Transactions With Affiliates

This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules

Federal Register

12571

Vol. 69, No. 52

Wednesday, March 17, 2004

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Parts 303 and 324

RIN 3064–AC78

Filing Procedures; Transactions With

Affiliates

AGENCY: Federal Deposit Insurance

Corporation (FDIC).

ACTION: Notice of proposed rulemaking.

SUMMARY: Insured State nonmember

banks are subject to the restrictions and

limitations on transactions by member

banks with affiliates found in sections

23A and 23B of the Federal Reserve Act

‘‘in the same manner and to the same

extent’’ as though they were member

banks. The Board of Governors of the

Federal Reserve System (FRB) adopted

12 CFR 223 (‘‘Regulation W’’) governing

sections 23A and 23B. The FDIC is

proposing to add a new part to title 12

of the CFR that would cross reference

Regulation W to make it clear that

insured State nonmember banks are

subject to the restrictions and

limitations, and may take advantage of

the exemptions, contained in Regulation

W. FDIC’s regulation would also make

it clear that the FDIC administers the

restrictions and limitations contained in

Regulation W as to insured State

nonmember banks, may grant case-by-

case exemptions from those restrictions

and limitations, and is the appropriate

agency to make other determinations

under Regulation W. The proposal

would also amend part 303 of FDIC’s

regulations governing filing and hearing

procedures by adding a new section that

would govern requests for exemptions

from new part 324 and hearings that are

held for the purpose determining

whether a shareholder or company

exercises a controlling influence over

another company.

DATES: Written comments must be

received on or before May 3, 2004

proposal

would also amend part 303 of FDIC’s

regulations governing filing and hearing

procedures by adding a new section that

would govern requests for exemptions

from new part 324 and hearings that are

held for the purpose determining

whether a shareholder or company

exercises a controlling influence over

another company.

DATES: Written comments must be

received on or before May 3, 2004.

ADDRESSES: You may submit comments,

identified by RIN number by any of the

following methods:

• Agency Web Site: http://

www.fdic.gov/regulations/laws/federal/

propose.html. Follow instructions for

submitting comments on the Agency

Web site.

• E-mail: Comments@FDIC.gov.

Include the RIN number in the subject

line of the message.

• Mail: Robert E. Feldman, Executive

Secretary, Attention: Comments, Federal

Deposit Insurance Corporation, 550 17th

Street, NW., Washington, DC 20429.

• Hand Delivery/Courier: Guard

station at rear of the 550 17th Street

Building (located on F Street) on

business days between 7 a.m. and 5 p.m.

Instructions: All submissions received

must include the agency name and RIN

for this rulemaking. All comments

received will be posted without change

to http://www.fdic.gov/regulations/laws/

federal/propose.html including any

personal information provided.

FOR FURTHER INFORMATION CONTACT:

Curtis Vaughn, Senior Examination

Specialist, Division of Supervision and

Consumer Protection, (202) 898–6759 or

cvaughn@fdic.gov, Kenyon T. Kilber,

Senior Examination Specialist, Division

of Supervision and Consumer

Protection, (202) 898–8935 or

kkilber@fdic.gov or Pamela E.F. LeCren,

Counsel, Legal Division, (202) 898–3730

or plecren@fdic.gov, Federal Deposit

Insurance Corporation, 550 17th Street,

NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

Background

Section 18(j)(1) of the Federal Deposit

Insurance Act (12 U.S.C

lber,

Senior Examination Specialist, Division

of Supervision and Consumer

Protection, (202) 898–8935 or

kkilber@fdic.gov or Pamela E.F. LeCren,

Counsel, Legal Division, (202) 898–3730

or plecren@fdic.gov, Federal Deposit

Insurance Corporation, 550 17th Street,

NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

Background

Section 18(j)(1) of the Federal Deposit

Insurance Act (12 U.S.C. 1828(j)(1)

(‘‘FDI Act’’) provides that ‘‘Sections

371c and 371c–1 of [title 12] shall apply

with respect to every nonmember

insured bank in the same manner and to

the same extent as if the nonmember

insured bank were a member bank.’’

Sections 371c and 371c–1 of title 12 (12

U.S.C. 371c, 371c–1) are respectively

sections 23A and 23B of the Federal

Reserve Act (FRA). They establish

restrictions and limitations with respect

to transactions between member banks

and their affiliates. The purpose of those

restrictions is to protect member banks

from suffering losses when entering into

transactions with affiliates.

Section 23A (1) establishes limits on

the amount of ‘‘covered transactions’’

between a member bank and its

affiliates (any one affiliate and in the

aggregate as to all affiliates); (2) requires

that all covered transactions between a

member bank and its affiliates be on

terms and conditions that are consistent

with safe and sound banking practices;

(3) prohibits the purchase of low quality

assets from an affiliate; and (4) requires

that extensions of credit by a member

bank to an affiliate, and guarantees on

behalf of affiliates, be secured by

statutorily defined amounts of

collateral

l covered transactions between a

member bank and its affiliates be on

terms and conditions that are consistent

with safe and sound banking practices;

(3) prohibits the purchase of low quality

assets from an affiliate; and (4) requires

that extensions of credit by a member

bank to an affiliate, and guarantees on

behalf of affiliates, be secured by

statutorily defined amounts of

collateral. Section 23B (1) requires that

transactions (covered transactions as

well as other identified transactions

such as the sale of assets to an affiliate)

between a member bank and its

affiliates be on market terms (on terms

and under circumstances that are

substantially the same, or at least as

favorable to the bank, as those

prevailing at the time for comparable

transactions with nonaffiliates); (2)

prohibits purchases of assets from an

affiliate as fiduciary unless one of

several exceptions are met; (3) prohibits

purchases of securities during the

existence of an underwriting or selling

syndicate if the principal underwriter of

the securities is an affiliate; and (4)

prohibits any advertisements or

agreements by a member bank

suggesting that the bank is responsible

for the obligations of an affiliate.

The FDIC interprets and enforces the

restrictions and requirements of sections

23A and 23B of the FRA as to FDIC

insured State banks that are not

members of the Federal Reserve System

(insured State nonmember banks) and

has done so for many years. Until

recently neither the FRB nor the FDIC

had adopted, or proposed, a regulation

on the restrictions of sections 23A or

23B as applicable to the depository

institutions over which each is given

responsibility under the FRA and FDI

Act respectively. Both agencies relied,

rather, upon the language of the FRA

and careful coordination of their

interpretations of the statutory

restrictions

Until

recently neither the FRB nor the FDIC

had adopted, or proposed, a regulation

on the restrictions of sections 23A or

23B as applicable to the depository

institutions over which each is given

responsibility under the FRA and FDI

Act respectively. Both agencies relied,

rather, upon the language of the FRA

and careful coordination of their

interpretations of the statutory

restrictions. On May 11, 2001, the FRB

published a proposed regulation

(Regulation W) designed to implement

sections 23A and 23B of the FRA if that

proposal were adopted in final. (66 FR

24186). The FDIC filed a formal

comment on the proposal. On December

12, 2002, the FRB published Regulation

W as a final rule. (67 FR 76560). It

became effective on April 1, 2003, and

is codified at 12 CFR 223. The preamble

accompanying Regulation W as adopted

in final form indicated that member

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Federal Register / Vol. 69, No. 52 / Wednesday, March 17, 2004 / Proposed Rules

1 Congress could have amended the FRA to refer

to ‘‘bank’’ rather than ‘‘member bank’’ if it wanted

to provide the FRB with exclusive rulemaking

authority with regard to sections 23A and 23B but

it did not do so. Instead Congress amended the FDI

Act, not once but twice, by incorporating a cross

reference first to section 23A and then to section

23B after that section was added to the FRA. The

fact that Congress chose to amend the FDI Act and

not the FRA signals an intent to provide the FDIC

with a role in the administration and interpretation

of sections 23A and 23B.

banks would be given certain time

periods to bring outstanding

transactions into compliance with the

new regulation

eference first to section 23A and then to section

23B after that section was added to the FRA. The

fact that Congress chose to amend the FDI Act and

not the FRA signals an intent to provide the FDIC

with a role in the administration and interpretation

of sections 23A and 23B.

banks would be given certain time

periods to bring outstanding

transactions into compliance with the

new regulation.

Regulation W defines terms; restates

the statutory prohibitions found in

section 23A and 23B; establishes a

number of exemptions to those

restrictions; explains how to value

credit transactions and asset purchases

for purposes of complying with the

limits on covered transactions; sets out

rules on when covered transactions

arise for purposes of Regulation W; sets

out rules with respect to derivative

transactions and how section 23A and

23B apply to foreign branches; defines

the term ‘‘financial subsidiary’’ for

purposes of Regulation W; and sets out

the standards under which the FRB will

grant requests for exemptions on a case-

by-case basis.

In keeping with section 18(j)(1) of the

FDI Act, the FDIC is proposing to add

a new part to title 12 of the CFR. The

purpose of this new part is to make clear

that insured State nonmember banks

must comply with the restrictions and

limitations contained in Regulation W

in order to comply with sections 23A

and 23B of the FRA and section 18(j)(1)

of the FDI Act. As previously stated,

section 18(j)(1) of the FDI Act provides

that sections 23A and 23B shall apply

to insured State nonmember banks ‘‘in

the same manner and to the same

extent’’ as if the nonmember banks are

member banks. This requirement in the

FDI Act means that the substantive

requirements and restrictions set out in

Regulation W apply equally to insured

State nonmember banks. The FDIC has

taken those requirements and

restrictions into consideration in

interpreting and applying sections 23A

and 23B to insured State nonmember

banks since the adoption of Regulation

W

he nonmember banks are

member banks. This requirement in the

FDI Act means that the substantive

requirements and restrictions set out in

Regulation W apply equally to insured

State nonmember banks. The FDIC has

taken those requirements and

restrictions into consideration in

interpreting and applying sections 23A

and 23B to insured State nonmember

banks since the adoption of Regulation

W. The FDIC is now proposing to add

part 324, which will expressly

incorporate through cross reference the

substantive provisions of Regulation W.

