FIL-92-99 Attachment

[Federal Register: September 24, 1999 (Volume 64, Number 185)]

[Rules and Regulations]

[Page 51673-51681]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr24se99-2]

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 26

[Docket No. 99-11]

RIN 1557-AB60

FEDERAL RESERVE BOARD

12 CFR Part 212

[Docket No. R-0907]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 348

RIN 3064-ACO8

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 563f

[Docket No. 99-36]

RIN 1550-AB07

Management Official Interlocks

AGENCIES: Office of the Comptroller of the Currency, Treasury; Board of

Governors of the Federal Reserve System; Federal Deposit Insurance

Corporation; Office of Thrift Supervision, Treasury.

ACTION: Joint final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), Board of

Governors of the Federal Reserve System (Board), Federal Deposit

Insurance Corporation (FDIC), and Office of Thrift Supervision (OTS)

(the Agencies) are revising their rules regarding management

interlocks. The final rule conforms the interlocks rules to recent

statutory changes, modernizes and clarifies the rules, and reduces

unnecessary regulatory burdens where feasible, consistent with

statutory requirements.

EFFECTIVE DATE: This joint rule is effective January 1, 2000.

FOR FURTHER INFORMATION CONTACT: OCC: Emily R. McNaughton, National

Bank Examiner, Senior Policy Analyst, Core Policy Development (202)

874-5190; Jackie Durham, Senior Licensing Policy Analyst, Bank

Organization and Structure (202) 874-5060; Sue E. Auerbach, Senior

Attorney, Bank Activities and Structure (202) 874-5300; or Mark

Tenhundfeld, Assistant Director, Legislative and Regulatory Activities

(202) 874-5090. Office of the Comptroller of the Currency, 250 E

Street, SW, Washington, DC 20219.

Board: Thomas M. Corsi, Senior Counsel (202) 452-3275, or Andrew

Baer, Attorney (202) 452-2246, Legal Division, Board of Governors of

the Federal Reserve System. For the hearing impaired only,

Telecommunication Device for Deaf (TDD), Dorothea Thompson (202) 452-

3544, Board of Governors of the Federal Reserve System, 20th and C

Streets, NW, Washington, DC 20551.

FDIC: Curtis Vaughn, Examination Specialist, Division of

Supervision, (202) 898-6759; or Mark Mellon, Counsel, Regulation and

Legislation Section, Legal Division, (202) 898-3854, Federal Deposit

Insurance Corporation, 550 17th Street, NW, Washington, DC 20429.

OTS: David Bristol, Senior Attorney, Business Transactions

Division, Chief Counsel's Office (202) 906-6461; or Joseph M. Casey,

Supervision Policy, (202) 906-5741, Office of Thrift Supervision, 1700

G Street, NW, Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

The Depository Institution Management Interlocks Act (12 U.S.C.

3201-3208) (the Interlocks Act or Act) generally prohibits bank

management officials from serving simultaneously with two unaffiliated

depository institutions or their holding companies (depository

organizations). The scope of the prohibition depends on the size and

location of the organizations involved. For instance, the Act prohibits

[[Page 51674]]

interlocks between unaffiliated depository organizations, regardless of

size, if each organization has an office 1 in the same

community (the community prohibition). Interlocks are also prohibited

between unaffiliated depository organizations if each organization has

total assets of $20 million or more and has an office in the same

relevant metropolitan statistical area (RMSA) (the RMSA prohibition).

The Interlocks Act also prohibits interlocks between unaffiliated

depository organizations, regardless of location, if each organization

has total assets exceeding specified thresholds (the major assets

prohibition).

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\1\ Each of the Agencies' regulations generally define

``office'' as a home or branch office. See 12 CFR 26.2 (OCC), 212.2

(Board), 348.2 (FDIC), and 563f.2 (OTS).

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Summary of Statutory Changes

Section 2210 of the Economic Growth and Regulatory Paperwork

Reduction Act of 1996 (Pub. L. 104-208, 110 Stat. 3009-409) (the EGRPR

Act) amended sections 204, 206 and 209 of the Interlocks Act (12 U.S.C.

3203, 3205 and 3207). Section 2210(a) of the EGRPR Act amended the

Interlocks Act by changing the thresholds for the major assets

prohibition under 12 U.S.C. 3203. Prior to the EGRPR Act, management

officials of depository organizations with total assets exceeding $1

billion were prohibited from serving as management officials of

unaffiliated depository organizations with assets exceeding $500

million, regardless of the location of the organizations.2

The EGRPR Act raised the thresholds to $2.5 billion and $1.5 billion,

respectively. The amendment also authorized the Agencies to adjust the

thresholds by regulation, as necessary to allow for inflation or market

conditions.

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\2\ The Agencies define ``total assets'' of diversified savings

and loan holding companies and bank holding companies exempt from

section 4 of the Bank Holding Company Act (12 U.S.C. 1843) to

include only the assets of their depository institution affiliates.

