12 CFR Part 363 — Rules and Regulations, FDIC (Federal Register, Vol. 85, No. 206, October 23, 2020)
Summary
Pages from the Rules and Regulations section of the Federal Register, Vol. 85, No. 206, dated Friday, October 23, 2020. The first item is a Rural Utilities Service final rule and response to comments confirming the Rural Energy Savings Program rule published April 2, 2020 at 85 FR 18413. The main item is a Federal Deposit Insurance Corporation interim final rule, RIN 3064–AF63, under 12 CFR Part 363, allowing insured depository institutions to determine the applicability of annual independent audit and reporting requirements for fiscal years ending in 2021 based on the lesser of their consolidated total assets as of December 31, 2019, or as of the beginning of those fiscal years. Its background describes asset growth tied to the Paycheck Protection Program, the MMLF and the PPPLF. Comments are due by November 23, 2020, and the pages close with a revision of § 363.1(a).
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“12 CFR Part 363 — Rules and Regulations, FDIC (Federal Register, Vol. 85, No. 206, October 23, 2020).”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/fr-fr-2020-10-23-2020-23630-0f88e38089/
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67427
Rules and Regulations Federal Register
Vol. 85, No. 206
Friday, October 23, 2020
This section of the FEDERAL REGISTER support recommendations made in the period of only 10-years can leave a
contains regulatory documents having general Rural Prosperity Task Force report (see significant gap from Year 10 on.’’ The
applicability and legal effect, most of which www.usda.gov/ruralprosperity) to help commenter suggested a potential
are keyed to and codified in the Code of improve life in rural America, to solution would be to allow the eligible
Federal Regulations, which is published under consider projects that provide borrower to request repayment
50 titles pursuant to 44 U.S.C. 1510.
measurable results in helping rural schedules that fit the needs of the
The Code of Federal Regulations is sold by communities build robust and project for both repayment to RESP and
the Superintendent of Documents. sustainable economies through strategic the qualified consumer repayment to the
investments in infrastructure, re-lender. The other commenter states
partnerships and innovation. Key that their company invested in
DEPARTMENT OF AGRICULTURE strategies include: Achieving e- manufactured home replacement
Connectivity for rural America, projects in Oregon. ‘‘It has been our
Rural Utilities Service developing the rural economy, experience that the higher monthly
harnessing technological innovation, payments associated with a 10-year loan
7 CFR Part 1719 supporting a rural workforce, and term for higher cost measures such as
RIN 0572–AC45 improving quality of life. manufactured homes, can constitute a
Summary of Comments and Responses significant obstacle for low- and
Rural Energy Savings Program moderate-income Oregonians—many of
RUS invited comments on the final whom live in rural communities. The
AGENCY: Rural Utilities Service, USDA. rule published on April 2, 2020 in the manufactured home replacement pilot
ACTION: Final rule and response to Federal Register (85 FR 18413) and program which they successfully
comments. received three comments. Two operate utilizes a 20-year customer loan
comments were received were from term. Should RUS find it feasible to do
SUMMARY: The Rural Utilities Service business organizations; Fleet
(RUS), a Rural Development agency of so, the agency should consider whether
Development and Energy Trust. One extending the Qualified consumer loan
the United States Department of comment was received from an
Agriculture (USDA), is confirming the term to 20 years would result in more
individual, Mr. Inri Gonzalez. The uptake by rural utility customers and
final rule published in the Federal comments and Agency’s responses are
Register on April 2, 2020 to establish more effectively advance RUS ability to
summarized as follows: deploy these funds to the benefit of
the Rural Energy Savings Program Issue 1: One individual and one
(RESP) as authorized by Section 6407 of rural Americans.’’
organization expressed support for the
the Farm Security and Rural Investment Agency Response—The current 10-
Program as published on April 2, 2020
Act of 2002, as amended. This year maturity on loans to qualified
in the Federal Register.
document also provides the Agency an Agency Response: The Agency consumers is a statutory requirement
opportunity to acknowledge public appreciates the input from the two provided in the Rural Energy Savings
comments received on the final rule. respondents that support the final rule. Program enabling statute, see 7 U.S.C.
Issue 2: Two commenters provide 8107a(d)(1)(B). An amendment to that
DATES: The final rule published April 2,
energy efficiency services in their state, program feature will require
2020 at 85 FR 18413 is confirmed.
including services to multi-family Congressional action.
FOR FURTHER INFORMATION CONTACT: The RUS appreciates the interest of
Robert Coates, Rural Utilities Service, dwellings and manufactured homes,
and more specifically the replacement the commenters in the RESP and thanks
Electric Program, Rural Development, them for their submissions.
United States Department of of substandard manufactured housing
Agriculture, 1400 Independence Avenue units. One commenter wrote that ‘‘One Chad Rupe,
SW, STOP 1568, Room 5165–S, recommendation we offer is to re- Administrator, Rural Utilities Service.
Washington, DC 20250; Telephone: consider the allowable payback period [FR Doc. 2020–21772 Filed 10–22–20; 8:45 am]
of both the RESP loan to the eligible
(202) 260–5415; Email Robert.Coates@ BILLING CODE P
borrower and the loan from the
usda.gov.
borrower to the qualified consumer.
