Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks; Regulation O (rule, 85 FR 43119, July 16, 2020)
Summary
An interim final rule from the Board of Governors of the Federal Reserve System, published in the Federal Register on July 16, 2020 (Vol. 85, No. 137), effective that day, with comments due by August 31, 2020 (Docket No. R–1722). On April 17, 2020, the Board excepted Paycheck Protection Program (PPP) loans made by June 30, 2020 to businesses owned by bank insiders from the requirements of section 22(h) of the Federal Reserve Act and Regulation O. After the President signed the Prioritized Paycheck Protection Program Act (PPPP Act), this rule extends the exception to August 8, 2020, the new date on which the PPP will expire. The Board says the PPPP Act does not change any of the features of PPP loans on which it relied in finding that such loans pose minimal risk.
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“Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks; Regulation O (rule, 85 FR 43119, July 16, 2020).”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/loans-to-executive-officers-directors-and-principal-shareholders-of-me-7160ff724d/
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43119
Rules and Regulations Federal Register
Vol. 85, No. 137
Thursday, July 16, 2020
This section of the FEDERAL REGISTER generalinfo/foia/ProposedRegs.cfm as President signed into law the Prioritized
contains regulatory documents having general submitted, unless modified for technical Paycheck Protection Program Act (PPPP
applicability and legal effect, most of which reasons or to remove personally Act), which extends the PPP to August
are keyed to and codified in the Code of identifiable information at the 8, 2020.1
Federal Regulations, which is published under commenter’s request. Accordingly, On April 17, 2020, the Board issued
50 titles pursuant to 44 U.S.C. 1510.
comments will not be edited to remove an exception to section 22(h) and the
The Code of Federal Regulations is sold by any identifying or contact information. corresponding provisions of Regulation
the Superintendent of Documents. Public comments also may be viewed O for PPP loans made to insiders that
electronically or in paper form in Room would not be prohibited from receiving
146, 1709 New York Avenue NW, a PPP loan under the Small Business
FEDERAL RESERVE SYSTEM Washington, DC 20006, between 9:00 Administration (SBA) lending
a.m. and 5:00 p.m. on weekdays. restrictions (original IFR).2 The
12 CFR Part 215 exception was intended to facilitate
FOR FURTHER INFORMATION CONTACT:
[Docket No. R–1722 and RIN 7100–AF93] Laurie Schaffer, Deputy General lending by banks to a broad range of
Counsel, (202) 452–2272, Alison Thro, small businesses within their
Loans to Executive Officers, Directors, Deputy Associate General Counsel, communities, consistent with applicable
and Principal Shareholders of Member (202) 452–3236, Benjamin McDonough, law and safe and sound banking
Banks; Regulation O Assistant General Counsel, (202) 452– practices. The exception applied only to
AGENCY: Board of Governors of the 2036, Dan Hickman, Senior Counsel, PPP loans made by June 30, 2020, the
Federal Reserve System (Board). (202) 973–7432, Josh Strazanac, Senior original date on which the PPP was set
Attorney, (202) 452–2457, Jasmin to expire.
ACTION: Interim final rule with request
Keskinen, Legal Assistant, (202) 475– The Board is issuing this interim final
for comments. rule to extend the exception in the
6650, Legal Division; or Anna Lee
SUMMARY: On April 17, 2020, the Board Hewko, Associate Director, (202) 530– original IFR to August 8, 2020, the new
issued an interim final rule to except 6360, Constance Horsley, Deputy date on which the PPP will expire.
