Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks (rule, 86 FR 27507, May 21, 2021)
Summary
An interim final rule from the Board of Governors of the Federal Reserve System, published in the Federal Register on May 21, 2021 (Vol. 86, No. 97), effective that day, with comments due by July 6, 2021. Section 22(h) of the Federal Reserve Act and the Board's Regulation O restrict bank loans to insiders: executive officers, directors and principal shareholders. On April 17, 2020, the Board excepted Paycheck Protection Program (PPP) loans to businesses owned by insiders from those requirements, and it extended the exception twice as Congress extended the program. This rule reflects a further extension approved by Congress, the PPP Extension Act of 2021, and is written to automatically cover any further extensions. The Board notes that the restrictions could delay or prohibit PPP loans in small communities where insiders often own the businesses.
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“Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks (rule, 86 FR 27507, May 21, 2021).”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/loans-to-executive-officers-directors-and-principal-shareholders-of-me-2a6b137033/
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27507
Rules and Regulations Federal Register
Vol. 86, No. 97
Friday, May 21, 2021
This section of the FEDERAL REGISTER • Fax: (202) 452–3819 or (202) 452– Act which, among other things, created
contains regulatory documents having general 3102. the Paycheck Protection Program (PPP)
applicability and legal effect, most of which • Mail: Ann E. Misback, Secretary, to facilitate lending to small businesses
are keyed to and codified in the Code of Board of Governors of the Federal affected by the outbreak of COVID–19
Federal Regulations, which is published under Reserve System, 20th Street and and the imposition of associated
50 titles pursuant to 44 U.S.C. 1510.
Constitution Avenue NW, Washington, containment measures (COVID event).
The Code of Federal Regulations is sold by DC 20551. Although the CARES Act specified that
the Superintendent of Documents. All public comments will be made the PPP would end on June 30, 2020,
available on the Board’s website at Congress later extended the program to
http://www.federalreserve.gov/ August 8, 2020, and again to March 31,
FEDERAL RESERVE SYSTEM generalinfo/foia/ProposedRegs.cfm as 2021.1 On March 30, 2021, the President
submitted, unless modified for technical signed into law the PPP Extension Act
12 CFR Part 215 reasons or to remove personally of 2021 (PPP Extension Act), which
identifiable information at the further extended the PPP to June 30,
[Regulation O; Docket No. R–1740] commenter’s request. Accordingly, 2021.2
comments will not be edited to remove Sections 22(g) and 22(h) of the
RIN 7100–AG 10
any identifying or contact information. Federal Reserve Act and Regulation O
Loans to Executive Officers, Directors, Public comments also may be viewed set forth quantitative and qualitative
and Principal Shareholders of Member electronically or in paper form in Room requirements for loans made by a bank 3
Banks 146, 1709 New York Avenue NW, to its directors, executive officers, and
Washington, DC 20006, between 9:00 principal shareholders, as well as to any
AGENCY: Board of Governors of the a.m. and 5:00 p.m. on weekdays. companies owned by such persons
Federal Reserve System (Board). FOR FURTHER INFORMATION CONTACT: (collectively, insiders).4 Regulation O
ACTION: Interim final rule with request Benjamin McDonough, Associate also sets forth procedural and
for comment. General Counsel, (202) 452–2036, recordkeeping requirements for loans by
Alison Thro, Deputy Associate General banks to their insiders. These
SUMMARY: On April 17, 2020, the Board Counsel, (202) 452–3236, Daniel requirements normally would apply to
issued an interim final rule to except Hickman, Senior Counsel, (202) 973– PPP loans made by banks to the small
certain loans made through June 30, 7432, Josh Strazanac, Senior Attorney, businesses owned by their insiders. In
2020, that are guaranteed under the (202) 452–2457, Jasmin Keskinen, some cases, the restrictions in
Small Business Administration’s Attorney, (202) 475–6650, Legal Regulation O could delay or entirely
Paycheck Protection Program from the Division; or Anna Lee Hewko, Associate prohibit a bank from making a PPP loan
requirements of the Federal Reserve Act Director, (202) 530–6360, Juan Climent, to such a business. This could be
and the associated provisions of the Assistant Director, (202) 872–7526, particularly challenging in small
Board’s Regulation O. The Board issued (202) 452–5239, Kathryn Ballintine, communities where bank insiders often
two additional interim final rules to Manager, (202) 452–2555, Rebecca Zak, own small businesses and there are few
extend the exception when Congress Lead Financial Institution Policy alternative lenders.