SUPPLEMENTARY INFORMATION: The Rural Often utility infrastructure, energy
Utilities Service published the RESP efficiency and renewable energy FEDERAL DEPOSIT INSURANCE
final rule to assist rural families and projects are major long-term capital CORPORATION
small businesses achieve cost savings by investments. It is not uncommon for a
providing loans to qualified consumers 12 CFR Part 363
project of any scale to meet its return on
through eligible entities to implement investment in the 12–20-year range and RIN 3064–AF63
durable cost-effective energy efficiency then deliver energy savings for the next
measures pursuant to 7 U.S.C. 8107a(a) 10–20 years. We believe this financial Applicability of Annual Independent
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of the RESP authorizing statute. The reality may have been partly responsible Audits and Reporting Requirements
Secretary may use this funding to allow for the historic under use of the for Fiscal Years Ending in 2021
eligible entities to offer energy program. Energy efficiency and AGENCY: Federal Deposit Insurance
efficiency loans to customers in any part renewable energy projects deliver their Corporation (FDIC).
of their service territory in accordance primary energy savings in the out years
ACTION: Interim final rule and request
to 7 CFR part 1719. The Agency and are essentially break-even projects
for comment.
encourages applications that will in the first years. A debt amortization
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67428 Federal Register / Vol. 85, No. 206 / Friday, October 23, 2020 / Rules and Regulations
SUMMARY: In light of recent disruptions regulations/laws/federal, including any Reserve Bank of Boston (FRBB) to
in economic conditions caused by the personal information provided. establish the MMLF pursuant to section
coronavirus disease 2019 (COVID–19) FOR FURTHER INFORMATION CONTACT: 13(3) of the Federal Reserve Act.1 Under
and strains in U.S. financial markets, Harrison E. Greene, Jr., Assistant Chief the MMLF, the FRBB is extending
some insured depository institutions Accountant, (202) 898–8905, hgreene@ nonrecourse loans to eligible borrowers
(IDIs) have experienced increases to fdic.gov; Shannon M. Beattie, Section to purchase assets from MMFs. Assets
their consolidated total assets as a result Chief and Deputy Chief Accountant, purchased from MMFs are posted as
of large cash inflows resulting from (202) 898–3952, sbeattie@fdic.gov; John collateral to the FRBB. Eligible
participation in the Paycheck Protection Rieger, Chief Accountant, (202) 898– borrowers under the MMLF include
Program (PPP), the Money Market 3602, jrieger@fdic.gov; Mark G. IDIs. Eligible collateral under the MMLF
Mutual Fund Liquidity Facility Flanigan, Senior Counsel, (202) 898– includes U.S. Treasuries and fully
(MMLF), the Paycheck Protection 7426, mflanigan@fdic.gov; Joyce M. guaranteed agency securities, securities
Program Liquidity Facility (PPPLF), and Raidle, Counsel, (202) 898–6763, issued by government-sponsored
the effects of other government stimulus jraidle@fdic.gov; and Merritt Pardini, enterprises, and certain types of
efforts. Since these inflows may be Counsel, (202) 898–6680, mpardini@ commercial paper. The MMLF is
temporary, but are significant and fdic.gov, Legal Division, Federal Deposit scheduled to terminate on December 31,
unpredictable, the FDIC is issuing an Insurance Corporation, 550 17th Street 2020, unless extended by the Board of
interim final rule (IFR) that will allow NW, Washington, DC 20429. For the Governors.2
IDIs to determine the applicability of hearing impaired only, Small businesses also face severe
part 363 of the FDIC’s regulations, Telecommunication Device for the Deaf liquidity constraints and a collapse in
Annual Independent Audits and (TDD), (800) 925–4618. revenue streams, as millions of
Reporting Requirements, for fiscal years SUPPLEMENTARY INFORMATION: Americans were ordered to stay home,
ending in 2021 based on the lesser of severely reducing their ability to engage
their consolidated total assets as of Table of Contents in normal commerce. Many small
December 31, 2019, or consolidated I. Background businesses were forced to close
total assets as of the beginning of their A. Selected Government Responses Related temporarily or furlough employees.
fiscal years ending 2021. to the Pandemic Continued access to financing will be
Notwithstanding any temporary relief B. Section 36 of the Federal Deposit crucial for small businesses to weather
provided by this IFR, an IDI would Insurance Act (FDI Act) and Part 363 of economic disruptions caused by
the FDIC Regulations
continue to be subject to any otherwise C. Effects of Government Response COVID–19 and, ultimately, to help
applicable statutory and regulatory Programs on IDI Growth restore economic activity.
audit and reporting requirements. The II. The Interim Final Rule In recognition of the exigent
IFR also reserves the authority to require III. Expected Effects circumstances facing small businesses,
an IDI to comply with one or more IV. Alternatives Considered Congress created the PPP as part of the
requirements of part 363 if the FDIC V. Administrative Law Matters Coronavirus Aid, Relief, and Economic
determines that asset growth was related A. Administrative Procedure Act Security Act (CARES Act).3 PPP loans
B. Congressional Review Act
to a merger or acquisition. C. Paperwork Reduction Act
are fully guaranteed as to principal and
DATES: The interim final rule is effective D. Regulatory Flexibility Act accrued interest by the Small Business
October 23, 2020 through December 31, E. Riegle Community Development and Administration (SBA), the amount of
2021, unless extended by the FDIC. Regulatory Improvement Act of 1994 each being determined at the time the
F. Use of Plain Language guarantee is exercised. As a general
Comments on the interim final rule
must be received no later than I. Background matter, SBA guarantees are backed by
November 23, 2020. the full faith and credit of the U.S.