See 12 CFR 26.2(r) (OCC), 212.2(q) (Board), 348.2(q) (FDIC), and

563f.2(r) (OTS).

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Section 2210(b) of the EGRPR Act permanently extended the

grandfather exemptions for management officials whose service began

before November 10, 1978, which appear at 12 U.S.C. 3205(a) and (b)

which were due to expire in 1998. The EGRPR Act repealed section

3205(c) which mandated Agency review of these grandfathered interlocks

before March 1995.

The EGRPR Act also amended 12 U.S.C. 3207 to provide that the

Agencies may adopt regulations that permit service by a management

official that would otherwise be prohibited by the Interlocks Act, if

such service would not result in a monopoly or substantial lessening of

competition. This change repealed the specific ``regulatory standards''

and ``management consignment'' exemptions added by the Riegle Community

Development and Regulatory Improvement Act of 1994 (CDRI

Act),3 and restored the Agencies' broad authority to create

regulatory exemptions to the statutory prohibitions on interlocks.

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\3\ The Agencies adopted final regulations implementing the

management interlocks provisions of the CDRI Act, effective October

1, 1996. See 61 FR 40293 (August 2, 1996).

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II. The Proposal

On August 11, 1998, the Agencies published a joint notice of

proposed rulemaking (the Proposal) (63 FR 43052) to implement the

statutory changes made by the EGRPR Act. In addition, the Proposal

renewed an earlier proposal for a small market share exemption that the

Board, OCC, and FDIC had advanced before enactment of the CDRI Act.

III. The Final Rule and Comments Received

The Agencies received a total of seven comments,4 some

of which were sent to more than one agency. Commenters generally

supported the Proposal. A few commenters, while supporting the

Proposal, suggested that the Agencies make additional changes as

discussed later in this preamble. Most of the proposed changes received

either no comments or uniformly favorable comments. Accordingly, except

where noted in the text that follows, the Agencies have adopted the

Proposal without change. The following discussion summarizes the

amendments to the Agencies' management interlocks rules and the

comments received.

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\4\ The Board received 4 comments from the public, while the

OCC, FDIC, and OTS received 4, 6, and 5 respectively.

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A. Definitions

The Agencies' regulations define key terms implementing the

Interlocks Act. The Agencies added or revised a number of these

definitions in 1996 to implement the CDRI Act.5 With the

repeal of the specific exemptive standards in the CDRI Act, two of

these definitions became unnecessary, specifically, ``anticompetitive

effect'' and ``critical''. The Agencies therefore proposed that they be

removed.

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\5\ See 61 FR 40293 (August 2, 1996).

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The Agencies received only one comment on the proposed elimination

of these terms. The commenter agreed that these definitions should be

removed. The Agencies therefore adopt this provision without any

changes.

B. Major Assets Prohibition

Prior to the EGRPR Act, if a depository institution or depository

holding company had total assets exceeding $1 billion, a management

official of the institution or any of its affiliates could not serve as

a management official of any other nonaffiliated depository institution

or depository holding company having total assets exceeding $500

million or as a management official of any affiliates of the other

institution, regardless of location. The EGRPR Act revised the asset

thresholds for the major assets prohibition from $1 billion and $500

million to $2.5 billion and $1.5 billion, respectively. The legislation

also authorized the Agencies to adjust the threshold from time to time

to reflect inflation or market changes.

The Agencies proposed to amend the regulations to reflect the new

threshold amounts, and to add a mechanism providing for periodic

adjustments of the thresholds. The adjustment would be based on changes

in the Consumer Price Index for Urban Wage Earners and Clerical Workers

(the Consumer Price Index). In those years when changes in the Consumer

Price Index would change the thresholds by more than $100 million, the

Agencies will adjust the threshold and announce the change by a final

rule without notice and opportunity for comment published in the

Federal Register. For those years in which changes in the Consumer

Price Index would not change the thresholds by more than $100 million,

the Agencies will not adjust the threshold. The Agencies invited

comment on other types of market changes that may warrant subsequent

adjustments to the major assets prohibition. The Agencies, however,

wish to clarify that if they do not adjust the threshold to reflect a

Consumer Price Index change in any given year, they will consider the

change for that year in computing adjustments to the threshold in

subsequent years.

Two commenters supported the proposed adjustment of the major asset

thresholds based on the Consumer Price Index. One commenter, however,

suggested that the Agencies notify financial institutions of threshold

amounts at least annually even if they are not adjusted.

The Agencies believe that the $100 million benchmark will make it

easy for the banking industry to keep track of the thresholds while

preserving the flexibility to reflect changes in the economy that are

significant enough to

[[Page 51675]]

warrant changing the asset thresholds. Accordingly, the Agencies adopt

the mechanism providing for periodic adjustments of the thresholds set

forth in the Proposal without any changes.

C. Regulatory Standards and Management Consignment Exemptions

The current regulations contain Regulatory Standards and Management

Consignment exemptions which were predicated on section 3207 of the

Interlocks Act. The EGRPR Act removed the specific exemptions from the

Interlocks Act and substituted a general authority for the Agencies to

create exemptions by regulation. Accordingly, the Proposal recommended

removal of these regulatory exemptions.