approved extensions to the Paycheck On April 17, 2020, the Board issued
Analyst, (202) 912–7995, Eusebius Luk,
Protection Program. To reflect a further an exception to section 22(h) and
Senior Financial Policy Analyst I, (202)
extension approved by Congress and to amended the corresponding provisions
452–2874, Division of Supervision and
automatically capture any further of Regulation O for PPP loans made to
Regulation; Board of Governors of the
extensions, the Board is issuing this insiders that would not be prohibited
Federal Reserve System, 20th Street and
interim final rule to extend this Constitution Avenue NW, Washington, 1 Prioritized Paycheck Protection Program Act, S.
exception to such loans made through DC 20551. Users of Telecommunication 4116, 116th Cong. section 1 (2020); Economic Aid
March 31, 2022. Device for Deaf (TDD) only, call (202) to Hard-Hit Small Businesses, Nonprofits, and
DATES: This interim final rule is 263–4869. Venues Act, H.R. 133, 116th Cong. section 311
effective May 21, 2021. Comments on (2020).
SUPPLEMENTARY INFORMATION: 2 PPP Extension Act of 2021, H.R. 1799, 117th
the interim final rule must be received Cong. section 2 (2021).
no later than July 6, 2021. Table of Contents 3 Sections 22(g) and 22(h), and Regulation O,
ADDRESSES: You may submit comments, I. Background apply to all banks that are members of the Federal
identified by Docket No. R–1740 and II. The Interim Final Rule Reserve System. Other federal law subjects federally
III. Administrative Law Matters insured state non-member banks and insured
RIN 7100 AG 10, by any of the following savings associations to sections 22(g) and 22(h) in
methods: A. Administrative Procedure Act
the same manner and to the same extent as if they
B. Paperwork Reduction Act
• Agency Website: http:// were member banks. 12 U.S.C. 1828(j) (non-member
C. Regulatory Flexibility Act banks); 12 U.S.C. 1468(b) (savings associations); 12
www.federalreserve.gov. Follow the D. Riegle Community Development and CFR 337.3 (state non-member banks and state
instructions for submitting comments at Regulatory Improvement Act of 1994 savings associations); 12 CFR 31.2 (national banks
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https://www.federalreserve.gov/ E. Use of Plain Language and federal savings associations). Accordingly, any
generalinfo/foia/ProposedRegs.cfm. reference to ‘‘bank’’ in this notice applies to all
• Email: regs.comments@ I. Background member banks and institutions subject to sections
22(g) and 22(h) in the same manner and to the same
federalreserve.gov. Include docket and On March 27, 2020, the President extent as member banks.
RIN numbers in the subject line of the signed into law the Coronavirus Aid, 4 See generally 12 U.S.C. 375a and 375b; 12 CFR
message. Relief, and Economic Security (CARES) part 215.
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27508 Federal Register / Vol. 86, No. 97 / Friday, May 21, 2021 / Rules and Regulations
from receiving a PPP loan under the and Regulation O. The PPP Extension will administer the interim final rule
Small Business Administration (SBA) Act did not change any of the features accordingly.
lending restrictions (original IFR).5 The of PPP loans on which the Board relied Question 1: Please describe any
exception was intended to facilitate in the original IFR to determine that PPP additional terms or conditions that
lending by banks to a broad range of loans pose minimal risk. Accordingly, should apply to the exception.
small businesses within their for the same reasons cited in the original Question 2: What are the advantages
communities, consistent with applicable IFR, the Board has determined that PPP and disadvantages for the exception to
law and safe and sound banking loans appear to pose minimal risk to automatically extend if the PPP is again
practices. The exception applied only to bank safety and soundness.11 extended?