A. Selected Government Responses Government. PPP loans also afford
ADDRESSES: You may submit comments, Related to the Pandemic borrowers forgiveness up to the
identified by RIN 3064–AF63, by any of principal amount of the PPP loan if the
Recent events have significantly and
the following methods: loan proceeds are used for certain
adversely impacted the global economy
• Agency Website: https:// and financial markets. The spread of eligible expenses. The SBA reimburses
www.fdic.gov/regulations/laws/federal. COVID–19 has slowed economic PPP lenders for any amount of a PPP
Follow instructions for submitting activity in many countries, including loan that is forgiven. PPP lenders are not
comments on the Agency website. the United States. Sudden disruptions held liable for any representations made
• Email: Comments@FDIC.gov. in financial markets placed increasing by PPP borrowers in connection with a
Include ‘‘RIN 3064–AF63’’ on the liquidity pressure on money market borrower’s request for PPP loan
subject line of the message. mutual funds (MMFs) and raised the forgiveness.4 On June 5, 2020, the
• Mail: Robert E. Feldman, Executive cost of credit for most borrowers. MMFs
1 12 U.S.C. 343(3).
Secretary, Attention: Comments/RIN faced redemption requests from clients 2 See Federal Reserve Board announces an
3064–AF63, Federal Deposit Insurance with immediate cash needs and extension through December 31 of its lending
Corporation, 550 17th Street NW, potentially the need to sell a significant facilities that were scheduled to expire on or
Washington, DC 20429. number of assets to meet these around September 30 (https://
• Hand Delivery/Courier: Comments redemption requests, which further www.federalreserve.gov/newsevents/pressreleases/
monetary20200728a.htm).
may be hand-delivered to the guard increased market pressures. In order to
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3 Public Law 116–136 (Mar. 27, 2020).
station at the rear of the 550 17th Street prevent the disruption in the money 4 Under the PPP, eligible borrowers generally
building (located on F Street) on markets from destabilizing the financial include businesses with fewer than 500 employees
business days between 7 a.m. and 5 p.m. system, on March 18, 2020, the Board of or that are otherwise considered by the SBA to be
All comments received must include the Governors of the Federal Reserve small, including individuals operating sole
proprietorships or acting as independent
agency name (FDIC) and RIN 3064- System (Board of Governors), with contractors, certain franchisees, nonprofit
AF63, and will be posted without approval of the Secretary of the corporations, veterans’ organizations, and Tribal
change to https://www.fdic.gov/ Treasury, authorized the Federal businesses. The loan amount under the PPP would
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Federal Register / Vol. 85, No. 206 / Friday, October 23, 2020 / Rules and Regulations 67429
Paycheck Protection Program Flexibility extensions of credit will be made under any fiscal year in which its consolidated
Act of 2020 (PPP Flexibility Act) was the PPPLF after December 31, 2020, total assets as of the beginning of such
signed into law, amending key unless extended by the Board of fiscal year are $500 million or more.13
provisions of the CARES Act, including Governors and the Department of the Additionally, an IDI with consolidated
provisions related to loan maturity, Treasury. total assets of $1 billion or more as of
deferral of loan payments, and loan The FDIC, Board of Governors, and the beginning of any fiscal year must
forgiveness.5 Among other changes, the Comptroller of the Currency adopted provide management’s assessment of,
amendments increase from two to five interim final rules on March 23, 2020, and the independent public
years the maturity of PPP loans that are and April 13, 2020, respectively, to accountant’s report, on the effectiveness
approved by the SBA on or after June 5, allow banking organizations to of internal control over financial
2020, and provide greater flexibility for neutralize the regulatory capital effects reporting (ICFR).14
borrowers to qualify for loan of purchasing assets under the MMLF Part 363 also includes requirements
forgiveness. program and loans pledged to the related to audit committees based on
In order to provide liquidity to small PPPLF.9 Consistent with Section 1102 of consolidated total assets. More
business lenders and the broader credit the CARES Act, the April 2020 interim specifically, each IDI with consolidated
markets, and to help stabilize the final rule also required banking total assets of $500 million or more but
financial system, on April 8, 2020, the organizations to apply a zero percent less than $1 billion at the beginning of
Board of Governors, with approval of risk weight to PPP loans originated by its fiscal year must establish an
the Secretary of the Treasury, the banking organization under the PPP independent audit committee of its
authorized each of the Federal Reserve for purposes of the banking board of directors, the members of
Banks to extend credit under the PPPLF organization’s risk-based capital which must be outside directors, a
pursuant to Section 13(3) of the Federal requirements. On June 26, 2020, the majority of whom must be independent
Reserve Act.6 Under the PPPLF, the FDIC adopted a rule that mitigates the of management of the IDI.15 Each IDI
Federal Reserve Banks are extending deposit insurance assessment effects of with consolidated total assets of $1
nonrecourse loans to institutions that participating in the PPP, PPPLF and billion or more at the beginning of its
are eligible to make PPP loans, MMLF.10 Among other changes, the fiscal year must establish an
including IDIs. Under the PPPLF, only final rule provides an offset to an IDI’s independent audit committee of its
PPP loans that are guaranteed by the total assessment amount for the increase board of directors, the members of
SBA with respect to both principal and in its assessment base attributable to which must be outside directors who
interest and that are originated by an participation in the PPP and MMLF. are independent of management of the
eligible institution may be pledged as The FDIC remains committed to IDI.16 Audit committees of IDIs with
collateral to the Federal Reserve Banks considering additional, targeted consolidated total assets of $3 billion or
(loans pledged to the PPPLF). The adjustments to mitigate to the greatest more as of the beginning of their fiscal
maturity date of the extension of credit extent possible unintended year are required to include members
under the PPPLF 7 equals the maturity consequences resulting from pandemic- with banking or related financial
date of the PPP loans pledged to secure related stimulus actions. management expertise, have access to
the extension of credit.8 No new their own outside counsel, and not
B. Section 36 of the Federal Deposit include any large customers of the
be limited to the lesser of $10 million and 250 Insurance Act (FDI Act) and Part 363 of institution.17
percent of a borrower’s average monthly payroll the FDIC Regulations The determination of whether an IDI
costs. For more information on the Paycheck
