# 60 FR 15882: Contracts Adverse to Safety and Soundness of Insured Depository Institutions > Federal · Regulations · In force URL: https://www.frixlaw.com/law-library/statutes/FR_PRORULE_95-7522 ## Section - **Citation:** 60 FR 15882 - **Heading:** Contracts Adverse to Safety and Soundness of Insured Depository Institutions - **Jurisdiction:** Federal - **Kind:** Regulations - **Status:** In force - **Text as of:** August 14, 2026 - **Source:** Compiled text - **Location:** Federal Register / Vol. 60 / 60 FR 15882 ## Text FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 334 RIN 3064-AB06 Contracts Adverse to Safety and Soundness of Insured Depository Institutions AGENCY: Federal Deposit Insurance Corporation. ACTION: Proposed rule; withdrawal. ----------------------------------------------------------------------- SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is withdrawing its proposed rule which would have implemented the statutory prohibition on contracts that adversely affect the safety or soundness of insured depository institutions. The statutory provision remains in place and unchanged. The FDIC has decided to withdraw the proposed rule because the existence of adverse contracts involving insured institutions has decreased considerably since the proposed rule was issued for public comment on April 1, 1991, because of the overwhelmingly negative comments received from the industry to the proposal, and because of an FDIC policy statement that recommends the withdrawal of proposed rules that have not been acted upon by the FDIC Board of Directors within nine months of the date of proposal. Many of the negative comments received in response to the proposal expressed the view that such a regulation would create unnecessary regulatory burden and that the Federal banking agencies already possess the necessary supervisory authority to deal with adverse contracts. Since the type of activity that the proposed rule was intended to eliminate (i.e., abuses involving contracts made by or on behalf of an insured institution that seriously jeopardize or misrepresent its safety and soundness) has been substantially reduced through greater industry awareness and use of alternative supervisory actions by the Federal banking agencies, there appears to be no need to promulgate such a regulation at this time rule was intended to eliminate (i.e., abuses involving contracts made by or on behalf of an insured institution that seriously jeopardize or misrepresent its safety and soundness) has been substantially reduced through greater industry awareness and use of alternative supervisory actions by the Federal banking agencies, there appears to be no need to promulgate such a regulation at this time. However, the FDIC may decide at a later date to publish a new proposal if it determines that the existence of adverse contracts has increased or that such action is otherwise necessary or appropriate. DATES: The withdrawal of proposed Part 334 is made on March 28, 1995. FOR FURTHER INFORMATION CONTACT: Robert F. Miailovich, Associate Director, Division of Supervision, (202) 898-6918; Michael D. Jenkins, Examination Specialist, Division of Supervision, (202) 898-6896; or Gwen E. Factor, Counsel, Legal Division, (202) 898-8522, Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, D.C. 20429. SUPPLEMENTARY INFORMATION: Background Section 225 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 added new section 30 to the Federal Deposit Insurance Act (Act), 12 U.S.C. 1831g, which prohibits any insured depository institution from entering into a written or oral contract with any person to provide goods, products or services to or for the benefit of the institution if the performance of such contract would adversely affect its safety or soundness. Section 30(b) authorizes the FDIC to prescribe such regulations as may be necessary to carry out the purposes of section 30. In accordance with this authority, the FDIC Board of Directors issued for public comment a proposal to add new Part 334 to the FDIC's rules and regulations (which was published in the Federal Register on April 1, 1991 (56 FR 13291)) to address adverse contracts ndness. Section 30(b) authorizes the FDIC to prescribe such regulations as may be necessary to carry out the purposes of section 30. In accordance with this authority, the FDIC Board of Directors issued for public comment a proposal to add new Part 334 to the FDIC's rules and regulations (which was published in the Federal Register on April 1, 1991 (56 FR 13291)) to address adverse contracts. The proposed rule would have implemented section 30 of the Act by prohibiting any insured depository institution from entering into any contract determined to be adverse and would have treated all adverse contracts uniformly without distinguishing between contracts with affiliates and those with non-affiliates. The proposed rule would not have defined with specificity the types of contracts that would be considered adverse. Instead, the proposal provided examples of terms that could indicate an adverse arrangement and identified prohibited actions by a discussion of previously encountered abuses. Under the proposed rule, each contract would have been evaluated separately on the basis of its own terms and by comparison with the terms of similar contracts entered into by the institution and other institutions. The burden of establishing the propriety of a contract with respect to which the appropriate Federal banking agency has made an initial determination of adverse effect on the institution's safety or soundness would have been on the institution and its contractor. As discussed in the preamble, the ``preponderance of evidence'' standard normally would have applied, but where there was evidence of bad faith, intentional wrong-doing or fraud, the propriety and legality of the contract would have been determined by clear and convincing evidence. The proposed rule also would have made clear that enforcement actions may be taken directly against any contractor, as an ``institution- affiliated party'' latory burden and that the Federal banking agencies already possess the necessary supervisory authority to deal with such contracts. Many of the objections to the proposal focused on the possibility of treating contracts with affiliates differently from those with non-affiliates and were virtually unanimous in their opposition to developing an additional rule dealing with affiliate contracts. Other objections to the proposed rule focused on: (1) Inadequacies in the definition of ``contract''; (2) the requirement that an insured institution must rebut a prima facie case that a particular contract is adverse with clear and convincing evidence; and (3) including independent contractors as ``institution-affiliated parties'' who could be joined to FDIC cease-and-desist actions against insured institutions and/or named as respondents in civil money penalty and prohibition actions. Policy Statement The FDIC's policy statement on Development and Review of FDIC Rules and Regulations (44 FR 31007, May 30, 1979) calls for withdrawal of any proposed regulation with respect to which final action by the FDIC Board of Directors has not been taken within nine months from the date of proposal. The FDIC believes that withdrawal of the proposed rule is appropriate because no action has been taken with respect to the proposal for over nine months. Effect of Withdrawal of Proposed Rule Section 30 of the Act authorizes (but does not require) the FDIC to promulgate such regulations as may be necessary to administer and carry out the purposes of, and prevent evasions of, the statutory prohibition. The statute is enforceable by its own terms by the FDIC and the other Federal banking agencies in the absence of an implementing regulation . Effect of Withdrawal of Proposed Rule Section 30 of the Act authorizes (but does not require) the FDIC to promulgate such regulations as may be necessary to administer and carry out the purposes of, and prevent evasions of, the statutory prohibition. The statute is enforceable by its own terms by the FDIC and the other Federal banking agencies in the absence of an implementing regulation. The FDIC has decided to withdraw the proposed rule because of the significant decrease in the type of activity that the proposed rule was intended to eliminate (i.e., abuses involving contracts made by or on behalf of an insured institution that seriously jeopardize or misrepresent its safety and soundness), the overwhelmingly negative comments received on the proposed rule, and an FDIC policy statement that recommends the withdrawal of proposed rules that have not been acted upon by the FDIC Board of Directors within nine months of the date of proposal. Moreover, the FDIC believes that the statute can be administered without regulation. The FDIC may decide, however, at a later date to publish a new proposal if it determines that the existence of adverse contracts has increased or that such action is otherwise necessary or appropriate. If the FDIC wishes at a later date to promulgate a regulation that deals with or addresses adverse contracts, it will begin the rulemaking process anew. In consideration of the foregoing, the FDIC hereby withdraws proposed new Part 334 of Title 12 of the Code of Federal Regulations. By Order of the Board of Directors. Dated at Washington, DC, this 21st day of March 1995. Federal Deposit Insurance Corporation. Robert E. Feldman, Acting Executive Secretary. 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