PPP loans made by June 30, 2020, the The exception will continue to apply III. Administrative Law Matters
original date on which the PPP was set if Congress and the President further
to expire. The Board has extended the extend the PPP, provided that the A. Administrative Procedure Act
exception each time that Congress has material terms of the PPP on which the The Board is issuing the interim final
extended the PPP.6 The Board Board has justified the exception remain rule without prior notice and the
responded to the dozen comments it the same. Specifically, the exception opportunity for public comment and the
received in response to the interim final will continue to apply to PPP loans delayed effective date ordinarily
rules issued in April and July in the made under an extended program as prescribed by the Administrative
interim final rule issued on February 17, long as the SBA continues to fully Procedure Act (APA).16 Pursuant to
2021.7 Since issuing its last interim final guarantee the loans and the material section 553(b)(B) of the APA, general
rule, the Board received two comments, terms of the loan, including the interest notice and the opportunity for public
neither of which discussed the interim rate and term, are set by the SBA. The comment are not required with respect
final rules, sections 22(g) and 22(h), or exception will not apply for any loans to a rulemaking when an ‘‘agency for
Regulation O. made after March 31, 2022. The good cause finds (and incorporates the
The Board is issuing this interim final duration of the sunset provision is finding and a brief statement of reasons
rule to extend the exception to PPP consistent with other exceptions the therefor in the rules issued) that notice
loans made through June 30, 2021.8 The Board has made in response to the and public procedure thereon are
exception will continue to apply if COVID event.12 impracticable, unnecessary, or contrary
Congress and the President extend the SBA lending restrictions continue to
to the public interest.’’ 17
PPP further, but will sunset on March apply to PPP loans that are subject to The Board believes that the public
31, 2022. section 22(h) and the corresponding interest is best served by implementing
provisions of Regulation O.13 Excepting the interim final rule immediately in
II. The Interim Final Rule loans that would be prohibited by the
Section 22(h) authorizes the Board to light of the short timeframe for
SBA lending restrictions from the
adopt, by regulation, exceptions to the execution of the renewed PPP mandated
requirements of section 22(h) and the
definition of ‘‘extension of credit’’ in by the PPP Extension Act. Accordingly,
corresponding provisions in Regulation
section 22(h) for transactions that ‘‘pose the Board finds that there is good cause
O would not achieve any meaningful
minimal risk.’’ 9 Therefore, the Board consistent with the public interest to
regulatory purpose. Excepting these
may except PPP loans from the issue the rule without advance notice
loans from one regime and not the other
restrictions in section 22(h) and the and comment.18
also may create confusion because some The APA also requires a 30-day
corresponding provisions of Regulation lenders may mistakenly interpret an
O upon a determination that such loans delayed effective date, except for (1)
exception under one regime to extend to
pose minimal risk. substantive rules which grant or
both regimes. Accordingly, the
The Board determined in the original recognize an exemption or relieve a
exception continues to apply only for
IFR that PPP loans pose minimal risk.10 restriction; (2) interpretative rules and
insiders that would not be prohibited
Among other things, this determination statements of policy; or (3) as otherwise
from receiving a PPP loan by the SBA
relieved member banks from ensuring provided by the agency for good
lending restrictions.
that PPP loans made to certain insiders This interim final rule does not except cause.19 Because the rules relieve a
complied with the qualitative, a PPP loan from other restrictions that restriction by providing an exception to
quantitative, and procedural may apply to the loan, including section the definition of ‘‘extension of credit’’ in
requirements set forth in section 22(h) 22(g) of the Federal Reserve Act or section 22(h) and Regulation O, the
section 215.5 of Regulation O.14 This interim final rule is exempt from the
5 ‘‘Loans to Executive Officers, Directors, and
determination also does not affect APA’s delayed effective date
Principal Shareholders of Member Banks,’’ 85 FR
application of SBA lending restrictions requirement.20
22345 (Apr. 22, 2020)). While the Board believes that there is
6 ‘‘Loans to Executive Officers, Directors, and to a PPP loan. The SBA has stated that
‘‘[f]avoritism by [a PPP] [l]ender in good cause to issue the rule without
Principal Shareholders of Member Banks,’’ 85 FR
43119 (July 16, 2020); ‘‘Loans to Executive Officers, processing time or prioritization of [a] advance notice and comment and with
Directors, and Principal Shareholders of Member director’s or equity holder’s PPP an immediate effective date, the Board
Bank,’’ 86 FR 9837 (Feb. 17, 2021).