Protection Program, see https://www.sba.gov/ Section 36 of the FDI Act (section 36) is subject to the annual independent
funding-programs/loans/coronavirus-relief-options/ was added by the Federal Deposit audit and reporting requirements of part
paycheck-protection-program-ppp. Insurance Corporation Improvement Act 363, including certain additional
5 Public Law 116–142 (June 5, 2020). The SBA
of 1991 and imposes annual audits and requirements based on asset size, is
subsequently issued an interim final rule revising based on its consolidated total assets as
the SBA’s interim final rule implementing sections reporting requirements on IDIs that meet
1102 and 1106 of the CARES Act temporarily certain asset thresholds.11 The purpose of the beginning of its fiscal year.18 For
adding the Paycheck Protection Program to the of section 36 is to facilitate early example, an IDI whose fiscal year begins
SBA’s 7(a) Loan Program published on April 15, identification of needed improvements on January 1, 2020, and ends on
2020. See 85 FR 20811 (Apr. 15, 2020) and 85 FR December 31, 2020, would determine
36308 (June 16, 2020). in financial management at IDIs. Section
6 12 U.S.C. 343(3). On April 30, 2020, the facility 36 grants the FDIC discretion to set the whether it met the base asset threshold
was renamed the Paycheck Protection Program asset size threshold for compliance with for compliance with part 363 as well as
Liquidity Facility, from Paycheck Protection these statutory requirements, but the other asset thresholds set forth in
Program Lending Facility. See Periodic Report: part 363 based upon its consolidated
Update on Outstanding Lending Facilities mandates a minimum threshold of $150
Authorized by the Board under Section 13(3) of the million in consolidated total assets. Part total assets of December 31, 2019. As
Federal Reserve Act May 15, 2020, Board of 363 of the FDIC’s regulations another example, an IDI whose fiscal
Governors of the Federal Reserve System (https:// implements section 36.12 Currently, an year begins on July 1, 2020, and ends on
www.federalreserve.gov/publications/files/mlf-
msnlf-mself-and-ppplf-5-15-20.pdf). IDI becomes subject to the annual
13 12 CFR 363.1(a).
7 The maturity date of the extension of credit independent audits and reporting 14 12 CFR 363.2(b)(3) and 12 CFR 363.3(b).
under the PPPLF will be accelerated if the requirements of part 363 with respect to 15 12 CFR 363.5(a)(2).
underlying PPP loan goes into default and the
16 12 CFR 363.5(a)(1).
eligible borrower sells the PPP Loan to the SBA to
realize the SBA guarantee. The maturity date of the Changes; Paycheck Protection Program,’’ 85 FR 17 12 CFR 363.5(b).
20811, 20816 (Apr. 15, 2020) and 85 FR 36308 (June
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extension of credit under the PPPLF also will be 18 For measuring total assets, Guideline 1 to part
accelerated to the extent of any PPP loan 16, 2020).
9 See 85 FR 16232 (Mar. 23, 2020) and 85 FR
363 provides that an IDI should use the total assets
forgiveness reimbursement received by the eligible reported on its most recent Report of Condition
borrower from the SBA. 20387 (Apr. 13, 2020). These rules were finalized (Call Report), the date of which coincides with the
8 Under the SBA’s interim final rule, a lender may on September 29, 2020. See https://www.fdic.gov/ end of its preceding fiscal year. If its fiscal year
request that the SBA purchase the expected news/board/2020/2020-09-15-notice-sum-b-fr.pdf. ends on a date other than the end of a calendar
10 See 85 FR 38282 (June 26, 2020).
forgiveness amount of a PPP loan or pool of PPP quarter, it should use the Call Report for the quarter
11 12 U.S.C. 1831m.
loans at the end of the covered period. See Interim end immediately preceding the end of its fiscal
Final Rule ‘‘Business Loan Program Temporary 12 12 CFR 363. year.
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67430 Federal Register / Vol. 85, No. 206 / Friday, October 23, 2020 / Rules and Regulations
June 30, 2021, would determine programs and similar impacts. The IFR FDIC has determined that such targeted
whether it met the base asset threshold accomplishes this by allowing IDIs to and time-limited relief from application
for compliance with part 363 as well as determine the applicability of part 363 of the part 363 requirements is
the other asset thresholds set forth in of the FDIC’s regulations for fiscal years necessary and appropriate, in order to
part 363 based upon its consolidated ending in 2021 based on the lesser of ease the compliance and expense
total assets of June 30, 2020. the IDI’s (a) consolidated total assets as burden on such institutions during this
of December 31, 2019, or (b) crucial period for the financial services
C. Effects of Government Response
consolidated total assets as of the industry.
Programs on IDI Growth Notwithstanding the temporary relief
beginning of their fiscal years ending in
Participation in the PPP, PPPLF, or 2021. For example, an IDI with a fiscal provided by this IFR, IDIs remain
MMLF programs, and effects of other year beginning July 1, 2020, and ending subject to any audit and reporting
stimulus programs, have caused certain June 30, 2021, would normally requirements applicable under other
IDIs to experience a temporary increase determine part 363 compliance laws and regulations. Also, the FDIC
in their consolidated total assets and requirements as of its fiscal year ended reserves the authority to require an IDI
thus become subject to part 363 based June 30, 2020. Under the IFR, an IDI to comply with one or more
on certain asset size thresholds set forth experiencing growth would instead use requirements under part 363 if the FDIC
within part 363. While some of these its consolidated total assets as of determines that asset growth was related
IDIs may have reached these thresholds December 31, 2019, for purposes of to a merger or acquisition. Additionally,
through organic growth or other means, determining its compliance staff notes that approximately 54
it is likely that others would not have requirements with part 363. In this percent of IDIs (IDIs with less than $500
reached these thresholds but for the example, if the IDI’s consolidated total million in consolidated total assets) that
effects of the government programs and assets were less than $500 million as of are not subject to part 363 have audits
other types of stimulus. For example, an December 31, 2019, it would not performed by independent public
IDI that receives funding under the become subject to part 363 for its fiscal accountants.20
PPPLF would increase its consolidated year beginning July 1, 2020 and ending Sections 36(d) and (f) of the FDI Act
total assets (equal to the amount of PPP June 30, 2021, even if its total obligate the FDIC to consult with the
loans pledged to the Federal Reserve consolidated total assets were $500 other Federal banking agencies in
Banks), and increase its liabilities by the million or more as of June 30, 2020. implementing these provisions of the
same amount. An IDI that obtains Based on consolidated total assets as FDI Act, and the FDIC has performed
additional funding, such as additional of December 31, 2019, and June 30, the required consultation.