The part also identifies the FDIC as the

appropriate agency for State nonmember

banks in the administration and

interpretation of those requirements and

in granting exemption requests.

Discussion

Description of Proposal

Proposed part 324 is divided into six

sections. Section 324.1 sets out the

authority under which the FDIC is

proposing to act and describes the

purpose and scope of the regulation.

Section 324.2 provides that the

restrictions and limitations of

Regulation W apply to insured State

nonmember banks and contains an

exemption for certain subsidiary

relationships that were entered into

prior to the date on which the FDIC’s

proposed part was published for public

comment. Section 324.3 informs insured

State banks that they are to follow the

FDIC’s procedures set forth in part 303

of the FDIC’s regulations when

requesting a hearing or making any

filing under part 324. Section 324.4

makes it clear that ‘‘member bank’’

should be read as ‘‘insured State

nonmember bank’’, ‘‘Board’’ should be

read as ‘‘FDIC’’ and ‘‘appropriate

Federal banking agency’’ should be

understood to mean ‘‘FDIC’’ wherever

those terms appear in Regulation W.

Section 324.4 also contains a definition

of ‘‘State nonmember bank’’

equesting a hearing or making any

filing under part 324. Section 324.4

makes it clear that ‘‘member bank’’

should be read as ‘‘insured State

nonmember bank’’, ‘‘Board’’ should be

read as ‘‘FDIC’’ and ‘‘appropriate

Federal banking agency’’ should be

understood to mean ‘‘FDIC’’ wherever

those terms appear in Regulation W.

Section 324.4 also contains a definition

of ‘‘State nonmember bank’’. Section

324.5 provides that insured State

nonmember banks may obtain an

exemption from the restrictions and

limitations of this part concerning

section 23A if the FDIC determines that

such an exemption is in the public

interest and is consistent with the

purposes of section 23A. Procedures for

filing exemption requests are proposed

in this section and would, if adopted, be

added to part 303 of FDIC’s regulations

(Filing Procedures) as new § 303.251.

Finally, § 324.6 provides that

determinations that a shareholder or

company exercises a controlling

influence over another company will

only be made after notice and

opportunity for hearing. Hearings would

be conducted in accordance with the

proposed amendments to part 303 that

are set out as part of this rulemaking.

Proposed part 324, and the

accompanying proposed amendments to

part 303, are discussed in more detail

below.

Section 324.1

Authority, Purpose and

Scope

The FDIC derives the authority from

section 9 (Tenth) of the FDI Act (12

U.S.C. 1819 (Tenth)) to adopt rules

implementing sections 23A and 23B of

the FRA as made applicable to insured

State nonmember banks. Section 9

(Tenth) of the FDI Act authorizes the

FDIC to issue rules and regulations ‘‘to

carry out the provisions of this chapter

or of any other law which it has the

responsibility of administering or

enforcing’’.

The FDIC has the responsibility of

administering and enforcing section

18(j)(1) of the FDI Act as to state

nonmember banks

as made applicable to insured

State nonmember banks. Section 9

(Tenth) of the FDI Act authorizes the

FDIC to issue rules and regulations ‘‘to

carry out the provisions of this chapter

or of any other law which it has the

responsibility of administering or

enforcing’’.

The FDIC has the responsibility of

administering and enforcing section

18(j)(1) of the FDI Act as to state

nonmember banks. The language in

section 9 (Tenth) of the FDI Act limits

the FDIC’s authority to adopt

regulations governing a particular area

only if ‘‘authority to issue such rules

and regulations has been expressly and

exclusively granted to any other

regulatory agency’’. Nothing in the text

of section 23A or section 23B or the

legislative history of those sections

indicates that the FRB has the

‘‘exclusive’’ rulemaking authority with

respect to those sections as they apply

to institutions other than member

banks.1

The text of sections 23A and 23B

itself bear out the proposition that the

FDIC is free to adopt regulations in this

area. Sections 23A and 23B do not

parcel out responsibility between the

FRB and the appropriate Federal

banking agencies as is the case with

sections 22(g) and 22(h) of the FRA,

both of which are also made applicable

to insured State nonmember banks by

section 18(j) of the FDI Act ‘‘in the same

manner and to the same extent’’ as

though they were member banks.

Section 23A and 23B’s silence with

respect to what role the other Federal

banking agencies are to play shows that

the FRA does not operate as a constraint

on the authority the FDIC derives from

its own statute to establish rules

implementing section 23A and 23B and

the FDIC’s ability to make decisions in

applying those sections to insured State

nonmember banks. The only restraint

placed on the FDIC by the FDI Act is

that all of the restrictions and

limitations of section 23A and 23B be

applied ‘‘in the same manner and to the

same extent’’ as those restrictions and

limitations are applied to member

banks

h rules

implementing section 23A and 23B and

the FDIC’s ability to make decisions in

applying those sections to insured State

nonmember banks. The only restraint

placed on the FDIC by the FDI Act is

that all of the restrictions and

limitations of section 23A and 23B be

applied ‘‘in the same manner and to the

same extent’’ as those restrictions and

limitations are applied to member

banks. As discussed below, the FDIC

will in fact be applying Regulation W

and section 23A and 23B to State

nonmember banks in the same way as

those provisions apply to member

banks.

Section 324.2

Affiliate Transactions

General Requirements—Paragraph (a)

of § 324.2 of the proposal cross

references Regulation W and restates the

requirement found in section 18(j)(1) of

the FDI Act that sections 23A and 23B

of the FRA apply to insured State

nonmember banks as though they were

member banks. The purpose of

paragraph (a) is to clarify that insured

State nonmember banks must comply

with the substantive provisions of

Regulation W in order to comply with

section 18(j)(1) of the FDI Act and part

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Federal Register / Vol. 69, No. 52 / Wednesday, March 17, 2004 / Proposed Rules

2 The FDIC has the authority to adopt by

regulation or order exemptions from the restrictions

of section 23A if the FDIC determines that the

exemption is in the public interest and is consistent

with the purposes of the section 23A of the FRA.

3 12 CFR 362 permits state nonmember banks to

establish certain subsidiaries after filing a notice

with the FDIC provided that certain conditions and

requirements are met. In each such instance the

conditions include affiliate transaction restrictions

ion 23A if the FDIC determines that the

exemption is in the public interest and is consistent

with the purposes of the section 23A of the FRA.

3 12 CFR 362 permits state nonmember banks to

establish certain subsidiaries after filing a notice

with the FDIC provided that certain conditions and

requirements are met. In each such instance the

conditions include affiliate transaction restrictions.

4 12 CFR 362 permits an insured state nonmember

bank to establish a subsidiary that invests in bank

stock (§ 362.4(b)(4)(ii)); engages in certain leasing

activities (§ 362.4(b)(6)); invests in adjustable rate

preferred stock, money market preferred stock and

similar instruments (§ 362.4(b)(7)); and holds a

control interest in a company that engages in

insurance agency activities, any national bank

permissible activity, real estate leasing, or that

invests in adjustable rate and money market

preferred stock (§ 362.4(b)(3)(ii)) without filing an

application or a notice.

5 Section 24 of the FDI Act requires the FDIC to

determine that the activities to be engaged in by the

subsidiary do not present a significant risk to the

fund. The FDIC can, and typically has, determined

that a particular activity does not present a

significant risk to the fund provided that the

activity is conditioned in such a way as to make any

risk associated with the conduct of that activity by

the subsidiary acceptable.

324. The effect going forward of the

cross reference in § 324.2(a) to

Regulation W is that State nonmember

banks will automatically be subject to

any changes made to Regulation W by

the FRB without the need for the FDIC

to take any action to amend its own

regulation

is conditioned in such a way as to make any

risk associated with the conduct of that activity by

the subsidiary acceptable.

324. The effect going forward of the

cross reference in § 324.2(a) to

Regulation W is that State nonmember

banks will automatically be subject to

any changes made to Regulation W by

the FRB without the need for the FDIC

to take any action to amend its own

regulation.

Exception to General Requirements—

The FDIC is proposing to adopt a

regulatory exemption to the general rule

set out in paragraph (a) of § 324.2 of the

proposal that insured State nonmember

banks are subject to the restrictions and

requirements of Regulation W.2

Paragraph (b) of § 324.2 would exempt

from the restrictions of part 324 certain

subsidiary relationships that were

established prior to the date on which

the FDIC’s proposal is published for

comment. If a subsidiary relationship

predates that date and that subsidiary

relationship was not considered by the

FDIC to be subject to section 23A and

23B prior to December 12, 2002 (i.e., the

subsidiary was not considered to be an

affiliate for purposes of section 23A and

23B as it was interpreted and applied by

the FDIC) but is subject to section 23A

and 23B after that date (is considered an

affiliate relationship under Regulation

W) the subsidiary will not be treated as

an affiliate for purposes of part 324.

Under the exemption, the bank’s

investment in the company, and its

other covered transactions, if any, with

the company, will not count toward the

quantitative amount limitations that

would otherwise apply under part 324

and outstanding transactions with the

company do not need to be brought into

compliance with part 324

diary will not be treated as

an affiliate for purposes of part 324.

Under the exemption, the bank’s

investment in the company, and its

other covered transactions, if any, with

the company, will not count toward the

quantitative amount limitations that

would otherwise apply under part 324

and outstanding transactions with the

company do not need to be brought into

compliance with part 324. It also means

that, going forward, the bank is not

subject to the restrictions of part 324

whenever it deals with that subsidiary

company, e.g., any future extensions of

credit to, or investments in, the

subsidiary will not count toward the

limits on covered transactions with

affiliates to which the bank is subject.

The exemption only applies, however,

for so long as the subsidiary’s activities

are limited to those that were approved

by the FDIC by regulation or order, or

which are covered by an exception in

section 24 of the FDI Act (12 U.S.C.