certain loans made by June 30, 2020, Associate Director, Juan Climent, II. The Interim Final Rule
that are guaranteed under the Small Assistant Director, (202) 872–7526,
Business Administration’s Paycheck (202) 452–5239, Kathryn Ballintine, Section 22(h) authorizes the Board to
Protection Program from the Manager, (202) 452–2555, Rebecca Zak, adopt, by regulation, exceptions to the
requirements of the Federal Reserve Act Lead Financial Institution Policy definition of ‘‘extension of credit’’ in
and the corresponding provisions of the Analyst, (202) 912–7995, Eusebius Luk, section 22(h) for transactions that ‘‘pose
Board’s Regulation O. The Board is Senior Financial Policy Analyst I, (202) minimal risk.’’ 3 Therefore, the Board
issuing this interim final rule to expand 452–2874, Division of Supervision and may except PPP loans from the
the exception to apply to PPP loans Regulation; Board of Governors of the restrictions imposed by section 22(h)
made through August 8, 2020. Federal Reserve System, 20th Street and and the corresponding provisions of
Constitution Avenue NW, Washington, Regulation O upon a determination that
DATES: This interim final rule is
DC 20551. Users of Telecommunication such loans pose minimal risk.
effective on July 16, 2020. Comments on
Device for Deaf (TDD) only, call (202) The Board determined in the original
the interim final rule must be received
263–4869. IFR that PPP loans pose minimal risk.4
no later than August 31, 2020.
The PPPP Act does not change any of
ADDRESSES: You may submit comments, SUPPLEMENTARY INFORMATION:
the features of PPP loans on which the
identified by Docket No. R–1722 and Table of Contents Board relied in the original IFR to
RIN 7100 AF93, by any of the following determine that PPP loans pose minimal
methods: I. Background
risk. Accordingly, the Board has
• Agency Website: http:// II. The Interim Final Rule
determined that PPP loans continue to
www.federalreserve.gov. Follow the III. Administrative Law Matters
A. Administrative Procedure Act pose minimal risk for the reasons cited
instructions for submitting comments at B. Congressional Review Act in the original IFR.
https://www.federalreserve.gov/ C. Paperwork Reduction Act SBA lending restrictions continue to
generalinfo/foia/ProposedRegs.cfm. D. Regulatory Flexibility Act apply to certain PPP loans that also
• Email: regs.comments@ E. Riegle Community Development and would be subject to section 22(h) and
federalreserve.gov. Include docket and Regulatory Improvement Act of 1994
the corresponding provisions of
RIN numbers in the subject line of the F. Use of Plain Language
Regulation O.5 Excepting PPP loans that
message.
I. Background
• Fax: (202) 452–3819 or (202) 452– 1 Prioritized Paycheck Protection Program Act, S.
3102. On March 27, 2020, the President 4116, 116th Cong. section 1 (2020).
• Mail: Ann E. Misback, Secretary, signed into law the Coronavirus Aid, 2 ‘‘Loans to Executive Officers, Directors, and
Board of Governors of the Federal Relief, and Economic Security (CARES) Principal Shareholders of Member Banks,’’ 85 FR
Reserve System, 20th Street and Act which, among other things, created 22345 (April 22, 2020), https://www.govinfo.gov/
the Paycheck Protection Program (PPP) content/pkg/FR-2020-04-22/pdf/2020-08574.pdf.
Constitution Avenue NW, Washington, 3 12 U.S.C. 375b(9)(D)(ii).
DC 20551. to facilitate lending to small businesses 4 85 FR 22346.