The Agencies received only one comment on this provision. The

commenter supported removal of the Regulatory Standards and Management

Consignment exemptions. The Agencies find the removal of the exemptions

appropriate in light of their statutory repeal and therefore adopt this

provision as set forth in the Proposal without any changes.

D. General Exemptive Authority

Section 2210(c) of the EGRPR Act authorizes the Agencies to adopt

regulations permitting service by a management official that would

otherwise be prohibited by the Interlocks Act, if that official's

service would not result in ``a monopoly or substantial lessening of

competition.'' To implement this authority, the Agencies proposed to

exempt otherwise prohibited management interlocks where the dual

service would not result in a monopoly or substantial lessening of

competition, and would not otherwise threaten safety and soundness. As

noted in the preamble to the Proposal, the process for obtaining such

exemptions will be set out in each Agency's procedural regulations or,

in the case of the OCC, in the Management Interlocks booklet of the

Comptroller's Corporate Manual.

The Agencies also proposed to create a rebuttable presumption that

an interlock would not result in a monopoly or substantial lessening of

competition, if: (1) The depository organization primarily serves low-

or moderate-income areas; (2) the depository organization is controlled

or managed by members of a minority group or women; (3) the depository

institution has been chartered for less than two years; or (4) the

depository organization is deemed to be in a troubled condition'' under

regulations implementing section 914 of the Financial Institutions

Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 1831i).

Under the proposal, interlocks granted in reliance on one of these

presumptions may continue for three years unless the Agency granting

the interlock provides otherwise in writing.

Three commenters supported the general exemption. One commenter

suggested that the rebuttable presumption be extended to depository

institutions that have been chartered for less than five years rather

than the two-year limit suggested in the Proposal. The commenter argued

that the time period should be extended to take into consideration the

challenges facing a de novo depository institution in its first or

second market cycle. Another commenter, however, cautioned against

allowing an interlock to continue when the original reason for granting

the interlock in the first place no longer applies. For example, the

commenter noted that if an interlock is granted to strengthen an

institution in a troubled condition and the bank is still in that

status at the end of the three-year time period, the appropriate

supervisory agency should consider other courses of action instead of

allowing the interlock to continue.

A fourth commenter stated that the justification offered by the

Agencies was insufficient to establish a rebuttable presumption for a

depository organization controlled or managed by members of a minority

group or women or for a newly chartered depository institution. The

commenter further questioned the reason for presuming that interlocks

in these conditions automatically would not result in a monopoly or

reduction of competition. The commenter argued that proper management

should be addressed in the chartering process and that the burden of

management oversight rests there. The commenter therefore recommended

that these two categories be dropped from the list of those eligible

for the rebuttable presumption.

In response, the Agencies note that when the regulatory exceptions

for these two categories of interlocks were created in 1979, the

Agencies found the exceptions were appropriate for the promotion of

competition over the long term and to encourage the development and

preservation of these depository organizations, thereby contributing to

the convenience and needs of the public and the well-being of the

financial community. The Agencies continue to believe that the

exception for a depository organization controlled or managed by

members of a minority group or women does not create an unfair

advantage but instead recognizes that it has historically been more

difficult for institutions controlled by women and minorities to

recruit seasoned management and that, accordingly, competition to serve

traditionally underserved markets may have suffered. By permitting

interlocks that improve the quality of management in minority and

women-owned institutions, the Agencies believe that these institutions

are better able to compete with other institutions in the relevant

market to serve traditionally underserved customers and markets.

Similarly, because de novo entrants into a market are presumed to

enhance competition in that market, the Agencies believe that an

interlock that improves the management of newly chartered institutions

also enhances competition.

For these reasons, the Agencies have retained the two categories of

rebuttable presumptions. As noted by the Agencies in the Proposal,

however, a claim that factors exist giving rise to a presumption does

not preclude an Agency from denying a request for an exemption if the

Agency finds that the interlock nevertheless would result in a monopoly

or substantial lessening of competition. See 63 FR 43054.

The Proposal stated that these presumptions would be applied in a

manner consistent with the Agencies' past analysis of the factors to

meet the legitimate needs of the institutions and organizations

involved for qualified and skilled management. The Proposal further

stated that the definitions of ``area median income'' and ``low-and

moderate-income areas'' added to the regulations in 1996 to implement

the CDRI Act amendments would be retained to provide guidance as to

when an organization would qualify for one of the presumptions. Under

the Proposal, interlocks based on a rebuttable presumption would be

allowed to continue for three years, unless otherwise provided in the

approval order. The Proposal would not prevent an organization from

applying for an extension of an interlock exemption if the factors

continued to apply. The organization would also be free under the

Proposal to utilize any other exemption that may be available. The

Agencies proposed that any interlock approved under this section may

continue so long as it would not result in a monopoly or a substantial

lessening of competition, becomes unsafe or unsound, or is subject to a

condition requiring termination at a specific time. The Agencies are

adopting the proposed section without any changes.