deposits or secured borrowings, to make 2020, this proposal would, as further III. Expected Effects
PPP loans would increase its total discussed below, potentially apply to
liabilities and consolidated total assets approximately 290 IDIs: Under part 363 of the FDIC’s
by that amount of funding.19 Similarly, • 156 IDIs based on the number of regulations, each IDI with consolidated
an IDI that participates in the MMLF IDIs that had consolidated total assets of total assets of $500 million or more as
would increase its consolidated total $500 million or more as of December 31, of the beginning of a fiscal year must,
assets by the amount of assets 2019, compared to the number of IDIs among other things, have its financial
purchased from MMFs under the MMLF that had consolidated total assets of statements audited by an independent
and increase its liabilities by the same $500 million or more as of June 30, public accountant, prepare a
amount. Moreover, some institutions 2020; management report describing certain
reported general, and likely temporary, • 107 IDIs based on the number of aspects of its internal control framework
increases in deposits due to inflows IDIs that had consolidated total assets of and its compliance with laws and
from PPP proceeds, deposits of funds $1 billion or more as of December 31, regulations, and have an audit
made in connection with other CARES 2019, compared to the number of IDIs committee that oversees the work of the
Act-related programs, and general shifts that had consolidated total assets of $1 independent public accountant. Part
of liquid funds to safety. billion or more as of June 30, 2020; and 363 also contains a number of more
Absent the regulatory relief proposed • 27 IDIs based on the number of IDIs detailed and specific requirements that
in this IFR, some IDIs that participate in that had consolidated total assets of $3 are triggered at asset sizes of $1 billion
these programs, or have otherwise been billion or more as of December 31, 2019, and $3 billion, regarding management
affected by volatility in cash flows compared to the number of IDIs that had reporting, responsibilities of the
related to the pandemic, will be forced consolidated total assets of $3 billion or independent public accountant, and the
to incur additional compliance and more as of June 30, 2020. responsibilities and composition of the
related expenses. These expenses The FDIC recognizes the benefits of audit committee. Part 363 also describes
include engaging independent auditors, the part 363 requirements and that some the conditions under which these
performing assessments of ICFR, IDIs may have experienced organic or requirements may be satisfied at the
reviewing and filing reports, and other growth that would have resulted holding company level.
modifying the makeup of their boards of in them reaching the thresholds Broadly speaking, by granting
directors in order to comply with the regardless of the impacts of pandemic- temporary relief from the audit and
requirements of part 363. related programs and associated effects. reporting requirements of part 363, the
However, the FDIC is balancing the risk IFR is likely to support participation in
II. The Interim Final Rule the PPP, PPPLF, and MMLF programs
that some IDIs will not become subject
Under the IFR, the FDIC seeks to to part 363 requirements based on their by IDIs, which could benefit customers
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negate the cost and burden effects of consolidated total assets as of their and U.S. economic activity. More
potentially temporary asset growth actual fiscal year ends in 2020 with the specifically, the IFR does this by
associated with pandemic-related operational simplicity of ‘‘freezing’’ the
20 Call Report Data, March 31, 2020. The level of
date to determine the applicability of
19 An IDI that relies on existing funding, audit work performed on an institution is reported
including deposits already at the institution, to
the regulation for all IDIs experiencing in the March Call Report each year and can be
make PPP loans would not increase its total growth based on their consolidated total found on line M.1 in the Memorandum to Schedule
liabilities or total assets. assets as of December 31, 2019. The RC.
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Federal Register / Vol. 85, No. 206 / Friday, October 23, 2020 / Rules and Regulations 67431
determining the applicability of the consolidated total assets as of the likely to avoid costs associated with
regulation for all IDIs based on the beginning of such fiscal year are $500 complying with this aspect of the rule.