All public comments will be made affected by COVID–19. The CARES Act 5 SBA regulations normally would prohibit a PPP
available on the Board’s website at specified that the PPP would end on lender from making a PPP loan to ‘‘[b]usinesses in
http://www.federalreserve.gov/ June 30, 2020. On July 4, 2020, the Continued
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43120 Federal Register / Vol. 85, No. 137 / Thursday, July 16, 2020 / Rules and Regulations
would be prohibited by the SBA lending change. What are the advantages and B. Congressional Review Act
restrictions from the requirements of disadvantages of doing so? For purposes of the Congressional
section 22(h) and the corresponding Review Act, the Office of Management
III. Administrative Law Matters
provisions in Regulation O would not and Budget (OMB) makes a
achieve any meaningful regulatory A. Administrative Procedure Act determination as to whether a final rule
purpose. Excepting these loans from one constitutes a ‘‘major’’ rule.13 If a rule is
regime and not the other also may create The Board is issuing the interim final
rule without prior notice and the deemed a ‘‘major rule’’ by the OMB, the
confusion because some lenders may Congressional Review Act generally
mistakenly interpret an exception under opportunity for public comment and the
delayed effective date ordinarily provides that the rule may not take
one regime to extend to both regimes. effect until at least 60 days following its
Accordingly, the exception continues to prescribed by the Administrative
Procedure Act (APA).8 Pursuant to publication.14
apply only for insiders that would not The Congressional Review Act defines
be prohibited from receiving a PPP loan section 553(b)(B) of the APA, general
a ‘‘major rule’’ as any rule that the
by the SBA lending restrictions. notice and the opportunity for public
Administrator of the Office of
This interim final rule does not except comment are not required with respect Information and Regulatory Affairs of
a PPP loan from other restrictions that to a rulemaking when an ‘‘agency for the OMB finds has resulted in or is
may apply to the loan, including section good cause finds (and incorporates the likely to result in (A) an annual effect
22(g) of the Federal Reserve Act or finding and a brief statement of reasons on the economy of $100,000,000 or
section 215.5 of Regulation O.6 This therefor in the rules issued) that notice more; (B) a major increase in costs or
determination also does not affect and public procedure thereon are prices for consumers, individual
application of SBA lending restrictions impracticable, unnecessary, or contrary industries, Federal, State, or local
to a PPP loan. The SBA has stated that to the public interest.’’ 9 government agencies or geographic
‘‘[f]avoritism by [a PPP] [l]ender in The Board believes that the public regions, or (C) significant adverse effects
processing time or prioritization of [a] interest is best served by implementing on competition, employment,
director’s or equity holder’s PPP the interim final rule immediately. As investment, productivity, innovation, or
application is prohibited.’’ 7 The Board discussed in the original IFR, the spread on the ability of United States-based
will administer the interim final rule of COVID–19 has disrupted economic enterprises to compete with foreign-
accordingly. activity in the United States and other based enterprises in domestic and
Question 1: What are the advantages countries. In addition, U.S. financial export markets.15
and disadvantages of extending the markets have featured substantial levels For the same reasons set forth above,
exception to PPP loans made through of volatility. The magnitude and the Board is adopting the interim final
August 8, 2020? persistence of COVID–19 on the rule without the delayed effective date
Question 2: Are there any additional economy remain uncertain. In light of generally prescribed under the
terms or conditions that should apply? the substantial disruptions in the Congressional Review Act. The delayed
Why? economy, and the likelihood that this effective date required by the
interim final rule would help ameliorate Congressional Review Act does not
Question 3: The Board may want to
those disruptions by promoting lending apply to any rule for which an agency
extend the exception again to match
to small businesses, the Board finds that for good cause finds (and incorporates
any further extension of the PPP by
there is good cause consistent with the the finding and a brief statement of
Congress and the President, if the
public interest to issue the rule without reasons therefor in the rule issued) that
material terms of PPP loans do not
advance notice and comment.10 notice and public procedure thereon are
The APA also requires a 30-day impracticable, unnecessary, or contrary
which the [PPP lender] or any of its Associates
owns an equity interest.’’ 13 CFR 120.110(o). SBA delayed effective date, except for (1) to the public interest.16 In light of
regulations define an ‘‘Associate’’ of a PPP lender substantive rules which grant or disruption in economic activity due to
to be ‘‘[a]n officer, director, key employee, or holder
recognize an exemption or relieve a COVID–19, the Board believes that
of 20 percent or more of the value of the [PPP] delaying the effective date of the rule
[l]ender’s . . . stock or debt instruments’’ and any restriction; (2) interpretative rules and
entity in which one of these individuals or certain statements of policy; or (3) as otherwise would be contrary to the public interest.
relatives ‘‘own or controls at least 20 percent.’’ 13 As required by the Congressional
provided by the agency for good
CFR 120.10. On April 14, 2020, the SBA issued an Review Act, the Board will submit the
interim final rule stating, among other things, that
cause.11 Because the rules relieve a
final rule and other appropriate reports
SBA lending restrictions ‘‘shall not apply to restriction by providing an exception to
to Congress and the Government
prohibit an otherwise eligible business owned (in the definition of ‘‘extension of credit’’ in
whole or part) by an outside director or holder of Accountability Office for review.