The Agencies also decline to extend the eligibility period for the

rebuttable

[[Page 51676]]

presumption to depository institutions that have been chartered for

less than five years rather than the two-year limit as suggested by

another commenter. The Agencies believe that extending the rebuttable

presumption to depository institutions that have been chartered for

less than five years would cause de novo depository organizations to

rely on interlocking service, rather than to obtain independent

management from other more appropriate sources. Once a de novo

depository institution is granted a general exemption, the exemption

would continue for a period of three years.

E. Small Market Share Exemption

The Proposal sought comment on an exemption for interlocks

involving institutions that, on a combined basis, control less than 20

percent of the deposits in a community or relevant MSA. The Agencies

proposed the small market share exemption to enlarge the pool of

management talent upon which depository institutions may draw, thereby

resulting in more competitive, better managed institutions without

causing significant anticompetitive effects. As stated in the Proposal,

financial institutions seeking to form an interlock pursuant to the

small market share exemption must determine their eligibility by using

deposit share data published by the FDIC in its Summary of Deposits.

All seven commenters supported the small market share exemption. In

addition, five commenters found the FDIC Summary of Deposits to be the

best available database for determining eligibility for the exception

(with the other two commenters expressing no opinion on this question).

Four commenters did not believe that institutions would abuse this

exception by developing webs of interlocking relationships (hub and

spoke interlocks). One of these four commenters urged the Agencies to

approach such interlocks on a case-by-case basis.

Four commenters stated that 20 percent of deposits was an

appropriate threshold to determine eligibility for the exception. One

commenter in this group recommended, however, that the Agencies

periodically reexamine the appropriateness of the 20 percent limit in

light of the declining market shares of banks generally. Another

commenter argued that the Agencies should increase the threshold to 30

percent due to a shortage of talent in some small towns. A second

commenter suggested that the Agencies adopt a higher percentage for

depository organizations in small communities. This commenter noted

that depository organizations in sparsely populated areas often control

a large share of deposits and that there would be no benefit in

depriving small or rural banks of eligibility for this exemption. Two

commenters suggested that credit union deposits should be taken into

account when ascertaining the total amount of deposits in a particular

community.

The Agencies agree with the majority of commenters that 20 percent

of deposits within the relevant community is the appropriate threshold

to determine eligibility for the small market share exemption. While

there will be highly concentrated markets where this threshold will not

affect institutions' ability to form interlocks, the Agencies believe

that interlocks between unaffiliated institutions that together control

more than 20 percent of the deposits in a market create the risk that

the interlocked institutions will be able to adversely affect the

availability or terms of credit in that market. The Agencies note,

however, that the rule permits institutions that do not qualify for the

small market share exemption to apply for a general exemption. The

general exemption is available even to institutions that control more

than 20 percent of the deposits in the relevant market if the

institutions are able to demonstrate that the interlock will not result

in a monopoly or substantial lessening of competition and would not

present safety and soundness concerns.

The Agencies do not agree with the commenters' suggestion of

including data on credit union deposits along with depository

institution deposits when determining the total amount of deposits in a

given market. The Agencies continue to believe 6 that the

deposit data maintained in the FDIC's Summary of Deposits, which does

not include credit union data, provides a reliable approximation of the

market for a given location. To the extent that credit unions hold a

significant amount of the total deposits in a given market, this

information may be used to demonstrate that an interlock will not

result in a monopoly or substantial lessening of competition under the

general exemption. This approach is consistent with the Agencies'

treatment of credit union deposits in the merger context, where the

Agencies consider credit union deposits as one of many mitigating

factors if a merger transaction exceeds a specified

threshold.7

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\6\ The Agencies' small market share exemption proposal in 1994

also did not include credit union deposit data in the determination

of the market.

\7\ The National Credit Union Administration in its proposed

rulemaking to revise its management interlocks regulation, however,

considers credit union deposits when determining the total amount of

deposits in a given market. See 63 FR 57947 (October 29, 1998).

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The small market share exemption criteria remain as outlined in the

Proposal. Organizations claiming the exemption must determine the

market share in each RMSA and community in which both depository

organizations (or their depository institution affiliates) have

offices. The relevant market used for the small market share exception

(that is, the RMSAs or communities in which both depository

organizations or their depository institution affiliates have offices)

are the same markets described in the community and RMSA prohibitions.

The small market share exemption is not available for interlocks

subject to the major assets prohibition.

The exemptions continue to apply as long as the organizations meet

the applicable conditions. Any event, such as an expansion or merger,

that causes the level of deposits controlled to exceed 20 percent of

deposits in any RMSA or community is considered a change in

circumstances. Accordingly, the depository organizations have 15 months

(or such shorter period as directed by the appropriate Agency) to

address the prohibited interlock. Conforming changes relating to

termination have been made to the Agencies' change of circumstances

provisions.