1831a) (‘‘section 24’’), and were

conducted as of the date on which the

FDIC’s proposal is published for

comment. If, for example, the subsidiary

changes its line of business in such a

way that under Regulation W a newly

established subsidiary of the bank doing

the same thing would be considered an

affiliate, the subsidiary will be treated as

an affiliate from that point forward. The

effect of the loss of the exemption is

that, going forward, covered

transactions between the bank and the

subsidiary will be subject to part 324.

Although the exemption would no

longer apply, the outstanding

investment in the subsidiary, any

outstanding extensions of credit to the

subsidiary and any other prior

transactions with the subsidiary would

not be affected by the loss of the

exemption.

The exemption provided for under the

proposal is intended to cover several

categories of subsidiaries

sidiary will be subject to part 324.

Although the exemption would no

longer apply, the outstanding

investment in the subsidiary, any

outstanding extensions of credit to the

subsidiary and any other prior

transactions with the subsidiary would

not be affected by the loss of the

exemption.

The exemption provided for under the

proposal is intended to cover several

categories of subsidiaries. The first

category is those subsidiaries that, prior

to the date on which the FDIC’s

proposal was issued for comment, were

established after the FDIC issued an

approval order under section 24 of the

FDI Act and 12 CFR 362 (‘‘section 24

subsidiaries’’). Such subsidiaries are by

definition engaged in activities that are

not permissible for a subsidiary of a

national bank. The exemption is not

limited, however, to State nonmember

banks that applied for and obtained

consent to establish a subsidiary under

12 CFR 362. It also covers section 24

subsidiaries that were established prior

to the date on which the FDIC’s

proposal was published for comment

that were (1) established after filing a

notice under part 362,3 or (2)

established pursuant to a provision of

part 362 that permits State nonmember

banks to establish certain subsidiaries

without filing notice or making

application to the FDIC.4 Finally, the

exemption also is intended to cover

subsidiaries established prior to the

relevant date pursuant to a statutory

exception in section 24 of the FDI Act

which is restated in 12 CFR 362.

As proposed, the subsidiary

relationship exemption may be over

inclusive to the extent that some of the

section 24 subsidiaries described above

fall within an exception to the

definition of financial subsidiary found

in Regulation W and thus are not

considered to be affiliates

he

relevant date pursuant to a statutory

exception in section 24 of the FDI Act

which is restated in 12 CFR 362.

As proposed, the subsidiary

relationship exemption may be over

inclusive to the extent that some of the

section 24 subsidiaries described above

fall within an exception to the

definition of financial subsidiary found

in Regulation W and thus are not

considered to be affiliates. As it may be

possible to construe the exceptions to

the definition of financial subsidiary

found in Regulation W narrowly, the

FDIC has opted to draft the proposed

exemption broadly so as to avoid any

undue confusion or ambiguity as to how

insured State nonmember banks with

existing section 24 subsidiaries are

affected by the adoption of FRB

Regulation W.

The FDIC intends to limit the

exemption to the types of section 24

subsidiaries described above. Comment

is invited on whether the regulatory text

is sufficiently clear as to its scope or has

broader effect than intended. In

addition, comment is requested on

whether the FDIC should consider

narrowing the scope of the exemption or

making it broader.

It has been the FDIC’s practice to

include in section 24 approval orders

conditions on the manner and extent to

which an insured State nonmember

bank may interact with its subsidiary

that engages in activities that are not

permissible for a subsidiary of a

national bank.5 Those conditions are

very similar but not identical to the

restrictions found in section 23A and

23B and Regulation W. In addition, the

FDIC’s regulations which provide that a

bank may simply file a notice before

establishing a certain type of subsidiary

require in most instances that a bank

must abide by certain affiliate

transaction restrictions when interacting

with the subsidiary if a bank wants to

take advantage of the notice procedure.

The affiliate transaction restrictions that

apply in the case of a notice are the

same restrictions which have been

imposed by the FDIC by order on a case-

by-case basis

g a certain type of subsidiary

require in most instances that a bank

must abide by certain affiliate

transaction restrictions when interacting

with the subsidiary if a bank wants to

take advantage of the notice procedure.

The affiliate transaction restrictions that

apply in the case of a notice are the

same restrictions which have been

imposed by the FDIC by order on a case-

by-case basis. Banks that are eligible for

the subsidiary relationship exemption

but which are subject by order or

regulation to conditions placing

restrictions on the bank’s transactions

with its subsidiary would still be subject

to those conditions (i.e., the proposed

exemption would not supercede or

invalidate those conditions).

As indicated above, the FDIC may, by

regulation or order, exempt transactions

or relationships from the requirements

and restrictions of sections 23A and 23B

of the FRA if the FDIC finds that the

exemption is in the public interest and

consistent with the purposes of the

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6 A summary of requests approved by the FDIC’s

Board of Directors can be viewed at http://

www.fdic.gov/regulations/resources/approved/

index.html.

FRA. The proposed subsidiary

relationship exemption should not have

an adverse impact on the public interest

or be inconsistent with the purposes of

section 23A and 23B as most banks that

have subsidiaries that are eligible for the

exemption are already subject to affiliate

transaction conditions very similar to

those found in Regulation. The

exemption would not affect those

conditions

.

FRA. The proposed subsidiary

relationship exemption should not have

an adverse impact on the public interest

or be inconsistent with the purposes of

section 23A and 23B as most banks that

have subsidiaries that are eligible for the

exemption are already subject to affiliate

transaction conditions very similar to

those found in Regulation. The

exemption would not affect those

conditions. The majority of the section

24 subsidiaries which have been

approved by the FDIC involved either

real estate subsidiaries or subsidiaries

that invest in equity securities.6 The

majority of the real estate subsidiaries

are subject to affiliate transaction

restrictions similar to those found in

Regulation W and many of those that are

not subject to such restrictions are

approvals to hold certain real estate

investments pending their liquidation.

The FDIC carefully reviewed the

requests for consent to engage in equity

securities investments through a

subsidiary. Although many of the equity

securities applications were not made

subject to affiliate transaction

restrictions, the applications that were

approved were made subject to

whatever conditions the Board found

necessary in its best judgment to protect

the deposit insurance funds from risk

given the facts and circumstances of

each application. (Section 24 requires

the FDIC to determine that the conduct

of business by subsidiaries such as these

does not present a significant risk before

the FDIC may give its consent to

acquisition or establishment of the

subsidiary.) The majority of the equity

subsidiaries that were approved

involved small investments (less than

10% of tier one capital) and in many

cases the equities in which those

subsidiaries sought consent to invest

were bank holding companies and other

similar firms. Most of the approvals

were conditioned in such a way as to

limit lending to the subsidiaries and to

limit the amount of the investments that

the subsidiaries may in turn make

t were approved

involved small investments (less than

10% of tier one capital) and in many

cases the equities in which those

subsidiaries sought consent to invest

were bank holding companies and other

similar firms. Most of the approvals

were conditioned in such a way as to

limit lending to the subsidiaries and to

limit the amount of the investments that

the subsidiaries may in turn make.

Given the Board’s initial review and

determination and the conditions to

which the approvals are subject, the

FDIC does not believe that

grandfathering these subsidiaries will be

contrary to the public interest. What is

more, the FDIC notes that these equity

investment securities are in many ways

similar to private equity funds (the

vehicle through which financial holding

companies may invest in equity

securities) which are provided special

treatment under Regulation W.

Section 324.2(b) of the proposal does

not exempt transactions entered into by

a State nonmember bank prior to the

publication date of the proposal from

compliance with Regulation W and part

324. All transactions with affiliates,

regardless of when entered into, are

governed by Regulation W and the

phase-in periods adopted by the FRB in

the case of member banks. Transactions

entered into after December 12, 2002,

but before April 1, 2003, by member

banks with their affiliates were required

to comply with Regulation W as of April

1, 2003. Transactions entered into prior

to December 12, 2002, were required to

comply with Regulation W no later than

July 1, 2003. State nonmember banks

that entered into transactions with

affiliates that would have been required

to be in compliance with Regulation W

by either April 1, 2003, or July 1, 2003,

if entered into by a member bank and

which are not in compliance at this time

will be cited for a violation of section

23A and 23B and section 18(j)(1) of the

FDI Act as appropriate. Comment is

invited as to whether the FDIC should

consider adopting some other treatment

in part 324

at would have been required

to be in compliance with Regulation W

by either April 1, 2003, or July 1, 2003,

if entered into by a member bank and

which are not in compliance at this time

will be cited for a violation of section

23A and 23B and section 18(j)(1) of the

FDI Act as appropriate. Comment is

invited as to whether the FDIC should

consider adopting some other treatment

in part 324. For example, should the

FDIC grant an additional compliance

period or perhaps grandfather pre-

existing transactions?

Section 324.3

Submissions and

Requests for Hearing

Section 324.3 informs insured State

nonmember banks that all filings,

submissions, requests for hearings and

other requests made under this part are

to be made in accordance with the

procedures set out in 12 CFR 303. The

intent of the provision is to eliminate

any confusion that might arise as to the

procedures to be followed by insured

State nonmember banks (procedures

found in Regulation W or elsewhere in

FRB regulations or procedures found in

the FDIC’s regulations which might

differ from those used by the FRB). This

rulemaking would add a new § 303.251

to 12 CFR 303 that would set out the

applicable procedures for submissions,

filings, and requests for hearing that are

made under §§ 324.5 and 324.6 of the

proposal. The proposed procedures are

discussed in more detail below.

Section 324.4

Definitions and Usage of

Terms

Section 324.4 of the proposal

substitutes appropriate terminology for

that found in Regulation W to make it

clear that, for the purposes of

compliance with section 18(j)(1) of the

FDI Act and this part, ‘‘member bank’’

should be understood to mean ‘‘insured

State nonmember bank’’; ‘‘Board’’

should be understood to mean ‘‘FDIC’’;

and ‘‘appropriate Federal banking

agency’’ should be understood to mean

‘‘FDIC’’ wherever those words or

phrases are used in Regulation W

nd in Regulation W to make it

clear that, for the purposes of

compliance with section 18(j)(1) of the

FDI Act and this part, ‘‘member bank’’

should be understood to mean ‘‘insured

State nonmember bank’’; ‘‘Board’’

should be understood to mean ‘‘FDIC’’;

and ‘‘appropriate Federal banking

agency’’ should be understood to mean

‘‘FDIC’’ wherever those words or

phrases are used in Regulation W. The

section also defines ‘‘State nonmember

bank’’ by cross referencing the

definition found in section 3 of the FDI

Act (12 U.S.C. 1813(e)).