section 22(h) and Regulation O, the
less than 30 percent equity interest in a PPP
[l]ender from obtaining a PPP loan from the PPP
interim final rule is exempt from the C. Paperwork Reduction Act
[l]ender on whose board the director serves or in APA’s delayed effective date The Paperwork Reduction Act (44
which the equity owner holders an interest, requirement.12 U.S.C. 3501–3521) (PRA) states that no
provided that the eligible business owned by the
director or equity holder follows the same process While the Board believes that there is agency may conduct or sponsor, nor is
as similarly situated customer or account holder of good cause to issue the rule without the respondent required to respond to,
the [l]ender.’’ The interim final rule also stated that advance notice and comment and with an information collection unless it
SBA lending restrictions would continue to apply an immediate effective date, the Board
to officers and key employees of a PPP lender.
displays a currently valid Office of
Interim Final Rule: ‘‘Business Loan Program is interested in the views of the public Management and Budget (OMB) control
Temporary Changes; Paycheck Protection and requests comment on all aspects of number. On June 15, 1984, OMB
Program—Additional Eligibility Criteria and the interim final rule. delegated to the Board authority under
Requirements for Certain Pledges of Loans’’ (April
14, 2020), https://home.treasury.gov/system/files/
the PRA to approve and assign OMB
8 5 U.S.C. 553.
136/Interim-Final-Rule-Additional-Eligibility-
9 5 U.S.C. 553(b)(B). 13 5 U.S.C. 801 et seq.
Criteria-and-Requirements-for-Certain-Pledges-of-
Loans.pdf. 10 5 U.S.C. 553(b)(B); 553(d)(3). 14 5 U.S.C. 801(a)(3).
6 12 U.S.C. 375a; 12 CFR 215.5. 11 5 U.S.C. 553(d). 15 5 U.S.C. 804(2).
7 Id. at 14–15. 12 5 U.S.C. 553(d)(1). 16 5 U.S.C. 808.
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Federal Register / Vol. 85, No. 137 / Thursday, July 16, 2020 / Rules and Regulations 43121
control numbers to collections of institutions, and customers of PART 215—LOANS TO EXECUTIVE
information conducted or sponsored by depository institutions, as well as the OFFICERS, DIRECTORS, AND
the Board, as well as the authority to benefits of such regulations. In addition, PRINCIPAL SHAREHOLDERS OF
temporarily approve a new collection of section 302(b) of RCDRIA requires new MEMBER BANKS (REGULATION O)
information without providing regulations and amendments to
opportunity for public comment if the regulations that impose additional ■ 1. The authority citation for part 215
Board determines that a change in an reporting, disclosures, or other new continues to read as follows:
existing collection must be instituted requirements on IDIs generally to take Authority: 12 U.S.C. 248(a), 375a(10),
quickly and that public participation in effect on the first day of a calendar 375b(9) and (10), 1468, 1817(k), 5412; Pub. L.
the approval process would defeat the quarter that begins on or after the date 102–242, 105 Stat. 2236 (1991) (12 U.S.C.
purpose of the collection or on which the regulations are published 1811 note) and Pub. L. 116–136, 134 Stat.
substantially interfere with the Board’s in final form, with certain exceptions, 281.
ability to perform its statutory including for good cause.20 For the ■ 2. In § 215.3, revise paragraphs (b)(8)
obligation. reasons described above, the Board introductory text and (b)(8)(ii) to read as
This interim final rule does not finds good cause exists under section follows:
contain any collections of information 302 of RCDRIA to publish this interim
subject to the PRA. final rule with an immediate effective § 215.3 Extension of credit.