lesser of their (a) consolidated total million or more. As of December 31, Summary
assets as of December 31, 2019, or (b) 2019, there were 5,177 IDIs, of which
consolidated total assets as of the 1,453 IDIs were above the part 363 base The IFR would not affect compliance
beginning of their fiscal years ending in threshold, which is $500 million or obligations for IDIs that are bound by
2021, in order to ameliorate potential more in consolidated total assets.21 As part 363 as of December 31, 2019. The
increases in compliance costs for IDIs as of June 30, 2020, this number had number of entities that will avoid costs
a result of their participation in the PPP, increased to 1,609 IDIs.22 Therefore, because of the IFR is likely to differ
PPPLF, and MMLF. Under the IFR, IDIs assuming that the asset level as of June from the numbers suggested by this
that cross the $500 million, $1 billion, analysis because consolidated total asset
30, 2020, would be representative of the
or $3 billion asset thresholds just levels are likely to continue to change
‘‘beginning of the fiscal year’’ period
described during fiscal years ending in throughout the remainder of calendar
criteria for determining applicability of
2021 will avoid the costs of complying year 2020 and because compliance costs
part 363 absent the IFR, 156 institutions are likely to depend in part on IDIs’
with part 363 that they otherwise would would be likely to avoid costs
have incurred as a result of crossing eligibility for part 363 compliance at the
associated with complying with this holding company level.27 It is difficult
those thresholds. IDIs that already
aspect of the rule. to estimate regulatory compliance cost
exceeded those thresholds at year-end
2019, however, must continue to According to §§ 363.2(b)(3) and savings as a result of the IFR because
comply with the associated part 363 363.3(b), IDIs with consolidated total such costs depend on the individual
requirements. assets of $1 billion or more as of the characteristics of institutions, the extent
The IFR thus will only affect those beginning of their fiscal year are of their current audit and reporting
entities that cross one or more of the required to include an assessment by activities, and the extent to which they
part 363 thresholds after year-end 2019, management of, and a report of the avail themselves of this temporary
and while the temporary relief the IFR independent public accountant on, the reduction in compliance requirements,
provides is in effect. It is difficult to effectiveness of internal control among other things.
estimate how many IDIs will be directly structures and procedures in their part Finally, the FDIC believes that the
affected by the IFR because the FDIC 363 annual report. As of December 31, temporary relief provided by the IFR is
does not know how many banks with a 2019, 796 IDIs were above the unlikely to substantively affect the
fiscal year ending after June 30 will consolidated total asset threshold of $1 safety and soundness of affected IDIs
increase assets above one of the billion or more.23 As of June 30, 2020, because it only grants short-term
thresholds in Part 363 between June 30 this number had increased to 903 IDIs.24 temporary relief and IDIs would
and the end of the year. Nonetheless, Therefore, assuming that the asset level continue to be subject to any otherwise
this rule is expected to relieve IDIs from as of June 30, 2020 would be applicable statutory and regulatory
incurring additional expenses if they representative of the ‘‘beginning of the audit and reporting requirements. The
experience an increase in consolidated fiscal year’’ period criteria for FDIC also maintains a number of other
total asset levels that could cause the IDI determining the requirements of regulatory and supervisory tools to
to become newly subject to certain part oversee the safety and soundness of
§§ 363.2(b) and 363.3(b), absent the IFR,
363 requirements. IDIs.
The following analysis utilizes 107 institutions would be likely to avoid
Consolidated Reports of Condition and costs associated with complying with IV. Alternatives Considered
Income (Call Report) data to assess this aspect of the rule. The FDIC has considered alternatives
changes in consolidated total assets According to § 363.5(b), IDIs with to the rule, but believes the IFR
between December 31, 2019, and June total assets of more than $3 billion as of represents the most appropriate option
30, 2020, for IDIs in order to identify the beginning of their fiscal year are for covered institutions. The FDIC
IDIs that are likely to be directly affected required to have audit committee considered the status quo alternative of
by the IFR. Specifically, the analysis members with banking or related maintaining part 363 in its current form,
determines whether the change in financial management expertise, who but believes that the challenges for IDIs
consolidated total assets for an IDI have access to their own outside associated with the COVID–19
between December 31, 2019, and June counsel, and are not large customers of pandemic, and costs to comply with the
30, 2020, might entail a change in the institution. As of December 31, rule for IDIs with temporary asset
compliance requirements for part 363 2019, 315 IDIs were above the § 363.5(b) growth, necessitate targeted and time-
absent the interim final rule, assuming consolidated total asset threshold of limited relief from the application of
that the asset level at the end of the six- more than $3 billion.25 As of June 30, part 363 requirements. Finally, and as
month period is representative of the 2020, this number had increased to 342 previously discussed, the temporary
‘‘beginning of the fiscal year’’ period IDIs.26 Therefore, assuming that the relief granted to certain IDIs by the IFR,
criteria for determining applicability of asset level as of June 30, 2020, would be is unlikely to negatively affect the safety
part 363, or its various elements. representative of the ‘‘beginning of the and soundness of IDIs. Therefore, the
The various thresholds included in fiscal year’’ period criteria for FDIC believes it is appropriate to grant
part 363 and the potential effects of the determining the audit committee IDIs this temporary relief.
temporary freeze in IDIs’ total member requirements of § 363.5(b), V. Administrative Law Matters
consolidated assets for determining absent the IFR, 27 institutions would be
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compliance with the regulation’s audit A. Administrative Procedure Act
and reporting requirements are 21 Call Report Data, December 2019. The FDIC is issuing the interim final
examined in the following section. 22 Call Report Data, June 2020.
rule without prior notice and the
23 Call Report Data, December 2019.
Threshold for Compliance With Part 363 24 Call Report Data, June 2020. 27 Regulations regarding the compliance by
Part 363 applies to any IDI with 25 Call Report Data, December 2019.
subsidiaries of holding companies are set forth in
respect to any fiscal year in which its 26 Call Report Data, June 2020. 12 CFR 363.1(b).