Sections 324.2(a), 324.3 and 324.4

together accomplish two important

things. They make clear that (1) the

FDIC, as the Federal supervisor of

insured State nonmember banks, is the

appropriate party to whom insured State

nonmember banks must look for

guidance in interpreting the

requirements of sections 23A and 23B of

the FRA as they apply to insured State

nonmember banks through section 18(j)

of the FDI Act, and (2) it is the FDIC

which exercises discretion in applying

the restrictions and limitations found in

Regulation W in those instances in

which Regulation W provides for relief,

calls for determinations, or provides for

the exercise of discretion by the FRB. In

short, by adopting the cross reference to

Regulation W the FDIC is satisfying its

obligation to ensure that insured State

nonmember banks are subject to

sections 23A and 23B as though they

were member banks. It is only

appropriate, and is in fact necessary to

the effective accomplishment of the

FDIC’s charge to oversee the safety and

soundness of insured State nonmember

banks, for the FDIC to exercise the

authority to make decisions with respect

to particular insured State nonmember

banks and their transactions with

affiliates in the context of the overall

facts and circumstances affecting those

banks. The FDIC is the supervisor of

these particular institutions and the

Federal supervisory agency that is in the

best position to evaluate the need for

relief

nks, for the FDIC to exercise the

authority to make decisions with respect

to particular insured State nonmember

banks and their transactions with

affiliates in the context of the overall

facts and circumstances affecting those

banks. The FDIC is the supervisor of

these particular institutions and the

Federal supervisory agency that is in the

best position to evaluate the need for

relief.

As indicated above, part 324 makes it

clear that the reference to the

‘‘appropriate Federal banking agency’’

as found in Regulation W means the

FDIC. References to the FDIC in FDIC’s

regulations will normally be understood

to refer to the FDIC’s Board of Directors

unless the Board of Directors has

delegated the matter to some other

individual within the agency.

Regulation W contains several

provisions that permit the ‘‘appropriate

Federal Banking agency’’ to make

certain decisions. For example, section

223.15(b)(3) of Regulation W provides

that the appropriate Federal banking

agency may set the amount by which a

bank’s share of a participation in a loan

originated by an affiliate which is now

a problem loan and which is being

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7 The FDIC recognizes that it will be necessary to

coordinate with the FRB to assure consistency as

between the application of the standard to member

banks and state nonmember banks. We note,

however, that to date the FRB has never had a

control hearing under the relevant provisions of

section 23A of the FRA. At this time there is no

existing prior FRB precedent resulting from a

control hearing for the FDIC to take into

consideration.

renewed (or for which additional funds

are extended) may exceed 5% of the

bank’s original exposure without the

renewal constituting a purchase of a low

quality asset

the FRB has never had a

control hearing under the relevant provisions of

section 23A of the FRA. At this time there is no

existing prior FRB precedent resulting from a

control hearing for the FDIC to take into

consideration.

renewed (or for which additional funds

are extended) may exceed 5% of the

bank’s original exposure without the

renewal constituting a purchase of a low

quality asset. Insured State nonmember

banks should note that it is the FDIC’s

present intent that the authority to make

determinations under Regulation W that

are to be made by the ‘‘appropriate

Federal banking agency’’ will be

delegated to the Director of the Division

of Supervision and Consumer Protection

and the Director’s designee.

Section 324.5

Exemption Requests

Section 223.43 of Regulation W (12

CFR 223.43) provides that the FRB may,

by regulation or order, at its discretion,

exempt transactions or relationships

from the requirements of section 23A if

the FRB determines that the exemption

is in the public interest and is consistent

with the purposes of section 23A.

FDIC’s proposed § 324.5 provides that

insured State nonmember banks may

request an exemption from the

requirements and restrictions of section

of 23A, as implemented by Regulation

W, by filing a written request with the

FDIC. The FDIC may, in its discretion,

grant an exemption if the FDIC

determines that it is in the public

interest to do so and the FDIC

determines that granting the exemption

is consistent with the purposes of

section 23A. This provision is similar in

purpose to §§ 324.2, 324.3 and 324.4 in

that it makes clear that it is the FDIC

which is the appropriate agency to grant

relief in the case of an insured State

nonmember bank.

Exemptions from the restrictions of

Regulation W are available for insured

State nonmember banks under the same

standards that apply to member banks,

i.e., if the exemption is in the public

interest and it is consistent with the

purposes of section 23A

that it makes clear that it is the FDIC

which is the appropriate agency to grant

relief in the case of an insured State

nonmember bank.

Exemptions from the restrictions of

Regulation W are available for insured

State nonmember banks under the same

standards that apply to member banks,

i.e., if the exemption is in the public

interest and it is consistent with the

purposes of section 23A. Exemptions

are thus available to member and

nonmember banks ‘‘in the same

manner’’ (after filing a request for an

exemption) and ‘‘to the same extent’’

(after the bank’s request is evaluated

based upon the same standards). The

only difference is that it is the FDIC

which, based on its unique supervisory

perspective and familiarity with the

institution in question, evaluates

whether those standards are met and

whether it is appropriate to grant an

exemption.

Past practice has been for insured

State nonmember banks to apply to the

FRB to obtain exemptions from the

restrictions of section 23A. Usually the

FRB consults with the FDIC prior to

granting exemptions. Absent unusual

circumstances, if the FDIC objects to the

exemption request, it is not granted.

Rather than continue the practice of

allowing insured State nonmember

banks to file exemption requests with

the FRB, the FDIC is proposing to

instruct insured State nonmember banks

to file all exemption requests with the

FDIC. Since FDIC is the primary Federal

banking supervisor of insured State

nonmember banks and is more familiar

with the condition and overall

management of those banks than the

FRB, it is more appropriate for the FDIC

to review and act on exemption requests

from insured State nonmember banks. It

is not only more appropriate to do so,

but the FDIC expects that following this

new procedure will result in more

efficiency in the review of the requests

which will in turn benefit banks

is more familiar

with the condition and overall

management of those banks than the

FRB, it is more appropriate for the FDIC

to review and act on exemption requests

from insured State nonmember banks. It

is not only more appropriate to do so,

but the FDIC expects that following this

new procedure will result in more

efficiency in the review of the requests

which will in turn benefit banks. We

anticipate that individual reviews will

take less time even though it is the

FDIC’s intent to continue to coordinate

with the FRB to ensure that the

standards under which exemption

requests are evaluated are consistently

applied by the FDIC and the FRB. If

adopted, the regulation would not have

any effect on exemptions previously

granted by the FRB. Those exemptions

will continue to be valid and there

would be no need for an insured State

nonmember bank to seek an order from

the FDIC affirming the prior exemption

granted by the FRB.

Procedures for filing exemption

requests are proposed for comment and

are discussed below under the heading

‘‘Section 303.251 Affiliate

Transactions’’. If adopted, those

procedures would be set out in a new

§ 303.251.

Section 324.6

Controlling Influence

Determinations

Section 23A of the FRA requires a

shareholder or a company to be given

notice and opportunity for a hearing

before the shareholder or company is

determined to directly or indirectly

exercise a controlling influence over the

management or policies of another

company. The impact of a

determination that such influence is

found to exist is that the shareholder or

company is considered to control the

other company, thus making the

companies affiliates for the purposes of

section 23A.

Section 324.6 of the proposed

regulation restates the statutory

obligation for opportunity for a hearing

prior to the control determination being

made

of another

company. The impact of a

determination that such influence is

found to exist is that the shareholder or

company is considered to control the

other company, thus making the

companies affiliates for the purposes of

section 23A.

Section 324.6 of the proposed

regulation restates the statutory

obligation for opportunity for a hearing

prior to the control determination being

made. It also makes it clear that the

FDIC and not the FRB is the agency that

affords the opportunity for a hearing

and makes the final determination on

the control issue when an insured State

nonmember bank is involved. (See,

Roque De La Feunte II v. FDIC, 332 F.3d

1208 (9th Cir. 2003) (FDIC has the

authority and obligation to afford

opportunity for hearing and to conduct

a control hearing). The standard under

the proposal for determining if control

exists is whether the shareholder or

company has a controlling influence

over the management or policies of the

other company. This standard is

identical to that found in section 23A of

the FRA and is the same standard in

FRB Regulation W.7

If a hearing is requested by an insured

State nonmember bank, or one of its

shareholders, the hearing will be

conducted in accordance with the

procedures set out in 12 CFR 303. (See

discussion below under the heading

‘‘Section 303.251 Affiliate transactions’’

for information regarding the hearing

procedures that are proposed for

comment.)

Proposed Amendments to 12 CFR 303

Section 303.251

Affiliate Transactions

FDIC is proposing to amend part 303

governing filing procedures and certain

hearings. Under the proposal, a new

section would be added to subpart M—

‘‘Other Filings’’ that would (1) set out

the procedures for filing a request for an

exemption from section 23A, and (2) set

out the procedures governing hearings

to determine whether or not a

shareholder or company exercises a

controlling influence over another

company

rt 303

governing filing procedures and certain

hearings. Under the proposal, a new

section would be added to subpart M—

‘‘Other Filings’’ that would (1) set out

the procedures for filing a request for an

exemption from section 23A, and (2) set

out the procedures governing hearings

to determine whether or not a

shareholder or company exercises a

controlling influence over another

company.

