatory provisions regarding applications to make excess

nondiscriminatory severance plan payments and golden parachute payments

by insured depository institutions or depository institution holding

companies. The FDIC's regulations with respect to such payments are

codified at part 359. The FDIC received no specific comment on the

proposed changes and is adopting the section as proposed, with minor

technical changes.

Waiver of liability for commonly controlled depository

institutions. Proposed Sec. 303.245 provided application procedures for

an insured depository institution to request a waiver of liability

pursuant to section 5(e) of the FDI Act (12 U.S.C. 1815(e)). These

procedures were part of the FDIC's Statement of Policy Regarding

Liability of Commonly Controlled Depository Institutions, which

provided guidance to the industry as to the manner in which the FDIC

will administer the provisions of section 5(e) of the FDI Act. The FDIC

received no specific comments on this section and is adopting the

section as proposed.

The statement of policy is being revised elsewhere in today's

Federal Register to remove these procedures for requesting a

conditional waiver of the cross-guaranty liability from the statement

of policy and to indicate that they may be found in Sec. 303.245.

Insurance fund conversions. The proposal revised regulations

regarding filings for insurance fund conversions at Sec. 303.246 to

reformat the filing requirements and delete references to and

procedures regarding insurance fund conversions qualifying as

exceptions to the insurance fund conversion moratorium imposed in

section 5(d) of the FDI Act (12 U.S.C. 1815(d)(2)(A)(ii)). The FDIC

received no specific comments on this section and is adopting the

section as proposed.

Conversion with diminution of capital. Section 303.247 of the

proposal reorganized and clarified filing procedures pursuant to

section 18(i)(2) of the FDI Act (12 U.S.C. 1828(i)(2)) to convert from

an insured federal depository institution to a state nonmember bank

where the capital stock or surplus of the resulting bank will be less

than the capital stock or surplus, respectively, of the converting

institution at the time of the shareholder's meeting approving such

conversion. The FDIC received no specific comments on the section and

is adopting the section as proposed.

Continue or resume status as an insured institution following

termination under section 8 of the FDI Act. Proposed Sec. 303.248

pertains to applications by depository institutions for permission to

continue or resume their insured status after termination of insurance

under section 8 of the FDI Act (12 U.S.C. 1818). This section covers

institutions whose deposit insurance continues in effect for any

purpose or for any length of time under the terms of FDIC orders

terminating deposit insurance. However, it does not cover any operating

non-insured depository institutions which were previously insured by

the FDIC or any non-insured, non-operating depository institutions

whose charters have not been surrendered or revoked. Institutions not

covered by this section are required to file de novo applications for

FDIC insurance. The FDIC received no specific comments on this section

and is adopting the section as proposed.

Truth in Lending Act--Relief from reimbursement. Proposed

Sec. 303.249 established procedures for an initial request for relief

from reimbursement

[[Page 44706]]

pursuant to the Truth in Lending Act (15 U.S.C. 1601 et seq.) and

Regulation Z (12 CFR part 226) (Truth in Lending). The proposal set

forth new procedures specifically for Truth in Lending cases and

provided that applicants may file initial requests for relief within 60

days after receipt of the compliance report of examination containing

the request to conduct a file search and make restitution to affected

customers. The proposal provided that requests for reconsideration

would be handled under the FDIC's general petition for reconsideration

provision located at proposed Sec. 303.11(f). Specifically, the

proposal provided that if reconsideration of an initial denial of a

request for relief was granted, the merits of the request for relief

would have been reconsidered by the Board of Directors if the request

for relief was originally denied by the Director, Deputy Director or

associate director (DCA). Additionally, if the request for relief was

originally denied by a regional director or deputy regional director,

the merits of the request for relief would have been reconsidered by

the Director or Deputy Director (DCA).

No comments were received regarding this section.

To assist applicants, Sec. 303.249(d) of the final rule provides

that the FDIC will notify the applicant in writing of its determination

on the initial request for relief within 60 days of the FDIC's receipt

of such request. The FDIC adopts this section as proposed with this

modification.

