Determination of Economically Depressed Regions

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 357

RIN 3064-AB08

Determination of Economically Depressed Regions

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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

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

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

regulations to reflect changes in the marketplace, update and

streamline the regulation, improve efficiency, and reduce unnecessary

costs. The text of this final rule is substantially similar to that of

the proposed rule that was published in the Federal Register of August

6, 1996. Previous references to specific sources of data to be used in

determining whether a region is economically depressed were removed in

order to allow for more flexibility in our analyses. In addition, the

general designation of states as the geographical unit over which the

FDIC defines ``economically depressed regions'' has been changed under

this amendment. Under this amendment, the FDIC will define the

geographic unit that comprises an ``economically depressed region'' for

an institution on a case-by-case basis. Such a determination is

required because the geographic area over which institutions conduct

business varies across institutions, as well as over time for an

individual institution. After an institution's geographic market has

been defined the FDIC will next determine whether that market falls

within an ``economically depressed region''. This allows for cases

where an institution's geographic market is limited to some portion of

a state or crosses two or more state boundaries. The FDIC also will

consider relevant information from institutions regarding their

geographic market, as well as information on whether that market is

``economically depressed''. Elsewhere in this issue of the Federal

Register, the FDIC also is withdrawing a 1992 proposed amendment to the

regulation that was published on December 18, 1992.

The FDIC is required by statute to consider proposals for direct

financial assistance by Savings Association Insurance Fund (SAIF)

members having offices located in an ``economically depressed region''

as determined by the FDIC by regulation and meeting certain other

specified criteria, before grounds exist for the appointment of a

conservator or receiver for the institution. This amendment provides

guidance to enable applicants to evaluate their situations before

formally applying for assistance. Rather than periodically designating

specific ``economically depressed regions'' in light of current

economic conditions, this rule provides the criteria that the FDIC will

use to determine which regions are economically depressed.

EFFECTIVE DATE: April 2, 1998.

FOR FURTHER INFORMATION CONTACT: John P. O'Keefe, Chief, Economic

Analysis Section, (202) 898-3945, David Horne, Financial Economist,

(202) 898-3981, Division of Research and Statistics; Michael Phillips,

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

Washington, DC 20429.

SUPPLEMENTARY INFORMATION: The FDIC is conducting a systematic review

of its regulations and written policies in accordance with section

303(a) of the CDRI Act, 12 U.S.C. 4803(a). Section 303(a) requires each

federal banking agency to streamline and modify its regulations and

written policies in order to improve efficiency, reduce unnecessary

costs, and eliminate unwarranted constraints on credit availability.

Section 303(a) also requires each federal banking agency to remove

inconsistencies and outmoded and duplicative requirements from its

regulations and written policies.

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

regulations at 12 CFR part 357 should be amended to minimize the cost

of implementing the regulation, make it more flexible regarding market

standards, and give institutions more opportunity to establish that

they are located in an ``economically depressed region''.

In the Federal Register of August 6, 1996 (61 FR 40756), the FDIC

issued a proposed amendment of part 357 to provide criteria to enable

applicants to evaluate their status before formally

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applying for assistance under sections 13(c) and 13(k)(5) of the

Federal Deposit Insurance Act (FDI Act), 12 U.S.C. 1823(c) and 12

U.S.C. 1823(k)(5). Rather than designating specific regions in light of

current economic conditions, the proposed rule provided the criteria

that it will use to determine which regions are ``economically

depressed''. The FDIC also proposed to withdraw a proposed amendment to

part 357 that updated the list of designated states that was published

on December 18, 1992 (57 FR 60140), but never adopted. No public

comments were received with respect to the 1992 and 1996 proposed

rules. Elsewhere in this issue of the Federal Register, the FDIC is

withdrawing the 1992 proposed rule.