Exemption requests—As proposed in

§303.251(a), the procedures governing

requests for an exemption from the

restrictions of section 23A would

require the requesting bank to file a

letter with the appropriate FDIC office

that (1) describes in detail the

relationship or transaction for which the

bank is seeking an exemption, (2)

identifies the requirements or

restrictions from which the bank is

seeking relief, and (3) sets out an

explanation of why the exemption is in

the public interest and is consistent

with the purposes of section 23A. The

FDIC may request any additional

information that is, in its opinion,

necessary to properly evaluate the

request. Banks that file exemption

requests will receive written notification

of the FDIC’s decision. The proposed

exemption procedures are substantially

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Federal Register / Vol. 69, No. 52 / Wednesday, March 17, 2004 / Proposed Rules

the same as those adopted by the FRB

in Regulation W for member banks with

the exception that, unlike member

banks, State nonmember banks would

file requests with an FDIC regional

office rather than with the agency’s

General Counsel. At the present time it

is anticipated that the FDIC’s Board of

Directors will retain the authority to

grant exemptions and will not delegate

that responsibility.

Controlling influence hearing

requests—Procedures governing

requests for hearings and the actual

conduct of hearings to determine

control are set out in proposed

§ 303.251(b)

office rather than with the agency’s

General Counsel. At the present time it

is anticipated that the FDIC’s Board of

Directors will retain the authority to

grant exemptions and will not delegate

that responsibility.

Controlling influence hearing

requests—Procedures governing

requests for hearings and the actual

conduct of hearings to determine

control are set out in proposed

§ 303.251(b). Under the proposed

procedures the FDIC is required to

provide a shareholder or company

written notice of an opportunity for

hearing before the agency makes a

determination that there is an affiliation

based on the ability to exercise a

controlling influence over the

management or policies of another

company. A company or shareholder

that wants a hearing must respond to

that effect no later than 10 days after

receiving the written notice of

opportunity for hearing by filing a

request for a hearing with the

‘‘appropriate FDIC office’’ as that term is

defined in 12 CFR 303. Which FDIC

office is the ‘‘appropriate FDIC office’’ is

dependent upon whether the institution

that is the subject of a filing is not part

of a group of related institutions. If that

is the case, the appropriate regional

office for that institution, and any

individual associated with the

institution, is the FDIC region in which

the institution is located. (See

§ 303.2(g)(1) of current part 303). If the

institution that is the subject of a filing

is part of a group of related institutions,

the appropriate FDIC regional office for

that institution, and any individual

associated with that institution, is the

FDIC region in which the group’s major

policy and decision makers are located

(or any other region the FDIC designates

on a case-by-case basis). (See

§ 303.2(g)(2) of current part 303).

Requests for a control hearing will be

acknowledged in writing. The date and

time for hearings will be set by the FDIC

solely in its discretion (‘‘such time as

FDIC determines to be reasonable’’)

, is the

FDIC region in which the group’s major

policy and decision makers are located

(or any other region the FDIC designates

on a case-by-case basis). (See

§ 303.2(g)(2) of current part 303).

Requests for a control hearing will be

acknowledged in writing. The date and

time for hearings will be set by the FDIC

solely in its discretion (‘‘such time as

FDIC determines to be reasonable’’). In

setting the date for the hearing the FDIC

will take care to consider the

convenience of the participants in

addition to other factors such as the

complexity of the issues and the

potential effects of the timing of the

hearing on associated matters such as a

pending examination. The presiding

officer will be the Director of the

Division of Supervision and Consumer

Protection or the Director’s designee.

The presiding officer is responsible for

conducting the hearing, determining

any procedural question that is not

specifically addressed by § 303.251(b),

and rendering a final determination

within 20 days of the date on which the

hearing record is closed. The

participants will be notified in writing

of the final disposition which will

contain an explanation of the reasons

for the final decision.

The final determination may be

appealed to the Board of Directors of the

FDIC. To do so a request for review

must be filed the Executive Secretary of

the FDIC within 15 days of the date on

which notification of the final decision

is received.

The proposal indicates that the

procedures currently set out in

§§ 303.10(f) through 303.10(i), 303.10(k)

and 303.10(m) will govern the conduct

of the hearing. Section 303.10 is titled

‘‘Hearings and other meetings’’.

Paragraph (f) governs participation in

hearings. Paragraph (g) governs

transcripts. Paragraph (h) governs

presentations and information that may

be submitted. It also identifies federal

laws that are not applicable to hearings.

Paragraph (i) governs the closing of the

hearing record. Paragraph (k) governs

the computation of time

. Section 303.10 is titled

‘‘Hearings and other meetings’’.

Paragraph (f) governs participation in

hearings. Paragraph (g) governs

transcripts. Paragraph (h) governs

presentations and information that may

be submitted. It also identifies federal

laws that are not applicable to hearings.

Paragraph (i) governs the closing of the

hearing record. Paragraph (k) governs

the computation of time. Paragraph (m)

provides that the Board of Directors may

delegate by resolution to the presiding

officer the authority to adopt different

procedures in individual matters.

Request for Comments

In addition to any other comments on

the proposal, the FDIC specifically

requests comment on the following.

1. Is it advisable for the FDIC to adopt

separate rules implementing section

18(j)(1) of the FDI Act and section 23A

and 23B of the FRA as they apply to

insured State nonmember banks?

2. If the FDIC does adopt separate

regulations, should the regulation set

out the full text of Regulation W rather

than adopt the proposed cross

reference? If the FDIC adopted a full text

version it would be identical to

Regulation W with the exception that

‘‘insured State nonmember bank’’ would

be substituted for ‘‘member bank’;

‘‘FDIC’’ would be substituted for

‘‘Board’; ‘‘FDIC’’ would be substituted

for ‘‘appropriate Federal banking

agency’’; the definition of ‘‘member

bank’’ would be replaced with a

definition of ‘‘State nonmember bank’’

(definition would be the same as

currently proposed) and the authority,

purpose and scope paragraph as found

in Regulation W would be modified to

read as those paragraphs are proposed

for comment.

3. Should the FDIC continue its past

practice of allowing the FRB to act on

exemption requests by insured State

nonmember banks or adopt the

proposed change in practice which

would direct insured State nonmember

banks to file such requests with the

FDIC, which would then grant or deny

the request?

4

in Regulation W would be modified to

read as those paragraphs are proposed

for comment.

3. Should the FDIC continue its past

practice of allowing the FRB to act on

exemption requests by insured State

nonmember banks or adopt the

proposed change in practice which

would direct insured State nonmember

banks to file such requests with the

FDIC, which would then grant or deny

the request?

4. If the FDIC adopts the practice of

acting on exemption requests, are the

proposed procedures for exemption

requests sufficiently clear? Is the

information that is required to be

presented in an exemption request

burdensome? Should the regulation

require that additional, specifically

identified information be included in

the request? Should the regulation

provide specifics on the time in which

the FDIC will act on exemption

requests?

5. Are the proposed hearing

procedures adequate? What additional

procedures if any should be included?

Should the regulation specify that the

hearing will take place no later than a

certain specified period of time after the

request for hearing is submitted to the

FDIC? Is it appropriate to apply the

procedures found in §§ 303.10(f)

through 303.10(i), 303.10(k) and

303.10(m) to a controlling influence

hearing?

6. Should the Board of Directors

delegate the authority to grant

exemptions under the regulation or

retain the authority to grant exemptions

at the Board level?

7. Should the Board of Directors

delegate the authority to make a final

control determination or should that

authority be retained only at the Board

level?

8. If decision making authority with

respect to control determinations is

delegated, is it appropriate to allow an

appeal of the decision and if so, to

whom?

9

gulation or

retain the authority to grant exemptions

at the Board level?

7. Should the Board of Directors

delegate the authority to make a final

control determination or should that

authority be retained only at the Board

level?

8. If decision making authority with

respect to control determinations is

delegated, is it appropriate to allow an

appeal of the decision and if so, to

whom?

9. Is the FDIC correct in its initial

view that the proposed exemption for

section 24 subsidiaries that were

established prior to the publication of

this proposal from part 324 will not

adversely impact the public or be

inconsistent with the purposes of

section 23A and 23B?

10. Should the FDIC draft the

subsidiary exemption more narrowly? If

so, why? Should the exemption be

broader in scope? If so, why?

11. Should the FDIC consider

additional exemptions at this time?

12. Should the FDIC consider granting

a phase-in period for transactions that

were entered into prior to the

publication of the proposal? If so,

should the phase-in period mirror the

phase-in period the FRB adopted for

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Federal Register / Vol. 69, No. 52 / Wednesday, March 17, 2004 / Proposed Rules

member banks (i.e., three months from

the effective date of the rule) or would

some other period be more appropriate?

13. Should the FDIC consider

exempting from part 324 transactions

that were entered into prior to the

publication of the proposal? If so, why?

Would such an exemption pose safety

and soundness issues?

14. FDIC’s view is that insured State

branches, agencies, and commercial

lending companies of foreign banks are

subject to the substantive provisions of

Regulation W and this part. Comment is

requested on whether the proposed

regulation is sufficiently clear in that

regard and whether or not the FDIC is

justified in its view.

15

Would such an exemption pose safety

and soundness issues?

14. FDIC’s view is that insured State

branches, agencies, and commercial

lending companies of foreign banks are

subject to the substantive provisions of

Regulation W and this part. Comment is

requested on whether the proposed

regulation is sufficiently clear in that

regard and whether or not the FDIC is

justified in its view.

15. Are the proposed amendments to

the FDIC’s regulations written clearly

and in ‘‘plain language’’? If not, what

changes should be made to the proposed

language to make it clearer and easier to

understand?

Paperwork Reduction Act

In accordance with the Paperwork

Reduction Act (44 U.S.C. 3501 et seq.),

the FDIC may not conduct or sponsor,

and a person is not required to respond

to, a collection of information unless it

displays a currently valid Office of

Management and Budget (OMB) control

number. The collection of information

contained in this rule has been

submitted to OMB for review.