application is prohibited.’’ 15 The Board is interested in the views of the public
7 Id. at 9839.
and requests comment on all aspects of
8 References in this IFR to ‘‘PPP loans’’ include
11 85 FR 22345, 22346 (Apr. 22, 2020); 85 FR the interim final rule.
‘‘PPP second draw loans,’’ which are PPP loans that
that can be made to borrowers who already have 43119, 43119–20 (July 16, 2020); 86 FR 9837, 9838
(Feb. 17, 2021).
B. Paperwork Reduction Act
received a first PPP loan. PPP second draw loans
have the same features as PPP loans, except that 12 E.g., Temporary Exclusions of U.S. Treasury
The Paperwork Reduction Act (44
fewer borrower are eligible for PPP second draw Securities and Deposits at Federal Reserve Banks U.S.C. 3501–3521) (PRA) states that no
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loans. For example, only borrowers with 300 or From the Supplementary Leverage Ratio, 85 FR
fewer employees may obtain a PPP second draw 20578 (Apr. 14, 2020).
16 5 U.S.C. 553.
loan. See Economic Aid to Hard-Hit Small 13 Business Loan Program Temporary Changes;
17 5 U.S.C. 553(b)(B).
Businesses, Nonprofits, and Venues Act, H.R. 133, Paycheck Protection Program as Amended by the
116th Cong. section 311 (2020). Economic Aid Act, 86 FR 3712 (Jan. 6, 2021). 18 5 U.S.C. 553(b)(B); 553(d)(3).
9 12 U.S.C. 375b(9)(D)(ii). 14 12 U.S.C. 375a; 12 CFR 215.5. 19 5 U.S.C. 553(d).
10 85 FR 22345, 22346. 15 86 FR 3712, 3696. 20 5 U.S.C. 553(d)(1).
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Federal Register / Vol. 86, No. 97 / Friday, May 21, 2021 / Rules and Regulations 27509
agency may conduct or sponsor, nor is banking agencies must consider, • Would a different format (grouping
the respondent required to respond to, consistent with the principle of safety and order of sections, use of headings,
an information collection unless it and soundness and the public interest, paragraphing) make the regulation
displays a currently valid OMB control any administrative burdens that such easier to understand? If so, what
number. On June 15, 1984, OMB regulations would place on depository changes to the format would make the
delegated to the Board authority under institutions, including small depository regulation easier to understand?
the PRA to approve and assign OMB institutions, and customers of
• What else could we do to make the
control numbers to collections of depository institutions, as well as the
information conducted or sponsored by benefits of such regulations. In addition, regulation easier to understand?
the Board, as well as the authority to section 302(b) of RCDRIA requires new List of Subjects in 12 CFR Part 215
temporarily approve a new collection of regulations and amendments to
information without providing regulations that impose additional Credit, Penalties, Reporting and
opportunity for public comment if the reporting, disclosures, or other new recordkeeping requirements.