No prior Agency approval is required in order to claim the proposed

small market share exemption. Management is responsible for complying

with the terms of a small market share exemption and for maintaining

sufficient supporting documentation. Each depository organization must

maintain records sufficient to support its determination of eligibility

for the exemption and must reconfirm that determination on an annual

basis.

IV. Effective Date of Final Rule

Subject to certain exceptions, 12 U.S.C. 4802(b) provides that new

regulations and amendments to regulations prescribed by a federal

banking agency which impose additional reporting, disclosures, or other

new requirements on an insured depository institution shall take effect

on the first day of a calendar quarter which begins on or after the

date on which the regulations are published in final form. In addition,

the Administrative Procedure Act generally provides that rules will

become effective 30 days after publication. 5 U.S.C. 553. Accordingly,

compliance with the final rule is not mandatory until the effective

[[Page 51677]]

date provided earlier in this document. Section 4802(b), however, also

permits any person subject to the regulation to comply with the

regulation voluntarily, prior to the effective date. Consequently,

affected insured depository institutions may elect to comply

voluntarily with the final rule immediately. If an insured depository

institution or foreign bank elects to comply voluntarily with any

section of the management interlocks rules, the institution or bank

must comply with the entire part.

V. Paperwork Reduction Act

The Agencies may not conduct or sponsor, and an organization is not

required to respond to, an information collection unless it displays a

currently valid OMB control number. The OMB control numbers are listed

below.

OCC: 1557-0196

Board: 7100-0134

FDIC: 3604-0118

OTS: 1550-0051

The Agencies sought comment on the burden estimates for the

information collections listed below and received no comments that

specifically addressed the burden stemming from these information

collections.

OCC: The collection of information requirements contained in this

final rule have been approved by the Office of Management and Budget in

accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507).

Persons interested in commenting on these requirements should send

comments to the Office of Management and Budget, Paperwork Reduction

Project (1557-0196), Washington, D.C. 20503, with copies to the

Communications Division, Third Floor, Attention: 1557-0196, Office of

the Comptroller of the Currency, 250 E Street, SW, Washington, DC

20219.

The collection of information requirements in this final rule are

found in 12 CFR 26.4(h)(1)(i), 26.6(b), and 26.6(c). This information

is required to evidence compliance with the requirements of the

Interlocks Act by national banks and District banks.

Estimated average annual burden hours per respondent: 4 hours.

Estimated number of respondents: 7.

Estimated total annual reporting burden: 29 hours.

Start-up costs to correspondents: None.

Board: In accordance with section 3506 of the Paperwork Reduction

Act of 1995 (44 U.S.C. Ch. 35; 5 CFR 1320 Appendix A.1), the Board

reviewed the rule under the authority delegated to the Board by the

Office of Management and Budget.

The collection of information requirements in the final rule are

found in 12 CFR 212.4(h)(1)(i), 212.5(a)(2), 212.6(b), and 212.6(c).

This information is required to evidence compliance with the Interlocks

Act. The respondents are state member banks and subsidiary depository

institutions of bank holding companies (for-profit financial

institutions, including small businesses).

Estimated number of respondents: 6 applicants per year.

Estimated average annual burden per respondent: 4 hours.

Estimated annual frequency of reporting: One-time application.

Estimated total annual reporting burden: 24 hours.

Start-up costs to respondents: None.

The Board has a continued interest in the public's opinions of

Federal Reserve collections of information. At any time, comments

regarding the burden estimate, or any other aspect of this collection

of information, including suggestions for reducing the burden, may be

sent to: Secretary, Board of Governors of the Federal Reserve System,

20th and C Streets, N.W., Washington, DC 20551; and to the Office of

Management and Budget, Paperwork Reduction Project (7100-0134),

Washington, DC 20503.

FDIC: The collections of information contained in this final rule

have been reviewed and approved by the Office of Management and Budget

under control number 3604-0118 in accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3507). Comments on the collections of

information should be sent to the Office of Management and Budget,

Paperwork Reduction Project (3604-0118), Washington, D.C. 20503, with

copies of such comments to be sent to Steven F. Hanft, Office of the

Executive Secretary, Room F-453, Federal Deposit Insurance Corporation,

550 17th Street, NW., Washington, DC 20429.

OTS: The collection of information requirements in this rule have

been approved by the Office of Management and Budget in accordance with

the Paperwork Reduction Act of 1995 (44 U.S.C. 3507) under OMB control

number 1550-0051.

Persons interested in commenting on these requirements should send

comments to the Office of Management and Budget, Paperwork Reduction

Project (1550-0051), Washington, DC 20503, with copies to the

Regulations and Legislation Division, Chief Counsel's Office, Office of

Thrift Supervision, 1700 G St., NW., Washington, DC 20552.

Under the Paperwork Reduction Act of 1995, no persons are required

to respond to a collection of information unless it displays a

currently valid OMB control number. The valid OMB control number

assigned to the collection of information in this final rule is

displayed at 12 CFR 506.1.