Written comments on the collection of

information should be sent to the Joseph

F. Lackey, FDIC desk officer: Office of

Management and Budget, Office of

Information and Regulatory Affairs,

New Executive Office Building,

Washington, DC 20503. Copies of

comments should also be sent to:

Thomas Nixon, Legal Division, FDIC,

550 17th Street, NW., Washington, DC

20429, (202) 898–8766. For further

information on the Paperwork

Reduction Act aspect of this rule,

contact Thomas Nixon at the above

address.

Comment is solicited on:

1. Whether the collection of

information is necessary for the proper

performance of FDIC functions,

including whether the information will

have practical utility;

2. The accuracy of our estimate of

burden of the proposed collection of

information, including the validity of

the methodology and assumptions used;

3. The quality, utility, and clarity of

the information to be collected;

4

:

1. Whether the collection of

information is necessary for the proper

performance of FDIC functions,

including whether the information will

have practical utility;

2. The accuracy of our estimate of

burden of the proposed collection of

information, including the validity of

the methodology and assumptions used;

3. The quality, utility, and clarity of

the information to be collected;

4. Ways to minimize the burden of the

information collection on those who are

to respond, including through the use of

appropriate automated, electronic,

mechanical, or other technological

collection techniques or other forms of

information technology, for example,

permitting electronic submission of

responses; and

5. Estimates of capital or start-up costs

and costs of operation, maintenance,

and purchases of services to provide

information.

Title of the collection: Transactions

with affiliates.

Summary of the collection: As

discussed more fully in the preamble,

the FDIC’s 12 CFR part 324 will make

clear that insured State nonmember

institutions must conform to the

standards of FRB’s Regulation W and

that the FDIC is responsible for

administering Regulation W as it applies

to such institutions, including receiving

and acting on notices required by

Regulation W.

The notices required in this collection

are required to evidence compliance

with sections 23A and 23B of the

Federal Reserve Act (12 U.S.C. 371c and

371c–1) and section 18(j)(1) of the

Federal Deposit Insurance Act (‘‘FDI

Act’’). The respondents for part 324 will

be insured State nonmember

institutions.

Regulation W established four notices

at (12 CFR) sections 223.15(b)(4),

223.31(d)(4), 223.41(d)(2) and 223.43(b).

The FDIC will require insured state

nonmember institutions to provide the

first three of these notices to the FDIC

by the part 324’s cross-reference to

Regulation W. The fourth Regulation W

notice (223.43(b)) will not be required

through the part 324 cross-reference

itutions.

Regulation W established four notices

at (12 CFR) sections 223.15(b)(4),

223.31(d)(4), 223.41(d)(2) and 223.43(b).

The FDIC will require insured state

nonmember institutions to provide the

first three of these notices to the FDIC

by the part 324’s cross-reference to

Regulation W. The fourth Regulation W

notice (223.43(b)) will not be required

through the part 324 cross-reference.

Instead, the FDIC equivalent of that

notice will be required through 12 CFR

303.251.

The first notice requirement,

described in Regulation W’s section

223.15(b)(4), is a condition to an

exemption for renewals of loan

participations involving problem loans.

Regulation W requires the participating

depository institution to provide its

appropriate Federal banking agency

with written notice of the renewal or

extension of additional credit not later

than 20 days after consummation. The

FDIC is the appropriate Federal banking

agency to which insured State

nonmember institutions are to provide

this notice. There will be no reporting

form associated with this information

collection. The FDIC estimates that

approximately three insured State

nonmember institutions will file this

notice annually and that it will take

approximately two hours to prepare the

notice.

The second notice requirement,

described in Regulation W’s section

223.31(d)(4), is a condition to an

exemption for a depository institution’s

acquisition of an affiliate that becomes

an operating subsidiary of the

institution after the acquisition.

Regulation W requires the institution to

provide its appropriate Federal banking

agency and the FRB with written notice

of its intention to acquire the company

at or before the time that the company

becomes an affiliate of the institution.

Through part 324’s cross-reference,

insured State nonmember institutions

will provide that notice to the FDIC.

There will be no reporting form

associated with this information

collection

to

provide its appropriate Federal banking

agency and the FRB with written notice

of its intention to acquire the company

at or before the time that the company

becomes an affiliate of the institution.

Through part 324’s cross-reference,

insured State nonmember institutions

will provide that notice to the FDIC.

There will be no reporting form

associated with this information

collection. The FDIC estimates that

approximately three insured State

nonmember institutions will file this

notice annually and that it will take

approximately six hours to prepare the

notice.

The third notice requirement,

described in Regulation W’s section

223.41(d)(2), is a condition to an

exemption for internal corporate

reorganization transactions. Regulation

W requires the depository institution to

provide its appropriate Federal banking

agency and the FRB with written notice

of the transaction before consummation.

Insured State nonmember institutions

will provide notice to the FDIC. The

notice must describe the primary

business activities of the affiliate and

indicate the proposed date of the

reorganization. There will be no

reporting form associated with this

information collection. The FDIC

estimates that approximately seven

insured state nonmember institutions

will file this notice annually and that it

will take approximately six hours to

prepare a notice.

Finally, part 324 will not require

insured state nonmember institutions to

send a notice to the FDIC through a

cross-reference to Regulation W’s

section 223.43(b). Instead, pursuant to

§ 303.251, they must submit a request to

the appropriate FDIC regional office.

The request must describe in detail the

transaction or relationship for which the

institution seeks exemption; explain

why the FDIC should exempt the

transaction or relationship; and explain

how the exemption would be in the

public interest and consistent with the

purposes of section 23A. There will be

no reporting form associated with this

information collection

te FDIC regional office.

The request must describe in detail the

transaction or relationship for which the

institution seeks exemption; explain

why the FDIC should exempt the

transaction or relationship; and explain

how the exemption would be in the

public interest and consistent with the

purposes of section 23A. There will be

no reporting form associated with this

information collection. The FDIC

estimates that approximately two

insured State nonmember institutions

will file these requests annually and

that it will take approximately 10 hours

to prepare a request.

Burden estimate: The total estimated

annual burden for insured State

nonmember institutions that must

comply with the above-mentioned

requirements is 86 hours. Based on a

rate of $50 per hour, the total annual

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Federal Register / Vol. 69, No. 52 / Wednesday, March 17, 2004 / Proposed Rules

cost to the public for these collections

of information is estimated to be $4,300.

Regulatory Flexibility Act

In accordance with section 3(a) of the

Regulatory Flexibility Act (5 U.S.C.

603(a)), the FDIC must publish an initial

regulatory flexibility analysis with this

rulemaking or certify that the proposed

rule, if adopted, will not have a

significant economic impact on a

substantial number of small entities. For

the purposes of the required analysis or

certification, financial institutions with

total assets of $150 million or less are

considered to be ‘‘small entities’’. For

the reasons set out below the FDIC

hereby certifies pursuant to 5 U.S.C.

605(b) that the proposed rule, if

adopted, will not have a significant

economic impact on a substantial

number of small entities.

Sections 23A and 23B of the FRA

limit transactions between a member

bank and its affiliates

tutions with

total assets of $150 million or less are

considered to be ‘‘small entities’’. For

the reasons set out below the FDIC

hereby certifies pursuant to 5 U.S.C.

605(b) that the proposed rule, if

adopted, will not have a significant

economic impact on a substantial

number of small entities.

Sections 23A and 23B of the FRA

limit transactions between a member

bank and its affiliates. The FDIC

enforces sections 23A and 23B of the

FRA as to insured State nonmember

banks under section 18(j)(1) of the FDI

Act which provides that insured State

nonmember banks are subject to

sections 23A and 23B of the FRA as

though they were member banks.

Section 9 (Tenth) of the FDI Act

authorizes the FDIC to issue such

regulations as may be necessary to

administer and carry out the purposes of

those sections. The proposed rule would

make clear to insured State nonmember

banks that in order to comply with

section 18(j)(1) of the FDI Act they must

comply with the substantive provisions

of FRB Regulation W which was

adopted in final by the FRB on

December 12, 2002 to implement the

requirements and restrictions of sections

23A and 23B of the FRA as they apply

to member banks. Regulation W is

codified at 12 CFR 223. It appeared in

volume 67 of the Federal Register at

page 76560 (67 FR 76560). A full

description of the reasons why the FRB

considered and adopted Regulation W

are set out in the Federal Register

document which contained Regulation

W as originally proposed for comment

(66 FR 24186, May 11, 2001) and in

Regulation W as adopted in final form.

The FRB describes Regulation W as a

regulation which, although designed to

comprehensively implement sections

23A and 23B of the FRA, is a regulation

that in large measure simply codifies the

FRB’s past practice and interpretations

with respect to sections 23A and 23B

Regulation

W as originally proposed for comment

(66 FR 24186, May 11, 2001) and in

Regulation W as adopted in final form.

The FRB describes Regulation W as a

regulation which, although designed to

comprehensively implement sections

23A and 23B of the FRA, is a regulation

that in large measure simply codifies the

FRB’s past practice and interpretations

with respect to sections 23A and 23B.

The reasons the FDIC is proposing to

adopt a cross reference to Regulation W

in its regulations and, is further

proposing to amend its regulations to

make clear that the FDIC is the

appropriate agency to grant exemptions

from sections 23A and 23B to insured

State nonmember banks as well as to

make other determinations under

Regulation W, are set out more fully

under the supplementary information

section of this document. The proposed

rule would apply to all insured State

nonmember banks regardless of their

size.

Regulation W largely codifies the

application of section 23A and 23B of

the FRA as to member and State

nonmember banks as interpreted and

applied before that rule’s adoption. In

most instances the differences between

what a bank needed to do to comply

with section 23A or 23B previously and

what is required to be done in order to

comply with section 23A or 23B post

Regulation W are minimal. In many

instances Regulation W actually grants

relief from restrictions contained in the

statute. Regulation W does contain some

new notice requirements and sets out

specifics as to filing requirements if a

bank wishes to obtain an exemption

from section 23A as to a particular

transaction or relationship. Those

requirements are discussed above under

the heading ‘‘Paperwork Reduction

Act’’. Of the requirements discussed

under that heading, the requirements

necessary to obtain an exemption are

the most onerous

some

new notice requirements and sets out

specifics as to filing requirements if a

bank wishes to obtain an exemption

from section 23A as to a particular

transaction or relationship. Those

requirements are discussed above under

the heading ‘‘Paperwork Reduction

Act’’. Of the requirements discussed

under that heading, the requirements

necessary to obtain an exemption are

the most onerous. Based on FDIC’s

experience as to the number and size of

State nonmember banks that have

sought such exemptions in the past, we

anticipate very few such requests and

the institutions most likely to file an

exemption request can be expected to be

larger than $150 million in total assets.