Board determines that a change in an requirements on IDIs generally to take
Authority and Issuance
existing collection must be instituted effect on the first day of a calendar
quickly and that public participation in quarter that begins on or after the date For the reasons stated in the
the approval process would defeat the on which the regulations are published preamble, the Board of Governors of the
purpose of the collection or in final form, with certain exceptions, Federal Reserve System amends 12 CFR
substantially interfere with the Board’s including for good cause.24 The Board chapter II as follows:
ability to perform its statutory believes that the public interest is best
obligations. served by implementing the interim PART 215—LOANS TO EXECUTIVE
This interim final rule does not final rule immediately. As discussed in OFFICERS, DIRECTORS, AND
contain any collections of information the original IFR, the COVID event has PRINCIPAL SHAREHOLDERS OF
subject to the PRA. disrupted economic activity in the MEMBER BANKS (REGULATION O)
C. Regulatory Flexibility Act United States and other countries. The
magnitude and persistence of the ■ 1. The authority citation for part 215
The Regulatory Flexibility Act COVID event on the economy continue
(RFA) 21 requires an agency to consider continues to read as follows:
to present some uncertainty. In light of
whether the rules it proposes will have the substantial disruptions in the Authority: 12 U.S.C. 248(a), 375a(10),
a significant economic impact on a economy, and the likelihood that this 375b(9) and (10), 1468, 1817(k), 5412; and
substantial number of small entities.22 interim final rule will help ameliorate Pub. L. 102–242, 105 Stat. 2236 (1991) (12
The RFA applies only to rules for which those disruptions by promoting lending U.S.C. 1811 note).
an agency publishes a general notice of to small businesses, the Board finds
proposed rulemaking pursuant to 5 ■ 2. In § 215.3, revise paragraphs
good cause exists under section 302 of
U.S.C. 553(b). As discussed previously, RCDRIA to publish this interim final (b)(8)(i) through (iii) and add paragraph
consistent with section 553(b)(B) of the rule with an immediate effective date. (b)(8)(iv) to read as follows:
APA, the Board has determined for good As such, the interim final rule will be § 215.3 Extension of credit.
cause that general notice and effective immediately on publication.
opportunity for public comment are * * * * *
Nevertheless, the Board seeks comment
unnecessary, and therefore the Board is on RCDRIA. (b) * * *
not issuing a notice of proposed
E. Use of Plain Language (8) * * *
rulemaking. Accordingly, the Board has
concluded that the RFA’s requirements (i) Made pursuant to the ‘‘Paycheck
Section 722 of the Gramm-Leach-
relating to initial and final regulatory Protection Program’’ in which the
Bliley Act 25 requires the federal
flexibility analysis do not apply. banking agencies to use plain language participation by the Small Business
Nevertheless, the Board seeks in all proposed and final rules Administration on a deferred basis is
comment on whether, and the extent to published after January 1, 2000. The 100 percent;
which, the interim final rule affects a Board has sought to present the interim (ii) For which material terms,
significant number of small entities. final rule in a simple and including the maturity and the interest
D. Riegle Community Development and straightforward manner. The Board rate, are set by the Small Business
Regulatory Improvement Act of 1994 invites comments on whether there are Administration;
Pursuant to section 302(a) of the additional steps it could take to make (iii) That is made during the ‘‘covered
Riegle Community Development and the rule easier to understand. For period,’’ as that term is defined in 15
Regulatory Improvement Act example:
U.S.C. 636(a)(36)(A)(iii), but in no case
(RCDRIA),23 in determining the effective • Have we organized the material to later than March 31, 2022; and
date and administrative compliance suit your needs? If not, how could this
material be better organized? (iv) That would not be prohibited by
requirements for new regulations that 13 CFR 120.110(o) or rules or
impose additional reporting, disclosure, • Are the requirements in the
regulation clearly stated? If not, how interpretations thereof issued by the
or other requirements on insured
could the regulation be more clearly Small Business Administration.
depository institutions (IDIs), the federal
stated? * * * * *
21 5 U.S.C. 601 et seq. • Does the regulation contain By order of the Board of Governors of the
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22 Under regulations issued by the SBA, a small language or jargon that is not clear? If Federal Reserve System.
entity includes a depository institution, bank so, which language requires
holding company, or savings and loan holding Ann Misback,
clarification?
company with total assets of $600 million or less Secretary of the Board.
and trust companies with total assets of $41.5
million or less. See 13 CFR 121.201. 24 12 U.S.C. 4802. [FR Doc. 2021–10711 Filed 5–20–21; 8:45 am]
23 12 U.S.C. 4802(a). 25 12 U.S.C. 4809. BILLING CODE P
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