The collection of information requirements are found in 12 CFR

563f.4(h)(1)(i), 563f.6(b) and 563f.6(c). OTS requires this information

to evidence compliance with the Management Interlocks Act by savings

associations. The likely respondents are savings associations and their

holding companies.

VI. Regulatory Flexibility Act

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

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

required under section 603 of the RFA (5 U.S.C. 603) is not required if

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

significant economic impact on a substantial number of small entities

and the agency publishes such certification and a statement explaining

the factual basis for such certification in the Federal Register along

with its final rule.

Pursuant to section 605(b) of the RFA, the Agencies hereby certify

that this rule will not have a significant economic impact on a

substantial number of small entities. The Agencies expect that this

rule will not create any additional burden on small entities. The rule

relaxes the criteria for obtaining an exemption from the interlocks

prohibitions, and specifically addresses the needs of small entities by

creating the small market share exemption. Accordingly, a regulatory

flexibility analysis is not required.

VII. Small Business Regulatory Enforcement Fairness Act

Title II of the Small Business Regulatory Enforcement Fairness Act

of 1996 (SBREFA) 8 provides generally for agencies to report

rules to Congress and the General Accounting Office for review. The

reporting requirement is triggered when a Federal agency issues a final

rule. The Agencies will file the appropriate reports with Congress and

the GAO as required by SBREFA. The Office of Management and Budget has

determined that the rules promulgated by the Agencies do not constitute

``major rules'' as defined by SBREFA.

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\8\ Pub. L. 104-121, 110 Stat. 857.

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[[Page 51678]]

VIII. Executive Order 12866

The OCC and OTS have determined that this Proposal is not a

significant regulatory action under Executive Order 12866.

IX. Unfunded Mandates Act of 1995

OCC and OTS: Section 202 of the Unfunded Mandates Act of 1995

(Unfunded Mandates Act) requires that an agency prepare a budgetary

impact statement before promulgating a rule likely to result in a

Federal mandate that may result in the annual expenditure of $100

million or more in any one year by State, local, and tribal

governments, in the aggregate, or by the private sector. If a budgetary

impact statement is required, section 205 of the Unfunded Mandates Act

requires an agency to identify and consider a reasonable number of

alternatives before promulgating the rule.

The OCC and OTS have determined that this final rule will not

result in expenditures by State, local, and tribal governments, or by

the private sector, of more than $100 million in any one year.

Accordingly, neither the OCC nor the OTS has prepared a budgetary

impact statement or specifically addressed the regulatory alternatives

considered.

X. Assessment of Impact of Federal Regulation on Families

The Agencies have determined that this amendment will not affect

family well-being within the meaning of section 654 of the Treasury

Department Appropriations Act, 1999, enacted as part of the Omnibus

Consolidated and Emergency Supplemental Appropriations Act, 1999 (Pub.

L. 105-277, 112 Stat. 2681).

List of Subjects

12 CFR Part 26

Antitrust, Banks, banking, Holding companies, Management official

interlocks, National banks, Reporting and recordkeeping requirements.

12 CFR Part 212

Antitrust, Banks, banking, Holding companies, Management official

interlocks, Reporting and recordkeeping requirements.

12 CFR Part 348

Antitrust, Banks, banking, Holding companies, Reporting and

recordkeeping requirements.

12 CFR Part 563f

Antitrust, Holding companies, Reporting and recordkeeping

requirements, Savings associations.

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

For the reasons set out in the joint preamble, the OCC amends

chapter I of title 12 of the Code of Federal Regulations as follows:

PART 26--MANAGEMENT OFFICIAL INTERLOCKS

1. The authority citation for part 26 continues to read as follows:

Authority: 12 U.S.C. 93a and 3201-3208.

Sec. 26.2 [Amended]

2. Section 26.2 is amended by removing paragraphs (b) and (f) and

redesignating paragraphs (c) through (s) as paragraphs (b) through (q),

respectively.

3. Section 26.3 is amended by revising paragraph (c) to read as

follows:

Sec. 26.3 Prohibitions.

* * * * *

organization with total assets exceeding $2.5 billion (or any affiliate

of such an organization) may not serve at the same time as a management

official of an unaffiliated depository organization with total assets

exceeding $1.5 billion (or any affiliate of such an organization),

regardless of the location of the two depository organizations. The OCC

will adjust these thresholds, as necessary, based on the year-to-year

change in the average of the Consumer Price Index for the Urban Wage

Earners and Clerical Workers, not seasonally adjusted, with rounding to

the nearest $100 million. The OCC will announce the revised thresholds

by publishing a final rule without notice and comment in the Federal

4. Section 26.5 is revised to read as follows:

Sec. 26.5 Small market share exemption.

(a) Exemption. A management interlock that is prohibited by

Sec. 26.3 is permissible, if:

(1) The interlock is not prohibited by Sec. 26.3(c); and

(2) The depository organizations (and their depository institution

affiliates) hold, in the aggregate, no more than 20 percent of the

deposits in each RMSA or community in which both depository

organizations (or their depository institution affiliates) have

offices. The amount of deposits shall be determined by reference to the

most recent annual Summary of Deposits published by the FDIC for the

RMSA or community.