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67432 Federal Register / Vol. 85, No. 206 / Friday, October 23, 2020 / Rules and Regulations
opportunity for public comment and the Management and Budget (OMB), the D. Regulatory Flexibility Act
delayed effective date ordinarily Congressional Review Act generally The Regulatory Flexibility Act
prescribed by the Administrative provides that the rule may not take (RFA) 36 requires an agency to consider
Procedure Act (APA).28 effect until at least 60 days following its whether the rules it proposes will have
Pursuant to section 553(b)(B) of the publication.33 The Congressional a significant economic impact on a
APA, general notice and the opportunity Review Act defines a ‘‘major rule’’ as substantial number of small entities.37
for public comment are not required any rule that the Administrator of the The RFA applies only to rules for which
with respect to a rulemaking when an Office of Information and Regulatory an agency publishes a general notice of
‘‘agency for good cause finds (and Affairs of the OMB finds has resulted in proposed rulemaking pursuant to 5
incorporates the finding and a brief or is likely to result in (A) an annual U.S.C. 553(b). As discussed previously,
statement of reasons therefor in the consistent with section 553(b)(B) of the
effect on the economy of $100,000,000
rules issued) that notice and public APA, the FDIC has determined for good
or more; (B) a major increase in costs or
procedure thereon are impracticable, cause that general notice and
unnecessary, or contrary to the public prices for consumers, individual
industries, Federal, State, or local opportunity for public comment is
interest.’’ 29 The FDIC believes that the unnecessary, and therefore the FDIC is
public interest is best served by government agencies or geographic
regions, or (C) significant adverse effects not issuing a notice of proposed
implementing the interim final rule rulemaking. Accordingly, the RFA’s
immediately upon publication in the on competition, employment,
requirements relating to initial and final
Federal Register. investment, productivity, innovation, or
regulatory flexibility analysis do not
As discussed above, the spread of on the ability of United States–based apply. Nevertheless, the FDIC seeks
COVID–19 has slowed economic enterprises to compete with foreign- comment on whether, and the extent to
activity in many countries, including based enterprises in domestic and which, the interim final rule would
the United States. Specifically, the export markets.34 For the same reasons affect a significant number of small
disruptions in financial markets have set forth above, the FDIC is adopting the entities.
caused depository institutions to receive interim final rule without the delayed
inflows of deposits—contributing to the effective date generally prescribed E. Riegle Community Development and
increase of deposits at Federal Reserve under the Congressional Review Act. Regulatory Improvement Act of 1994
Banks—and to hold significant amounts The delayed effective date required by Pursuant to section 302(a) of the
of Treasuries. Because the interim final the Congressional Review Act does not Riegle Community Development and
rule will mitigate a potential additional apply to any rule for which an agency Regulatory Improvement Act
compliance burden and expense for for good cause finds (and incorporates (RCDRIA),38 in determining the effective
financial institutions participating in the finding and a brief statement of date and administrative compliance
Federal government programs intended reasons therefor in the rule issued) that requirements for new regulations that
to ease financial disruptions, the FDIC notice and public procedure thereon are impose additional reporting, disclosure,
finds there is good cause consistent with impracticable, unnecessary, or contrary or other requirements on IDIs, each
the public interest to issue the rule to the public interest.35 In light of Federal banking agency must consider,
without advance notice and comment. consistent with the principle of safety
current market uncertainty and the need
The APA also requires a 30-day and soundness and the public interest,
for IDIs to prepare an audit plan in
delayed effective date, except for (1) any administrative burdens that such
substantive rules, which grant or advance of the beginning of their fiscal
regulations would place on depository
recognize an exemption or relieve a years, the FDIC believes that delaying institutions, including small depository
restriction; (2) interpretative rules and the effective date would be contrary to institutions, and customers of
statements of policy; or (3) as otherwise the public interest. As required by the depository institutions, as well as the
provided by the agency for good Congressional Review Act, the FDIC benefits of such regulations. In addition,
cause.30 Because the interim final rule will submit the final rule and other section 302(b) of RCDRIA requires new
will provide a temporary exemption and appropriate reports to Congress and the regulations and amendments to
relief to affected IDI, the interim final Government Accountability Office for regulations that impose additional
rule is exempt from the APA’s delayed review. reporting, disclosures, or other new
effective date requirement.31 While the C. Paperwork Reduction Act requirements on IDIs generally to take
FDIC believes that there is good cause effect on the first day of a calendar
to issue this interim final rule without In accordance with the requirements quarter that begins on or after the date
advance notice and comment and with of the Paperwork Reduction Act of 1995 on which the regulations are published
an immediate effective date, the FDIC is (PRA), the FDIC may not conduct or in final form, with certain exceptions,
interested in the views of the public and sponsor, and a respondent is not including for good cause.39
request comment on all aspects of the required to respond to, an information For the reasons described above, the
interim final rule. collection unless it displays a currently FDIC finds that good cause exists under
valid Office of Management and Budget section 302 of RCDRIA to publish this
B. Congressional Review Act interim final rule with an immediate
(OMB) control number. The FDIC has
For purposes of Congressional Review effective date. As such, the final rule
reviewed this interim final rule and
Act, the OMB makes a determination as
determined that it would not introduce
to whether a final rule constitutes a 36 5 U.S.C. 601 et seq.
any new or revise any collection of
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‘‘major’’ rule.32 If a rule is deemed a 37 Under regulations issued by the Small Business
‘‘major rule’’ by the Office of information pursuant to the PRA. Administration, a small entity includes a depository
Therefore, no submissions will be made institution, bank holding company, or savings and
to OMB for review. loan holding company with total assets of $600
28 5 U.S.C. 553.
million or less and trust companies with total
29 5 U.S.C. 553(b)(B).
average annual receipts of $41.5 million or less. See
30 5 U.S.C. 553(d). 33 5 U.S.C. 801(a)(3). 13 CFR 121.201.
31 5 U.S.C. 553(d)(1). 34 5 U.S.C. 804(2). 38 12 U.S.C. 4802(a).
32 5 U.S.C. 801 et seq. 35 5 U.S.C. 808. 39 12 U.S.C. 4802.
