[Federal Register: April 23, 2004 (Volume 69, Number 79)]
[Proposed Rules]
[Page 21978-21981]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23ap04-24]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 32
[Docket No. 04-11]
RIN 1557-AC83
Lending Limits Pilot Program
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Office of the Comptroller of the Currency (OCC) is
proposing to extend for three years an OCC pilot program that
authorizes new, special lending limits for 1-4 family residential real
estate loans and small business loans. Under the program, eligible
national banks with main offices located in states that have a lending
limit available for residential real estate loans or small business
loans that is higher than the current Federal limit, may apply to take
part in the pilot and make use of the higher limits. The pilot program
will expire on June 11, 2004, although national banks approved to
participate in the program as of that date may continue to lend under
the higher limits until September 10, 2004. While our preliminary
analysis indicates that
[[Page 21979]]
the pilot program has operated in a safe and sound manner, additional
experience with the program is needed before we can make a
determination to retain, modify, or rescind these special lending
limits. Accordingly, the proposal would extend the pilot program for an
additional three years. The proposal also seeks comment on expansion or
modification of the scope of the current pilot program.
DATES: Comments must be received by May 24, 2004.
ADDRESSES: Please designate the OCC in your comment and include the
docket number 04-11. Because paper mail in the Washington area and at
OCC may be subject to delays, please submit your comments by e-mail or
fax whenever possible. You may submit comments by any of the following
methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
OCC Web Site: http://www.occ.treas.gov. Click on
``Contact the OCC,'' scroll down and click on ``Comments on Proposed
Regulations.''
E-mail address: regs.comments@occ.treas.gov.
Fax: (202) 874-4448.
Mail: Office of the Comptroller of the Currency,
250 E Street, SW., Public Reference Room, Mail Stop 1-5, Washington, DC
20219.
Hand Delivery/Courier: 250 E Street, SW., Attn:
Public Reference Room, Mail Stop 1-5, Washington, DC 20219.
Instructions: As a general rule, the OCC will enter all comments
received into the docket without change, including any business or
personal information that you provide. The Freedom of Information Act
(FOIA) protects certain information, such as trade secrets and
commercial or financial information from disclosure. You may request,
and the OCC may grant, confidential treatment for items of information
in your comment that you identify as protected under FOIA.
You may review comments and other related materials by any of the
following methods:
Viewing Comments Personally: You may personally
inspect and photocopy comments at the OCC's Public Reference Room, 250
E Street, SW., Washington, DC. You can make an appointment to inspect
comments by calling (202) 874-5043.
Viewing Comments Electronically: You may request
e-mail or CD-ROM copies of comments that the OCC has received by
contacting the OCC's Public Reference Room at foia-pa@occ.treas.gov.
Docket: You may also request available
background documents using the methods described earlier.
FOR FURTHER INFORMATION CONTACT: Tom O'Dea, National Bank Examiner,
Credit Risk, (202-874-5170); Stuart Feldstein, Assistant Director,
Legislative and Regulatory Activities Division, (202) 874-5090,
Mitchell Plave, Counsel, Legislative and Regulatory Activities
Division, (202) 874-5090, or Jonathan Fink, Senior Attorney, Bank
Activities and Structure, (202) 874-5300.
SUPPLEMENTARY INFORMATION:
Background
Twelve U.S.C. 84 governs the percentage of capital and surplus that
a bank may loan to any one borrower. Section 84 and the OCC's
implementing regulations, 12 CFR part 32, permit a national bank to
make loans in an amount up to 15 percent of its unimpaired capital and
surplus to a single borrower. A national bank may extend credit up to
an additional 10 percent of unimpaired capital and surplus to the same
borrower if the amount of the loan that exceeds the 15 percent limit is
secured by ``readily marketable collateral.'' Part 32 refers to these
lending limits as the ``combined general limit.'' The statute and
regulation also provide other exceptions to, and exemptions from, the
combined general limit for various types of loans and extensions of
credit.
Section 84 authorizes the OCC to establish lending limits ``for
particular classes or categories of loans'' that are different from
those expressly provided by the statute's terms. Effective September
10, 2001, the OCC published a final rule (2001 final rule) to amend
part 32 to establish a pilot program with special lending limits for
residential real estate loans and small business loans. 66 FR 31114
(June 11, 2001). The purpose of the program was to enable community
banks to remain competitive in states that provide their state-
chartered institutions with a higher lending limit for these types of
loans, while maintaining national bank safety and soundness.
For purposes of the pilot program, a residential real estate loan
is a loan secured by a perfected first-lien security interest in one-
to-four family real estate in an amount that does not exceed 80 percent
of the appraised value of the collateral at the time the loan is made.
A small business loan is a loan secured by ``nonfarm, nonresidential
property'' or a ``commercial and industrial loan'' as those terms are
defined in the instructions for preparation of the Consolidated Report
of Condition and Income (Call Report), Schedule RC-C, Part 1, 1.e and 4
(rev. 3-03).