(b) Confirmation and records. Each depository organization must

maintain records sufficient to support its determination of eligibility

for the exemption under paragraph (a) of this section, and must

reconfirm that determination on an annual basis.

5. Section 26.6 is revised to read as follows:

Sec. 26.6 General exemption.

(a) Exemption. The OCC may by order issued following receipt of an

application, exempt an interlock from the prohibitions in Sec. 26.3 if

the OCC finds that the interlock would not result in a monopoly or

substantial lessening of competition and would not present safety and

soundness concerns.

(b) Presumptions. In reviewing an application for an exemption

under this section, the OCC will apply a rebuttable presumption that an

interlock will not result in a monopoly or substantial lessening of

competition if the depository organization seeking to add a management

official:

(1) Primarily serves low-and moderate-income areas;

(2) Is controlled or managed by persons who are members of a

minority group, or women;

(3) Is a depository institution that has been chartered for less

than two years; or

(4) Is deemed to be in ``troubled condition'' as defined in 12 CFR

5.51(c)(6).

the OCC approval, an exemption permitted by paragraph (a) of this

section may continue so long as it does not result in a monopoly or

substantial lessening of competition, or is unsafe or unsound. If the

OCC grants an interlock exemption in reliance upon a presumption under

paragraph (b) of this section, the interlock may continue for three

years, unless otherwise provided by the OCC in writing.

6. Section 26.7 is amended by revising paragraph (a) to read as

follows:

Sec. 26.7 Change in circumstances.

(a) Termination. A management official shall terminate his or her

service or apply for an exemption if a change in circumstances causes

the service to become prohibited. A change in circumstances may include

an increase in asset size of an organization, a change in the

delineation of the RMSA or community, the establishment of an office,

an increase in the aggregate deposits of the depository organization,

or an acquisition, merger, consolidation, or any reorganization of the

ownership structure of a depository organization

[[Page 51679]]

that causes a previously permissible interlock to become prohibited.

* * * * *

Dated: July 12, 1999.

John D. Hawke, Jr.,

Comptroller of the Currency.

Federal Reserve System

12 CFR Chapter II

Authority and Issuance

For the reasons set out in the joint preamble, the Board amends

chapter II of title 12 of the Code of Federal Regulations as follows:

PART 212--MANAGEMENT OFFICIAL INTERLOCKS

1. The authority citation for part 212 continues to read as

follows:

Authority: 12 U.S.C. and 3201-3208; 15 U.S.C. 19.

Sec. 212.2 [Amended]

2. Section 212.2 is amended by removing paragraphs (b) and (f) and

redesignating paragraphs (c) through (r) as paragraphs (b) through (p),

respectively.

3. Section 212.3 is amended by revising paragraphs (b) and (c) to

read as follows:

Sec. 212.3 Prohibitions.

* * * * *

(b) RMSA. A management official of a depository organization may

not serve at the same time as a management official of an unaffiliated

depository organization if the depository organizations in question (or

a depository institution affiliate thereof) have offices in the same

RMSA and, in the case of depository institutions, each depository

organization has total assets of $20 million or more.

organization with total assets exceeding $2.5 billion (or any affiliate

of such an organization) may not serve at the same time as a management

official of an unaffiliated depository organization with total assets

exceeding $1.5 billion (or any affiliate of such an organization),

regardless of the location of the two depository organizations. The

Board will adjust these thresholds, as necessary, based on the year-to-

year change in the average of the Consumer Price Index for the Urban

Wage Earners and Clerical Workers, not seasonally adjusted, with

rounding to the nearest $100 million. The Board will announce the

revised thresholds by publishing a final rule without notice and

comment in the Federal Register.

4. Section 212.5 is revised to read as follows:

Sec. 212.5 Small market share exemption.

(a) Exemption. A management interlock that is prohibited by

Sec. 212.3 is permissible, if:

(1) The interlock is not prohibited by Sec. 212.3(c); and

(2) The depository organizations (and their depository institution

affiliates) hold, in the aggregate, no more than 20 percent of the

deposits in each RMSA or community in which both depository

organizations (or their depository institution affiliates) have

offices. The amount of deposits shall be determined by reference to the

most recent annual Summary of Deposits published by the FDIC for the

RMSA or community.

(b) Confirmation and records. Each depository organization must

maintain records sufficient to support its determination of eligibility

for the exemption under paragraph (a) of this section, and must

reconfirm that determination on an annual basis.

5. Section 212.6 is revised to read as follows:

Sec. 212.6 General exemption.

(a) Exemption. The Board may, by agency order, exempt an interlock

from the prohibitions in Sec. 212.3, if the Board finds that the

interlock would not result in a monopoly or substantial lessening of

competition, and would not present safety and soundness concerns.