Subject to the statutory prohibition in section 11(a)(4) of the FDI

Act (12 U.S.C. 1821(a)(4)), the FDIC has authority under section 13(c)

of the FDI Act, 12 U.S.C. 1823(c), to provide financial assistance to

prevent the default of an insured depository institution. Under section

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

proposals for eligible SAIF member institutions to receive assistance

pursuant to section 13(c) before grounds exist for the appointment of a

conservator or receiver for the institution. Section 13(k)(5)

establishes nine criteria for such eligibility. One of the criteria is

that an institution's offices must be located in an ``economically

depressed region'' (12 U.S.C. 1823(k)(5)(A)((ii)(VI)). In addition,

under section 13(k)(5), SAIF-member applicants must separately meet the

criteria under section 13(c) and other pertinent sections of the FDI

Act to qualify for assistance. In evaluating assistance proposals filed

under section 13(c), the statutory prohibition in section 11(a)(4) of

the FDI Act, 12 U.S.C. 1821(a)(4), must be complied with. With certain

limited exceptions, section 11(a)(4) prohibits the use of funds from

the Bank Insurance Fund or the SAIF to benefit shareholders of a failed

or failing insured depository institution.

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

13(k)(5)(C) to mean ``any geographical region which the [FDIC]

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

have suffered serious decline due to severe economic conditions, such

as a decline in energy or agricultural values or prices''.

On September 17, 1990, the FDIC promulgated regulations at 12 CFR

357.1 (55 FR 38043), which determined that certain geographical regions

were ``economically depressed regions'' for purposes of section

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

``economically depressed'', the FDIC considered the following factors:

(1) The ratio of poor quality real estate assets to total assets in the

portfolios of Bank Insurance Fund (BIF) members; (2) the ratio of poor

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

members; and (3) unemployment figures. The statewide percentages of

impaired real estate assets for BIF and SAIF members and unemployment

rates were analyzed with reference to national levels. These factors

are subject to periodic review and application by the FDIC in light of

changing economic conditions.

As promulgated in 1990, the FDIC's regulations at 12 CFR 357.1

designated eight individual states as ``economically depressed

regions'' for purposes of section 13(k)(5) of the FDI Act. They were:

Alaska, Arizona, Arkansas, Colorado, Louisiana, New Mexico, Oklahoma,

and Texas.

Two years later, having reexamined real estate and employment

conditions based on the most recent information, the FDIC determined

that the eight states previously designated as economically depressed

regions should no longer receive that designation. The FDIC concluded

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

classified as economically depressed regions: California, Connecticut,

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

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

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

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

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

the labor market situation. In addition, the FDIC considered both the

overall unemployment rate and non-farm employment growth trends. The

December 1992 proposed rule was never adopted.

Rather than periodically revisiting the criteria used to identify

regions for designation as ``economically depressed regions'', and

listing regions so designated, the FDIC has determined that this

amendment of part 357 will provide more coherent guidance to applicants

for the evaluation of their situations before formally applying for

assistance. This final rule provides the criteria the FDIC will use to

determine which regions are ``economically depressed'' for purposes of

section 13(k)(5)(C). References to specific sources of data to be used

in the determination of whether a region is economically depressed,

which were contained in appendix A of the proposed amendment, were

removed in order to allow for greater flexibility in the FDIC's

analysis. In addition, the general designation of states as the

geographical unit over which the FDIC defines ``economically depressed

regions'' has been changed under this amendment to part 357. Under this

amendment to part 357, the FDIC will define the geographic unit that

comprises an ``economically depressed region'' for an institution on a

case-by-case basis. Such a determination is required because the

geographic area over which institutions conduct business varies across

institutions, as well as over time for an individual institution. After

an institution's geographic market has been defined the FDIC will next

determine whether that market falls within an ``economically depressed

region''. This allows for cases where an institution's geographic

market is limited to some portion of a state or crosses two or more

state boundaries. The FDIC will also consider relevant information from

institutions regarding their geographic market, as well as information

on whether that market is ``economically depressed''. As a result of

the adoption of the rule, the FDIC will no longer need to amend part

357 in order to periodically designate specific regions in light of

current economic conditions.