The pilot program authorizes eligible national banks to apply for
approval to make residential real estate loans and small business loans
to a single borrower in addition to amounts that they may already lend
to a single borrower under the existing combined general limit and
special limits in 12 CFR 32.3(a) and (b). A bank is eligible for the
pilot program only if it is well capitalized, as defined in 12 CFR
6.4(b)(1), and has a rating of 1 or 2 under the Uniform Financial
Institutions Rating System (UFIRS), with at least a rating of 2 for
asset quality and for management. These criteria ensure that only banks
with sufficient capital and good managerial oversight are permitted to
use the increased limits.
Under the pilot program, an eligible national bank may make
residential loans in an additional amount up to the lesser of 10
percent of its capital and surplus, or the percent of its capital and
surplus in excess of 15 percent that a state bank is permitted to lend
under the state lending limit that is available for residential real
estate loans or unsecured loans in the state where the main office of
the national bank is located. Similarly, an eligible national bank may
make small business loans in an additional amount up to the lesser of
10 percent of capital and surplus or the percent of its capital and
surplus in excess of 15 percent that a state bank is permitted to lend
under the state lending limit that is available for small business
loans or unsecured loans in the state where the main office of the
national bank is located. In each case, the bank may not lend more than
$10 million to a single borrower under the new authority.
The OCC adopted a number of safeguards that apply to banks using
the authority under the pilot program. For example, the amount that a
bank may lend under the pilot program's special limits is subject to an
individual borrower cap and an aggregate borrower cap. Under the
individual borrower cap, the total outstanding amount of a bank's loans
to one borrower under 12 CFR 32.3(a) and (b), together with loans made
under the program, may not exceed 25 percent of the bank's capital and
surplus. The aggregate cap provides that the total outstanding amount
of any loan or parts of loans made by a bank to all of its borrowers
under the special limits of the pilot program may not exceed 100
percent of the bank's capital and surplus.
A bank must apply and obtain the OCC's approval before it may use
the
[[Page 21980]]
special lending limits. The application includes a certification that
the bank is well capitalized and has the requisite ratings, citation to
state law on lending limits, a copy of a written resolution by a
majority of the bank's board of directors approving the use of the new
lending authority, and a description of how the board will exercise its
continuing responsibility to oversee the use of this lending authority.
Description of the Proposal
The pilot program is scheduled to expire on June 11, 2004, although
national banks approved to participate in the program as of June 11,
2004 can continue to lend under the extended limits until September 10,
2004. The OCC stated in the preamble to the 2001 final rule that prior
to the conclusion of the pilot program it would evaluate its
experiences and determine whether, and under what circumstances, to
extend the program.
As of the end of February 2004, 169 national banks headquartered in
23 states had received approval to participate in the program. The OCC
compared the performance of 129 banks that participated in the program
to that of comparable state-chartered banks and national banks that did
not participate in the program focusing on: (1) Loan portfolio
composition; (2) asset quality; (3) liquidity and capital; and (4)
differences in interest expense, non-interest expense and profitability
indicators between participating banks and their peers. Based on this
review, the OCC could not attribute any statistical differences
directly to participation in the program. In the OCC's view, banks in
the program have not had the additional lending authority for a
sufficient period of time for the OCC to assess fully the effects of
their participation in the program. In particular, the limited number
of banks in the program, and the relatively small number of quarters of
data available for review, make reaching a definitive conclusion about
the program premature.
For these reasons, this proposal would amend 12 CFR part 32 to
continue the pilot program in its current form until June 11, 2007.
Banks that receive OCC approval to participate in the program before
June 11, 2007, would be authorized to lend under the expanded limits
until September 10, 2007, provided that a bank continues to be an
``eligible bank'' as defined in 12 CFR 32.2(i). Banks already approved
under the pilot program need not do anything further to continue their
approval.
The OCC invites comment on all aspects of this proposal, including
whether to continue the pilot program as proposed and, if it is
continued, whether to modify it for the next three-year period.
Commenters recommending modifications that would expand the types of
loans covered by, or otherwise liberalize the program are encouraged to
identify appropriate safeguards to ensure that the changes they propose
are consistent with safety and soundness.
Commenters urging the expansion of the pilot program also are asked
to describe situations or circumstances in which a higher state lending
limit has competitively disadvantaged a national bank in that lending
market. For example, in what circumstances has the current scope of the
pilot program prevented the bank from making loans?
The part 32 lending limits apply to all loans and extensions of
credit made by national banks and their ``domestic operating
subsidiaries.'' The OCC is aware that some national banks control
entities authorized by statute (``statutory subsidiaries'') other than
operating subsidiaries or financial subsidiaries (e.g., agricultural
credit corporations) that make loans that are currently excluded from
the part 32 lending limits. The OCC invites comment on the current
treatment of such ``statutory subsidiaries,'' including whether the
current treatment provides a means to achieve additional flexibility in
agricultural lending, and whether, and if so how, loans by such
entities should be included in the scope of the part 32 lending limits.