In 2003 only three insured State

nonmember banks requested

exemptions from section 23A. Only one

of the three institutions was under $150

million in total assets. Regulation W

also requires a notice in connection

with corporate reorganizations that are

exempted from some of the restrictions

of section 23A and 23B without need of

a case-by-case determination. Again

based on our past experience we

anticipate that banks that will take

advantage of this exemption are likely to

be larger than $150 million in total

assets. Over the years, exemption

requests have typically involved

reorganization transactions and as stated

above, banks that file exemption

requests are more likely to be banks in

excess of $150 million in total assets.

Although we cannot come to the same

conclusion with respect to the final two

categories of notices described under

the Paperwork Reduction Act heading,

those notice requirements are minimal

in terms of the information required to

be filed. Banks will not require the

services of attorneys, consultants,

appraisers, accountants or other

professionals to prepare and submit the

notices nor do these notices require the

use of sophisticated computer programs,

statistical analysis, or other complex

tracking or recordkeeping systems

Act heading,

those notice requirements are minimal

in terms of the information required to

be filed. Banks will not require the

services of attorneys, consultants,

appraisers, accountants or other

professionals to prepare and submit the

notices nor do these notices require the

use of sophisticated computer programs,

statistical analysis, or other complex

tracking or recordkeeping systems.

While some aspects of Regulation W

may require tracking or other

compliance systems in order for a bank

to comply with the requirements of the

rule or to take advantage of certain

exemptions contained in the rule, those

systems as well as any burden arising

out of FDIC’s proposed rule would be

present for State nonmember banks

regardless of whether the FDIC adopts

the proposal or not. The impact of the

proposed rule is largely procedural in

that its purpose is to clarify for State

nonmember banks that it is the FDIC

that administers the requirements of

Regulation W as to insured state

nonmember banks. The rule does not

impose any new or different substantive

requirement. In short, proposed part 324

does not itself impose any burden on

small institutions that is not already

imposed under Regulation W.

Impact on Families

The FDIC has determined that this

proposed rule will not affect family

well-being within the meaning of

section 654 of the Treasury and General

Government Appropriations Act, 1999,

Public Law 105–277, 112 Stat. 2681

stantive

requirement. In short, proposed part 324

does not itself impose any burden on

small institutions that is not already

imposed under Regulation W.

Impact on Families

The FDIC has determined that this

proposed rule will not affect family

well-being within the meaning of

section 654 of the Treasury and General

Government Appropriations Act, 1999,

Public Law 105–277, 112 Stat. 2681

(1998).

List of Subjects

12 CFR Part 324

Banks, banking, Safety and

Soundness, Transactions with affiliates.

12 CFR Part 303

Administrative practice and

procedure, Authority delegations

(Government agencies), Bank deposit

insurance, Banks, banking, Bank merger,

Branching, Foreign branches, Foreign

investments, Gold parachute payments,

Insured branches, Interstate branching,

Reporting and recordkeeping

requirements, Savings associations.

The Board of Directors of the Federal

Deposit Insurance Corporation hereby

proposes to add a new part 324 to title

12 of the Code of Federal Regulations

and amend part 303 of title 12 of the

Code of Federal Regulations as follows:

1. The authority citation for part 324

reads as follows:

Authority: 12 U.S.C. 1819(tenth),

1828(j)(1).

2. New part 324 is added to read as

follows:

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Federal Register / Vol. 69, No. 52 / Wednesday, March 17, 2004 / Proposed Rules

PART 324—TRANSACTIONS WITH

AFFILIATES

Sec.

324.1

Authority, purpose and scope.

324.2

Affiliate transactions.

324.3

Filings, submissions, requests and

hearings.

324.4

Definitions and usage of terms.

324.5

Exemptions.

324.6

Controlling influence determinations.

§ 324.1

Authority, purpose and scope.

(a) Authority. This part is issued

under the authority of sections 9 (tenth)

and 18(j)(1) of the Federal Deposit

Insurance Act (FDI Act) (12 U.S.C. 1819

(tenth), 1828(j)(1)).

2

Affiliate transactions.

324.3

Filings, submissions, requests and

hearings.

324.4

Definitions and usage of terms.

324.5

Exemptions.

324.6

Controlling influence determinations.

§ 324.1

Authority, purpose and scope.

(a) Authority. This part is issued

under the authority of sections 9 (tenth)

and 18(j)(1) of the Federal Deposit

Insurance Act (FDI Act) (12 U.S.C. 1819

(tenth), 1828(j)(1)).

(b) Purpose. This part implements

section 18(j)(1) of the FDI Act and

sections 23A and 23B of the Federal

Reserve Act (FRA) (12 U.S.C. 371c,

371c–1) as to insured State nonmember

banks. Section 18(j)(1) of the FDI Act

makes insured State nonmember banks

subject to the restrictions of sections

23A and 23B of the FRA in the same

manner and to the same extent as if

insured State nonmember banks are

member banks of the Federal Reserve

System. Section 23A and 23B of the

FRA establish certain quantitative limits

and other prudential requirements for

loans, purchases of assets, and certain

other transactions between a member

bank and its affiliates. Federal Reserve

Board (FRB) Regulation W (12 CFR 223)

implements sections 23A and 23B of the

FRA as to member banks by defining

terms used in sections 23A and 23B,

explaining the requirements of those

statutory provisions and exempting

certain transactions from the restrictions

and limitations of the FRA.

(c) Scope. This part applies to insured

State nonmember banks.

§ 324.2

Affiliate transactions.

(a) General. Insured State nonmember

banks are subject to the restrictions and

limitations contained in section 23A

and 23B of the FRA and FRB Regulation

W on transactions by member banks

with affiliates in the same manner and

to the same extent as if they were

member banks of the Federal Reserve

System.

This part applies to insured

State nonmember banks.

§ 324.2

Affiliate transactions.

(a) General. Insured State nonmember

banks are subject to the restrictions and

limitations contained in section 23A

and 23B of the FRA and FRB Regulation

W on transactions by member banks

with affiliates in the same manner and

to the same extent as if they were

member banks of the Federal Reserve

System.

(b) Exception. Any subsidiary

relationship that predates March 17,

2004, is exempt from the requirements

and restrictions of this part that would

otherwise apply if such relationship

would not have been subject to section

23A and 23B of the FRA prior to

December 12, 2002, because the

subsidiary would not have at that time

been considered to be an affiliate.

§ 324.3

Filings, submissions, requests and

hearings.

Filings, submissions, and requests

made under section 324.5 and section

324.6 of this part are governed by 12

CFR 303.251. All other filings,

submissions or requests under this part

are governed by subpart A of 12 CFR

303. Procedures to which member banks

are subject under FRB Regulation W for

filings, submissions, requests and

hearings do not apply in the case of a

State nonmember bank.

§ 324.4

Definitions and usage of terms.

For purposes of compliance with this

part insured state nonmember banks

should substitute ‘‘insured State

nonmember bank’’ for ‘‘member bank’’

and ‘‘FDIC’’ for ‘‘Board’’ wherever those

terms appear in Federal Reserve Board

Regulation W. The phrase ‘‘appropriate

Federal banking agency’’ as used in

Federal Reserve Board Regulation W

should in all instances be read to mean

‘‘FDIC’’. ‘‘State nonmember bank’’ has

the same meaning as in 12 U.S.C.

1813(e)(2).

§ 324.5

Exemptions.

An insured State nonmember bank

may request that the FDIC exempt

transactions or relationships from the

requirements of section 23A of the FRA

as implemented by this part

ate

Federal banking agency’’ as used in

Federal Reserve Board Regulation W

should in all instances be read to mean

‘‘FDIC’’. ‘‘State nonmember bank’’ has

the same meaning as in 12 U.S.C.

1813(e)(2).

§ 324.5

Exemptions.

An insured State nonmember bank

may request that the FDIC exempt

transactions or relationships from the

requirements of section 23A of the FRA

as implemented by this part. Exemption

requests may be granted by the FDIC in

its discretion if it finds such exemption

to be in the public interest and to be

consistent with the purposes of section

23A.

§ 324.6

Controlling influence

determinations.

Determinations by the FDIC that a

shareholder or company directly or

indirectly exercises a controlling

influence over the management or

policies of another company will only

be made after notice and opportunity for

hearing. Hearings will be conducted in

accordance with 12 CFR 303.251.

3. The authority citation for part 303

continues to read as follows:

Authority: 12 U.S.C. 378, 1813, 1815, 1817,

1818, 1819 (Seventh and Tenth), 1820, 1823,

1828, 1831a, 1831e, 1831o, 1831p–1, 1831w,

1835a, 1843(l), 3104, 3105, 3108, 3207; 15

U.S.C. 1601–1607.

4. Sections 303.251 and 303.252 of

subpart M of part 303 are redesignated

as §§ 303.252 and 303.253.

5. Section 303.251 is added to subpart

M of part 303 to read as follows:

Subpart M—Other Filings

*

*

*

*

*

§ 303.251

Affiliate transactions.

818, 1819 (Seventh and Tenth), 1820, 1823,

1828, 1831a, 1831e, 1831o, 1831p–1, 1831w,

1835a, 1843(l), 3104, 3105, 3108, 3207; 15

U.S.C. 1601–1607.

4. Sections 303.251 and 303.252 of

subpart M of part 303 are redesignated

as §§ 303.252 and 303.253.

5. Section 303.251 is added to subpart

M of part 303 to read as follows:

Subpart M—Other Filings

*

*

*

*

*

§ 303.251

Affiliate transactions.