(b) Presumptions. In reviewing an application for an exemption

under this section, the Board will apply a rebuttable presumption that

an interlock will not result in a monopoly or substantial lessening of

competition if the depository organization seeking to add a management

official:

(1) Primarily serves low- and moderate-income areas;

(2) Is controlled or managed by persons who are members of a

minority group, or women;

(3) Is a depository institution that has been chartered for less

than two years; or

(4) Is deemed to be in ``troubled condition'' as defined in 12 CFR

225.71.

Board approval, an exemption permitted by paragraph (a) of this section

may continue so long as it does not result in a monopoly or substantial

lessening of competition, or is unsafe or unsound. If the Board grants

an interlock exemption in reliance upon a presumption under paragraph

(b) of this section, the interlock may continue for three years, unless

otherwise provided by the Board in writing.

6. Section 212.7 is amended by revising paragraph (a) to read as

follows:

Sec. 212.7 Change in circumstances.

(a) Termination. A management official shall terminate his or her

service or apply for an exemption if a change in circumstances causes

the service to become prohibited. A change in circumstances may include

an increase in asset size of an organization, a change in the

delineation of the RMSA or community, the establishment of an office,

an increase in the aggregate deposits of the depository organization,

or an acquisition, merger, consolidation, or reorganization of the

ownership structure of a depository organization that causes a

previously permissible interlock to become prohibited.

* * * * *

By order of the Board of Governors of the Federal Reserve

System.

Dated at Washington, DC, this 13th day of September, 1999.

Board of Governors of the Federal Reserve System.

Jennifer J. Johnson,

Secretary of the Board.

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

For the reasons set forth in the joint preamble, the Board of

Directors of the FDIC amends chapter III of title 12 of the Code of

Federal Regulations as follows:

PART 348--MANAGEMENT OFFICIAL INTERLOCKS

1. The authority citation for part 348 continues to read as

follows:

Authority: 12 U.S.C. 1823(k), 3207.

Sec. 348.2 [Amended]

2. Section 348.2 is amended by removing paragraphs (b) and (f) and

redesignating paragraphs (c) through (r) as paragraphs (b) through (p),

respectively.

3. Section 348.3 is amended by revising paragraph (c) to read as

follows:

Sec. 348.3 Prohibitions.

* * * * *

organization with total assets exceeding $2.5 billion (or any affiliate

of such an organization) may not serve at the same time as a management

official of an unaffiliated depository organization with total assets

exceeding $1.5 billion (or any affiliate of such an organization),

regardless of the location of the two depository organizations. The

FDIC will adjust these thresholds, as necessary, based on the year-to-

year change in the average of the Consumer Price Index for the Urban

[[Page 51680]]

Wage Earners and Clerical Workers, not seasonally adjusted, with

rounding to the nearest $100 million. The FDIC will announce the

revised thresholds by publishing a final rule without notice and

comment in the Federal Register.

4. Section 348.5 is revised to read as follows:

Sec. 348.5 Small market share exemption.

(a) Exemption. A management interlock that is prohibited by

Sec. 348.3 is permissible, if:

(1) The interlock is not prohibited by Sec. 348.3(c); and

(2) The depository organizations (and their depository institution

affiliates) hold, in the aggregate, no more than 20 percent of the

deposits in each RMSA or community in which both depository

organizations (or their depository institution affiliates) have

offices. The amount of deposits shall be determined by reference to the

most recent annual Summary of Deposits published by the FDIC for the

RMSA or community.

(b) Confirmation and records. Each depository organization must

maintain records sufficient to support its determination of eligibility

for the exemption under paragraph (a) of this section, and must

reconfirm that determination on an annual basis.

5. Section 348.6 is revised to read as follows:

Sec. 348.6 General exemption.

(a) Exemption. The FDIC may by agency order exempt an interlock

from the prohibitions in Sec. 348.3 if the FDIC finds that the

interlock would not result in a monopoly or substantial lessening of

competition and would not present safety and soundness concerns.

(b) Presumptions. In reviewing an application for an exemption

under this section, the FDIC will apply a rebuttable presumption that

an interlock will not result in a monopoly or substantial lessening of

competition if the depository organization seeking to add a management

official:

(1) Primarily serves low-and moderate-income areas;

(2) Is controlled or managed by persons who are members of a

minority group, or women;

(3) Is a depository institution that has been chartered for less

than two years; or

(4) Is deemed to be in ``troubled condition'' as defined in

Sec. 303.101(c).

FDIC approval, an exemption permitted by paragraph (a) of this section

may continue so long as it does not result in a monopoly or substantial

lessening of competition, or is unsafe or unsound. If the FDIC grants

an interlock exemption in reliance upon a presumption under paragraph

(b) of this section, the interlock may continue for three years, unless

otherwise provided by the FDIC in writing.

(d) Procedures. Procedures for applying for an exemption under this

section are set forth in 12 CFR 303.250.

6. Section 348.7 is amended by revising paragraph (a) to read as

follows:

Sec. 348.7 Change in circumstances.