Solicitation of Comments on Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act, Pub. L. 106-102, sec.
722, 113 Stat. 1338, 1471 (Nov. 12, 1999), requires the Federal banking
agencies to use plain language in all proposed and final rules
published. We invite your comments on how to make this proposal easier
to understand. For example:
Have we organized the material to suit your
needs? If not, how could this material be better organized?
Are the requirements in the proposed regulation
clearly stated? If not, how could the regulation be more clearly
stated?
Does the proposed regulation contain language or
jargon that is not clear? If so, which language requires clarification?
Would a different format (grouping and order of
sections, use of headings, paragraphing) make the regulation easier to
understand? If so, what changes to the format would make the regulation
easier to understand?
What else could we do to make the regulation
easier to understand?
Solicitation of Comments on Impact on Community Banks
The OCC adopted the pilot program following a review of our
regulations that focused specifically on ways to change the regulations
to respond to community bank needs. 66 FR 31114, 31115 (June 11, 2001).
The purpose of the review was to explore ways in which our regulations
could be modified, consistent with safety and soundness, to reflect the
fact that community banks operate with more limited resources, and
often different risk profiles, than larger institutions. Our goal was
to identify alternative regulatory approaches to minimize the burden on
community banks and promote their competitiveness.
The OCC seeks comments on how community banks assess the program
and on the impact of the proposal on community banks' current resources
and available personnel with requisite expertise. The OCC also seeks
comments on whether the goals of the proposal could be achieved, for
community banks, through an alternative approach.
Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA) requires Federal agencies
either to certify that a proposed rule would not, if adopted in final
form, have a significant impact on a substantial number of small
entities or to prepare an initial regulatory flexibility analysis
(IRFA) of the proposal and publish the analysis for comment. See 5
U.S.C. 603, 605. On the basis of the information currently available,
the OCC is of the opinion that this proposal, if adopted in final form,
is unlikely to have a significant impact on a substantial number of
small entities, within the meaning of those terms as used in the RFA.
Commenters are invited to provide the OCC with any information they may
have about the likely quantitative effects of the proposal.
Executive Order 12866
The OCC has determined that this proposal is not a significant
regulatory action under Executive Order 12866.
Unfunded Mandates Reform Act of 1995 Determinations
Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C.
1532 (Unfunded Mandates Act), requires that an agency prepare a
budgetary impact statement before
[[Page 21981]]
promulgating any rule likely to result in a Federal mandate that may
result in the expenditure by state, local, and tribal governments, in
the aggregate, or by the private sector, of $100 million or more in any
one year. If a budgetary impact statement is required, section 205 of
the Unfunded Mandates Act also requires the agency to identify and
consider a reasonable number of regulatory alternatives before
promulgating the rule. The OCC has determined that this proposal will
not result in expenditures by state, local, and tribal governments, in
the aggregate, or by the private sector, of $100 million or more in any
one year. Accordingly, the OCC has not prepared a budgetary impact
statement or specifically addressed the regulatory alternatives
considered.
Paperwork Reduction Act
The Office of Management and Budget (OMB) has reviewed and approved
the collection of information requirements contained in the pilot
program under control number 1557-0221, in accordance with the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). However,
because OCC is proposing to extend the pilot program, we invite comment
on:
(1) Whether the proposed collection of information contained in
this notice of proposed rulemaking is necessary for the proper
performance of the OCC's functions, including whether the information
has practical utility;
(2) The accuracy of the OCC's estimate of the burden of the
proposed information collection;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(4) Ways to minimize the burden of the information collection on
the respondents, including the use of automated collection techniques
or other forms of information technology; and
(5) Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
List of Subjects in 12 CFR Part 32
National banks, Reporting and recordkeeping requirements.
Authority and Issuance
For the reasons set forth in the preamble, part 32 of chapter I of
title 12 of the Code of Federal Regulations is proposed to be amended
as follows:
PART 32--LENDING LIMITS
1. The authority citation for part 32 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 84, and 93a.
2. In Sec. 32.7, paragraphs (c) and (e) are revised to read as
follows:
Sec. 32.7 Pilot program for residential real estate and small
business loans.
* * * * *
(c) Duration of approval. Except as provided in paragraph (d) of
this section, a national bank that has received OCC approval may
continue to make loans and extensions of credit under the special
lending limits in paragraphs (a)(1) and (2) of this section until the
date three years after September 10, 2004, provided the bank remains an
``eligible bank.''
* * * * *
(e) Duration of pilot program. The pilot program will terminate on
June 11, 2007, unless it is terminated sooner by the OCC.
* * * * *
Dated: April 20, 2004.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 04-9360 Filed 4-22-04; 8:45 am]
BILLING CODE 4810-33-P