date. * * * * *
D. Regulatory Flexibility Act (b) * * *
As such, the final rule will be
The Regulatory Flexibility Act effective immediately on publication. (8) Except for purposes of § 215.5 of
(RFA) 17 requires an agency to consider Nevertheless, the Board seeks comment this part, a loan:
whether the rules it proposes will have on RCDRIA. * * * * *
a significant economic impact on a (ii) That is made during the period
substantial number of small entities.18 F. Use of Plain Language beginning on February 15, 2020, and
The RFA applies only to rules for which Section 722 of the Gramm-Leach- ending on August 8, 2020; and
an agency publishes a general notice of Bliley Act 21 requires the federal * * * * *
proposed rulemaking pursuant to 5 banking agencies to use plain language
U.S.C. 553(b). As discussed previously, By order of the Board of Governors of the
in all proposed and final rules Federal Reserve System, July 13, 2020.
consistent with section 553(b)(B) of the published after January 1, 2000. The
APA, the Board has determined for good Michele Taylor Fennell,
Board has sought to present the interim
cause that general notice and Assistant Secretary of the Board.
final rule in a simple and
opportunity for public comment are straightforward manner. The Board [FR Doc. 2020–15367 Filed 7–15–20; 8:45 am]
unnecessary, and therefore the Board is invites comments on whether there are BILLING CODE P
not issuing a notice of proposed additional steps it could take to make
rulemaking. Accordingly, the Board has the rule easier to understand. For
concluded that the RFA’s requirements example: DEPARTMENT OF HOMELAND
relating to initial and final regulatory • Have we organized the material to SECURITY
flexibility analysis do not apply. suit your needs? If not, how could this
Nevertheless, the Board seeks Coast Guard
material be better organized?
comment on whether, and the extent to
• Are the requirements in the
which, the interim final rule would 33 CFR Part 165
regulation clearly stated? If not, how
affect a significant number of small [Docket No. USCG–2020–0295]
could the regulation be more clearly
entities.
stated?
E. Riegle Community Development and • Does the regulation contain Safety Zones; Annual Events in the
Regulatory Improvement Act of 1994 language or jargon that is not clear? If Captain of the Port Buffalo Zone
Pursuant to section 302(a) of the so, which language requires AGENCY: Coast Guard, DHS.
Riegle Community Development and clarification? ACTION: Notice of enforcement of
Regulatory Improvement Act • Would a different format (grouping regulation.
(RCDRIA),19 in determining the effective and order of sections, use of headings,
date and administrative compliance paragraphing) make the regulation SUMMARY: The Coast Guard will enforce
requirements for new regulations that easier to understand? If so, what certain safety zones located in the
impose additional reporting, disclosure, changes to the format would make the federal regulations for Annual Events in
or other requirements on insured regulation easier to understand? the Captain of the Port Buffalo. This
depository institutions (IDIs), the federal • What else could we do to make the action is necessary and intended to
banking agencies must consider, regulation easier to understand? protect the safety of life and property on
consistent with the principle of safety navigable waters prior to, during, and
List of Subjects in 12 CFR Part 215 immediately after these events. During
and soundness and the public interest,
any administrative burdens that such Credit, Penalties, Reporting and each enforcement period, no person or
regulations would place on depository recordkeeping requirements. vessel may enter the respective safety
institutions, including small depository zone without the permission of the
Authority and Issuance Captain of the Port Buffalo.
17 5 U.S.C. 601 et seq. For the reasons stated in the DATES:
18 Under regulations issued by the SBA, a small preamble, the Board of Governors of the The regulations in 33 CFR
entity includes a depository institution, bank Federal Reserve System amends 12 CFR 165.939(b)(22) as listed in Table 165.939
holding company, or savings and loan holding chapter II as follows:
company with total assets of $600 million or less
will be enforced from 9:30 p.m. through
and trust companies with total assets of $41.5 10:30 p.m. on July 03, 2020.
million or less. See 13 CFR 121.201. 20 12 U.S.C. 4802. The regulations in 33 CFR
19 12 U.S.C. 4802(a). 21 12 U.S.C. 4809. 165.939(b)(27) as listed in Table 165.939
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