(a) Exemption requests. (1) Scope—

This paragraph contains the procedures

to be followed by an insured state

nonmember bank that wants to obtain

an order from the FDIC exempting

affiliate transactions or relationships

from the requirements of part 324 (12

CFR 324) and section 23A of the Federal

Reserve Act (12 U.S.C. 371c) as made

applicable to insured state nonmember

banks by section 18(j)(1) of the FDI Act

(12 U.S.C. 1828(j)(1)).

(2) Where to File. Applicants shall

submit a letter application to the

appropriate FDIC office.

(3) Content of Filing. The application

shall contain the following:

(i) A detailed description of the

relationship or transaction for which the

applicant is seeking an exemption,

(ii) An identification of the

requirements or restrictions from which

the applicant is seeking relief, and

(iii) A statement of why the requested

relief is in the public interest and

consistent with the purposes of section

18(j)(1) of the FDI Act.

(4) Additional information. The FDIC

may request additional information at

any time during the processing of the

filing.

(5) Processing. The FDIC will provide

the applicant with written notification

of the final action when the decision is

rendered.

iii) A statement of why the requested

relief is in the public interest and

consistent with the purposes of section

18(j)(1) of the FDI Act.

(4) Additional information. The FDIC

may request additional information at

any time during the processing of the

filing.

(5) Processing. The FDIC will provide

the applicant with written notification

of the final action when the decision is

rendered.

(b) Controlling influence

determinations. (1) Scope—This

paragraph contains the procedures the

FDIC will follow when determining for

the purposes of part 324 whether a

company or shareholder controls

another company as a result of directly

or indirectly exercising a controlling

influence over the management or

policies of such company.

(2) Opportunity for hearing. Prior to

determining that a shareholder or a

company has a controlling influence

over the management or policies of

another company, the shareholder or

company will be provided written

notice of an opportunity for hearing.

(3) Hearing requests. Requests for a

hearing must be received by the FDIC no

later than 10 days after a written notice

of opportunity for a hearing is received.

(4) Where to File. Requests for a

hearing must be submitted by letter to

the appropriate FDIC office.

(5) Timing of hearing. Upon receipt of

a request for hearing, the FDIC will

acknowledge the request in writing and

set such date for the hearing as is

determined by the FDIC to be

reasonable.

he FDIC no

later than 10 days after a written notice

of opportunity for a hearing is received.

(4) Where to File. Requests for a

hearing must be submitted by letter to

the appropriate FDIC office.

(5) Timing of hearing. Upon receipt of

a request for hearing, the FDIC will

acknowledge the request in writing and

set such date for the hearing as is

determined by the FDIC to be

reasonable.

(6) Hearing Procedures. The presiding

officer shall be the Director of the

Division of Supervision and Consumer

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Federal Register / Vol. 69, No. 52 / Wednesday, March 17, 2004 / Proposed Rules

Protection or the Director’s designee.

Hearings will be conducted in

accordance with sections 303.10(f)–

section 303.10(i), section 303.10(k) and

section 303.10(m). The presiding officer

is responsible for conducting the

hearing, determining all procedural

questions not governed by paragraph (b)

of this section and making the final

determination within 20 days of the

date on which the hearing record is

closed. Participants will be notified in

writing of the final disposition and

provided an explanation of the reasons

for the final decision.

(7) Review of final decision. Final

decisions resulting in a determination

that control exists may be appealed to

the Board of Directors of the FDIC by

filing a request for review with the

Executive Secretary of the FDIC no later

than 15 days after the date on which

written notification of the final decision

is received.

Dated at Washington, DC, this 10th day of

March, 2004.

By order of the Board of Directors.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 04–5928 Filed 3–16–04; 8:45 am]

BILLING CODE 6714–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No

e date on which

written notification of the final decision

is received.

Dated at Washington, DC, this 10th day of

March, 2004.

By order of the Board of Directors.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 04–5928 Filed 3–16–04; 8:45 am]

BILLING CODE 6714–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 2002–NM–251–AD]

RIN 2120–AA64

Airworthiness Directives; Fokker

Model F.28 Mark 0070 Series Airplanes

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Notice of proposed rulemaking

(NPRM).

SUMMARY: This document proposes the

adoption of a new airworthiness

directive (AD) that is applicable to

certain Fokker Model F.28 Mark 0070

series airplanes. This proposal would

require inspection of cables installed on

certain contactors in the electrical

power center (EPC) for proper

installation of wires, and reinstallation

of wires if necessary. These actions are

necessary to prevent a short circuit in

the EPC, possibly leading to a fire in the

main cabin and damage to the airplane,

or injury to passengers and flightcrew.

These actions are intended to address

the identified unsafe condition.

DATES: Comments must be received by

April 16, 2004.

ADDRESSES: Submit comments in

triplicate to the Federal Aviation

Administration (FAA), Transport

Airplane Directorate, ANM–114,

Attention: Rules Docket No. 2002–NM–

251–AD, 1601 Lind Avenue, SW.,

Renton, Washington 98055–4056.

Comments may be inspected at this

location between 9 a.m. and 3 p.m.,

Monday through Friday, except Federal

holidays. Comments may be submitted

via fax to (425) 227–1232. Comments

may also be sent via the Internet using

the following address: 9-anm-

nprmcomment@faa.gov. Comments sent

via fax or the Internet must contain

‘‘Docket No. 2002–NM–251–AD’’ in the

subject line and need not be submitted

in triplicate

cted at this

location between 9 a.m. and 3 p.m.,

Monday through Friday, except Federal

holidays. Comments may be submitted

via fax to (425) 227–1232. Comments

may also be sent via the Internet using

the following address: 9-anm-

nprmcomment@faa.gov. Comments sent

via fax or the Internet must contain

‘‘Docket No. 2002–NM–251–AD’’ in the

subject line and need not be submitted

in triplicate. Comments sent via the

Internet as attached electronic files must

be formatted in Microsoft Word 97 or

2000 or ASCII text.

The service information referenced in

the proposed rule may be obtained from

Fokker Services B.V., PO Box 231, 2150

AE Nieuw-Vennep, the Netherlands.

This information may be examined at

the FAA, Transport Airplane

Directorate, 1601 Lind Avenue, SW.,

Renton, Washington.

FOR FURTHER INFORMATION CONTACT: Tom

Rodriguez, Aerospace Engineer;

International Branch, ANM–116, FAA,

Transport Airplane Directorate, 1601

Lind Avenue, SW., Renton, Washington

98055–4056; telephone (425) 227–1137;

fax (425) 227–1149.

SUPPLEMENTARY INFORMATION:

Comments Invited

Interested persons are invited to

participate in the making of the

proposed rule by submitting such

written data, views, or arguments as

they may desire. Communications shall

identify the Rules Docket number and

be submitted in triplicate to the address

specified above. All communications

received on or before the closing date

for comments, specified above, will be

considered before taking action on the

proposed rule. The proposals contained

in this action may be changed in light

of the comments received.

Submit comments using the following

format:

• Organize comments issue-by-issue.

For example, discuss a request to

change the compliance time and a

request to change the service bulletin

reference as two separate issues.

• For each issue, state what specific

change to the proposed AD is being

requested.

• Include justification (e.g., reasons or

data) for each request

comments received.

Submit comments using the following

format:

• Organize comments issue-by-issue.

For example, discuss a request to

change the compliance time and a

request to change the service bulletin

reference as two separate issues.

• For each issue, state what specific

change to the proposed AD is being

requested.

• Include justification (e.g., reasons or

data) for each request.

Comments are specifically invited on

the overall regulatory, economic,

environmental, and energy aspects of

the proposed rule. All comments

submitted will be available, both before

and after the closing date for comments,

in the Rules Docket for examination by

interested persons. A report

summarizing each FAA-public contact

concerned with the substance of this

proposal will be filed in the Rules

Docket.

Commenters wishing the FAA to

acknowledge receipt of their comments

submitted in response to this action

must submit a self-addressed, stamped

postcard on which the following

statement is made: ‘‘Comments to

Docket Number 2002–NM–251–AD.’’

The postcard will be date stamped and

returned to the commenter.

Availability of NPRMs

Any person may obtain a copy of this

NPRM by submitting a request to the

FAA, Transport Airplane Directorate,

ANM–114, Attention: Rules Docket No.

2002–NM–251–AD, 1601 Lind Avenue,

SW., Renton, Washington 98055–4056.

Discussion

The Civil Aviation Authority—the

Netherlands (CAA–NL), which is the

airworthiness authority for the

Netherlands, notified the FAA that an

unsafe condition may exist on certain

Fokker Model F.28 Mark 0070 series

airplanes. The CAA–NL advises that an

operator reported an occurrence of a

short circuit between two cables

attached to a contactor in the electrical

power center (EPC) while an airplane

was on the ground and powered by

external power only. The short circuit

occurred due to incorrect installation of

the wires on the contactor, which left

minimal clearance between the cable

terminals

ies

airplanes. The CAA–NL advises that an

operator reported an occurrence of a

short circuit between two cables

attached to a contactor in the electrical

power center (EPC) while an airplane

was on the ground and powered by

external power only. The short circuit

occurred due to incorrect installation of

the wires on the contactor, which left

minimal clearance between the cable

terminals. The operator also discovered

the same condition on another airplane.

This condition, if not corrected, could

result in a short circuit in the EPC,

possibly leading to a fire in the main

cabin and damage to the airplane or

injury to passengers and flightcrew.

Explanation of Relevant Service

Information

Fokker Services B.V. has issued

Service Bulletin SBF100–24–035, dated

May 27, 2002, which describes

procedures for inspection of cables

installed on certain contactors in the

EPC for proper installation of wires, and

reinstallation of wires, if necessary.

Accomplishment of the actions

specified in the service bulletin is

intended to adequately address the

identified unsafe condition. The CAA–

NL classified this service bulletin as

mandatory and issued Dutch

airworthiness directive 2002–112, dated

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