Modifications of conditions. The proposal reorganized and clarified

the procedures for requests to modify a previously issued FDIC approval

of a filing. A new criteria for exercise of delegated authority by DOS

officials was added requiring Legal Division consultation to modify

conditions if Legal Division consultation was required in connection

with the original filing. In the final regulation, the section has been

redesignated as Sec. 303.251 as a result of an addition to the subpart

and the necessity to renumber certain sections. The FDIC is adopting

this section as proposed, with the section number modification.

Extensions of time. Proposed Sec. 303.251 reorganized and clarified

the procedures for requests seeking an extension of time to fulfill a

condition required in an approval issued by the FDIC, or to consummate

a transaction which was the subject of an approval by the FDIC.

The FDIC is making two changes to this section in the final

regulation. First, the FDIC is revising the proposal to make clear that

multiple extensions of time will be allowed. The FDIC does not believe

it is necessary to specify the exact number of extensions rather, the

final regulation provides that an extension of time may not exceed one

year; however, more than one extension may be granted regarding a

particular filing. Second the FDIC has changed the section designation

to Sec. 303.252 as a result of an addition to the subpart resulting in

the necessity to renumber certain sections. The FDIC is adopting this

section with the above-stated modifications.

N. Subpart N--Enforcement Delegations

Proposed subpart N contained several changes to the FDIC's

enforcement delegations of authority, which are discussed in detail in

the proposal (62 FR 52827, October 7, 1997). No comments were received

on the proposed subpart, therefore the FDIC adopts the subpart as

proposed, with certain minor technical revisions to conform the

language delegating authority with the delegations of authority in

other subparts of this part 303, and the following clarifications.

Civil money penalties. Proposed Sec. 303.269 provided delegation of

authority, with one exception, to the Director and Deputy Director

(DOS) and the Director and Deputy Director (DCA) to issue final orders

to pay civil money penalties, whether or not a notice of charges has

been issued in a case. The one exception was to delegate to the General

Counsel the authority to levy and enforce civil money penalties for the

late, inaccurate, false or misleading filing of Reports of Condition

and Income, Home Mortgage Disclosure Act Reports, CRA reports (see 12

CFR 345.42), and all other required reports. This exception has been

deleted in the final regulation as the Board believes that such

delegation to the General Counsel is not consistent with the other

delegations and that the decision to issue such orders should be vested

in the Directors and Deputy Director (DOS or DCA) with the concurrence

of the General Counsel.

Acceptance of written agreements. Proposed Sec. 303.274 continued

in effect FDIC delegations of authority to accept written agreements in

lieu of orders to terminate deposit insurance and to issue cease-and-

desist orders under sections 8(a) and (b) of the FDI Act (12 U.S.C.

1818(a) and (b)). Proposed Sec. 303.274(c) added a new provision giving

authority to the Director and Deputy Director (DOS and DCA) and, where

confirmed in writing by the appropriate Director, to an associate

director, or to the appropriate regional director or deputy regional

director to enter into written agreements with insured institutions and

institution-affiliated parties that contain conditions precedent to

FDIC's nonobjection to a filing. A clarification has been added to the

final regulation providing that an insured institution will not be

disqualified from being treated as ``well-capitalized'' for prompt

corrective action purposes because of having entered into a written

agreement with the FDIC or its primary federal regulator in conjunction

with a filing unless the written agreement expressly states to the

contrary.

Modification and termination of section 8(e) prohibition orders.

Proposed, Sec. 303.275(e) authorized modification or termination of

orders issued under section 8(e) of the Act (12 U.S.C. 1818(e)) if a

respondent established any one of the three factors listed in

Sec. 303.275(e). The use of the word ``or'' rather than ``and'' in

paragraph (2) was a clerical error and has been corrected in the final

regulation.

V. Other Regulatory Changes

A. Part 333--Extension of Corporate Powers

The FDIC is making technical revisions to Sec. 333.4 which governs

the substantive requirements for conversions of insured mutual state

savings banks to the stock form of ownership. Paragraph (b) of

Sec. 333.4 sets forth the procedural requirements for requesting any

waiver from compliance with the requirement of Sec. 333.4 due to

conflicts with state law. Paragraph (b) is deleted from Sec. 333.4 and

moved to Sec. 303.162 with two changes. The first cha

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