Under the final rule, for the purpose of determining ``economically

depressed regions'', the FDIC will determine whether an institution

qualifies as being located in an ``economically depressed region'' on a

case-by-case basis. That determination will be based on four criteria:

(1) High unemployment rates; (2) declines in non-farm employment; (3)

high levels of problem real estate assets at insured depository

institutions; and (4) evidence indicating declining real estate values.

The FDIC will also consider relevant information from institutions

regarding their geographic market area, as well as information on

whether that market is ``economically depressed''.

Regulatory Flexibility Act

Under section 605(b) of the Regulatory Flexibility Act (RFA), 5

U.S.C. 605(b), the regulatory flexibility analysis otherwise required

under section 604 of the RFA (5 U.S.C. 604) is not required if the head

of the agency certifies that the rule will not have a significant

economic impact on a substantial number of small entities and the

agency publishes such certification and a statement providing the

factual basis for such certification in the Federal Register along with

the final rule.

[[Page 10295]]

Pursuant to section 605(b) of the RFA, the FDIC certifies that this

final rule will not have a significant economic impact on a substantial

number of small entities. The rule replaces the current list of states

that were determined in 1990 to constitute ``economically depressed

regions'' for purposes of section 13(k)(5) of the FDI Act with the

criteria that the FDIC will use in reaching such determinations

concerning such in the future. The rule involves one of nine criteria

in section 13(k)(5) of the FDI Act that must be considered along with

various requirements in sections 13(c) and the prohibition in 11(a)(4)

of the FDI Act, for purposes of applications from insured depository

institutions for financial assistance. The rule will at most effect a

very small number of institutions.

Paperwork Reduction Act

In accordance with section 3506 of the Paperwork Reduction Act of

1995 (44 U.S.C. 3506; see also 5 CFR part 1320 appendix a.1), the FDIC

has reviewed the final rule and has determined that no collections of

information pursuant to the Paperwork Reduction Act are contained in

this rule. Accordingly, no information has been submitted to the Office

of Management and Budget for review.

Small Business Regulatory Enforcement Fairness Act

The Small Business Regulatory Enforcement Fairness Act of 1996 (the

1996 Act), Pub. L. 104-121, 110 Stat. 857, provides generally for

agencies to report rules to Congress and for Congress to review the

rules. The reporting requirement is triggered in instances where the

agency in question issues a final rule as defined in the Administrative

Procedure Act at 5 U.S.C. 551. The agency will file the appropriate

reports pursuant to the 1996 Act concerning any final rule.

The Office of Management and Budget has determined that this final

rule does not constitute a ``major'' rule as defined by the 1996 Act.

List of Subjects in 12 CFR Part 357

Bank deposit insurance, Grant programs--housing and community

development, Savings associations.

For the reasons set forth in the preamble, the FDIC hereby amends

12 CFR part 357 as set forth below.

PART 357--DETERMINATION OF ECONOMICALLY DEPRESSED REGIONS

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

follows:

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

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

follows:

Sec. 357.1 Economically depressed regions.

* * * * *

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

determining ``economically depressed regions'', the FDIC will determine

whether an institution qualifies as being located in an ``economically

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

based on four criteria:

(i) High unemployment rates;

(ii) Significant declines in non-farm employment;

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

depository institutions; and

(iv) Evidence indicating declining real estate values.

(2) In addition, the FDIC will also consider relevant information

from institutions regarding their geographic market area, as well as

information on whether that market is ``economically depressed''.

By order of the Board of Directors.

Dated at Washington, D.C., this tenth day of February 1998.

Federal Deposit Insurance Corporation

Robert E. Feldman,

Executive Secretary.

[FR Doc. 98-4891 Filed 3-2-98; 8:45 am]

BILLING CODE 6714-01-P