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Federal Register / Vol. 85, No. 206 / Friday, October 23, 2020 / Rules and Regulations 67433
will be effective immediately upon this part, with respect to any fiscal year applicable airworthiness regulations do
publication in the Federal Register. ending in 2021, an insured depository not contain adequate or appropriate
Nevertheless, the FDIC seeks comment institution’s consolidated total assets safety standards for this design feature.
on RCDRIA. shall be determined based on the lesser These special conditions contain the
of (a) an insured depository institution’s additional safety standards that the
F. Use of Plain Language
consolidated total assets as of December Administrator considers necessary to
Section 722 of the Gramm-Leach 31, 2019, or (b) an insured depository establish a level of safety equivalent to
Bliley Act 40 requires the Federal institution’s consolidated total assets as that established by the existing
banking agencies to use plain language of the beginning of its fiscal year ending airworthiness standards.
in all proposed and final rules in 2021. The requirements specified in DATES: This action is effective on
published after January 1, 2000. The this part are in addition to any other Archeion on October 23, 2020. Send
FDIC has sought to present the interim statutory and regulatory requirements comments on or before December 7,
final rule in a simple and otherwise applicable to an insured 2020.
straightforward manner. The FDIC depository institution.
ADDRESSES: Send comments identified
invites comments on whether there are (2) Until December 31, 2021, the FDIC
additional steps it could take to make by Docket No. FAA–2020–0934 using
reserves the authority to require an
the rule easier to understand. For any of the following methods:
insured depository institution to comply
example: • Federal eRegulations Portal: Go to
with one or more requirements under
• Has the FDIC organized the material http://www.regulations.gov/ and follow
this part if the FDIC determines that
to suit your needs? If not, how could the online instructions for sending your
asset growth was related to a merger or
this material be better organized? comments electronically.
acquisition. • Mail: Send comments to Docket
• Are the requirements in the * * * * *
regulation clearly stated? If not, how Operations, M–30, U.S. Department of
could the regulation be more clearly Federal Deposit Insurance Corporation. Transportation (DOT), 1200 New Jersey
stated? By order of the Board of Directors. Avenue SE, Room W12–140, West
• Does the regulation contain Dated at Washington, DC, on October 20, Building Ground Floor, Washington, DC
language or jargon that is not clear? If 2020. 20590–0001.
so, which language requires James P. Sheesley, • Hand Delivery or Courier: Take
clarification? Assistant Executive Secretary.
comments to Docket Operations in
• Would a different format (grouping Room W12–140 of the West Building
[FR Doc. 2020–23630 Filed 10–21–20; 4:15 pm]
and order of sections, use of headings, Ground Floor at 1200 New Jersey
BILLING CODE 6714–01–P
paragraphing) make the regulation Avenue SE, Washington, DC, between 9
easier to understand? If so, what a.m. and 5 p.m., Monday through
changes to the format would make the Friday, except Federal holidays.
regulation easier to understand? What
DEPARTMENT OF TRANSPORTATION • Fax: Fax comments to Docket
else could we do to make the regulation Operations at 202–493–2251.
Federal Aviation Administration Privacy: The FAA will post all
easier to understand?
comments it receives, without change,
List of Subjects in 12 CFR Part 363 14 CFR Part 25 to http://www.regulations.gov/,
Accounting, Administrative practice [Docket No. FAA–2020–0934; Special including any personal information the
and procedure, Banks, banking, Conditions No. 25–775–SC] commenter provides. Using the search
Reporting and recordkeeping function of the docket website, anyone
Special Conditions: Archeion can find and read the electronic form of
requirements.
Holdings, LLC, Boeing Model No. 737– all comments received into any FAA
Authority and Issuance 300, –400, –700, –800, –8, and –9 Series docket, including the name of the
For the reasons stated in the Airplanes; Electronic-System Security individual sending the comment (or
preamble, the FDIC amends part 363 of Protection From Unauthorized External signing the comment for an association,
chapter 1 of title 12, Code of Federal Access business, labor union, etc.). DOT’s
Regulations, as follows: AGENCY: Federal Aviation complete Privacy Act Statement can be
Administration (FAA), DOT. found in the Federal Register published
PART 363—ANNUAL INDEPENDENT
ACTION: Final special conditions; request
on April 11, 2000 (65 FR 19477–19478).
AUDITS AND REPORTING Docket: Background documents or
for comments.
REQUIREMENTS comments received may be read at
SUMMARY: These special conditions are http://www.regulations.gov/ at any time.
■ 1. The authority citation for part 363 issued for Boeing Model 737–300, –400, Follow the online instructions for
is revised to read as follows: –700, –800, –8, and –9 series airplanes. accessing the docket or go to Docket
Authority: 12 U.S.C. 1819, 1831m. These airplanes, as modified by Operations in Room W12–140 of the
■ 2. Revise § 363.1(a) to read as follows: Archeion Holdings, LLC (Archeion), West Building Ground Floor at 1200
will have a novel or unusual design New Jersey Avenue SE, Washington,
§ 363.1 Scope and definitions. feature when compared to the state of DC, between 9 a.m. and 5 p.m., Monday
(a) Applicability. (1) This part applies technology envisioned in the through Friday, except Federal holidays.
to any insured depository institution airworthiness standards for transport- FOR FURTHER INFORMATION CONTACT:
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with respect to any fiscal year in which category airplanes. This design feature Varun Khanna, Airplane and Flight
its consolidated total assets as of the is a digital systems architecture for the Crew Interface Section, AIR–671,
beginning of such fiscal year are $500 installation of a system with wireless Transport Standards Branch, Policy and
million or more. Notwithstanding the network and hosted application Innovation Division, Aircraft
foregoing and for all requirements in functionality that allows access from Certification Service, Federal Aviation
external sources to the airplane’s Administration, 2200 South 216th
40 12 U.S.C. 4809. internal electronic components. The Street, Des Moines, Washington 98198;
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