31114 Federal Register / Vol. 66, No. 112 / Monday, June 11, 2001 / Rules and Regulations

contained in paragraph (h)(11)(ii) of this

section. The Service will subtract H–1C

petitions approved in the current fiscal

year that are later revoked from the total

count of approved H–1C petitions,

provided that the alien never

commenced employment with the

facility.

(5) If the number of alien nurses

included in an H–1C petition exceeds

the number available for the remainder

of a fiscal year, the Service shall

approve the petition for the

beneficiaries to the allowable amount in

the order that they are listed on the

petition. The remaining beneficiaries

will be considered for approval in the

subsequent fiscal year.

(6) Once the 500 cap has been

reached, the Service will reject any new

petitions subsequently filed requesting a

work start date prior to the first day of

the next fiscal year.

(9) * * *

(iii) * * *

(D) H–1C petition for a registered

nurse. An approved petition for an alien

classified under section

101(a)(15)(H)(i)(c) of the Act shall be

valid for a period of 3 years.

* * * * *

(13) * * *

(ii) H–1C limitation on admission.

The maximum period of admission for

an H–1C nonimmigrant alien is 3 years.

The maximum period of admission for

an H–1C alien begins on the date the H–

1C alien is admitted to the United and

ends on the third anniversary of the

alien’s admission date. Periods of time

spent out of the United States for

business or personal reasons during the

validity period of the H–1C petition

count towards the alien’s maximum

period of admission. When an H–1C

alien has reached the 3-year maximum

period of admission, the H–1C alien is

no longer eligible for admission to the

United States as an H–1C nonimmigrant

alien.

* * * * *

(15) * * *

(ii) * * *

(A) H–1C extension of stay. The

maximum period of admission for an H–

1C alien is 3 years. An H–1C alien who

was initially admitted to the United

States for less than 3 years may receive

an extension of stay up to the third

anniversary date of his or her initial

admission. An H–1C nonimmigrant may

not receive an extension of stay beyond

the third anniversary date of his or her

initial admission to the United States.

* * * * *

(16) * * *

(i) H–1B or H–1C classification. The

approval of a permanent labor

certification or the filing of a preference

petition for an alien shall not be a basis

for denying an H–1C or H–1B petition

or a request to extend such a petition,

or the alien’s admission, change of

status, or extension of stay. The alien

may legitimately come to the United

States for a temporary period as an H–

1C or H–1B nonimmigrant and depart

voluntarily at the end of his or her

authorized stay and, at the same time,

lawfully seek to become a permanent

resident of the United States.

* * * * *

PART 248—CHANGE OF

NONIMMIGRANT CLASSIFICATION

6. The authority citation for part 248

continues to read as follows:

Authority: 8 U.S.C. 1101, 1103, 1184, 1187,

1258; 8 CFR Part 2.

§ 248.3 [Amended]

7. Section 248.3 is amended by

revising the reference ‘‘H–1A’’ to read

‘‘H–1C’’ in paragraph (a) first sentence.

PART 299—IMMIGRATION FORMS

8. The authority citation for part 299

continues to read as follows:

Authority: 8 U.S.C. 1101, 1103; 8 CFR part

2.

9. Section 299.1 is amended in the

table by revising the entry for Form ‘‘I–

129’’ to read as follows:

§ 299.1 Prescribed forms.

* * * * *

Form No. Edition

date Title

*****

I–129 ........ 12–11–91 Petition for Nonimmigrant Worker.

*****

Dated: June 5, 2001.

Kevin D. Rooney,

Acting Commissioner, Immigration and

Naturalization Service.

[FR Doc. 01–14538 Filed 6–8–01; 8:45 am]

BILLING CODE 4410–10–U

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

12 CFR Part 32

[Docket No. 01–12]

RIN 1557–AB82

Community Bank-Focused Regulation

Review: Lending Limits Pilot Program

AGENCY: Office of the Comptroller of the

Currency, Treasury.

ACTION: Final rule.

SUMMARY: The Office of the Comptroller

of the Currency (OCC) is publishing a

final rule amending part 32, the

regulation governing the percentage of

capital and surplus that a national bank

may loan to any one borrower. This

final rule establishes a three-year pilot

program that creates new special

lending limits for 1–4 family residential

real estate loans and loans to small

businesses. Eligible national banks with

main offices located in states that have

a lending limit available for residential

real estate, small business or unsecured

loans that is higher than the current

Federal limit may apply to take part in

the pilot program. We will review and

evaluate national banks’ experience

with the special limits over the threeyear pilot period and determine at the

end of the pilot whether to extend the

program and retain, modify or rescind

the exceptions. The final rule also

permanently modifies the lending limit

exemption for loans to or guaranteed by

obligations of state and local

governments.

EFFECTIVE DATE: The final rule is

effective on September 10, 2001.

FOR FURTHER INFORMATION CONTACT:

Deborah Katz, Senior Counsel, or Stuart

Feldstein, Assistant Director, Legislative

and Regulatory Activities Division,

(202) 874–5090; Jonathan Fink, Senior

Attorney, Bank Activities and Structure

Division (202) 874–5300.

Background

On May 12, 1999, the OCC issued an

advance notice of proposed rulemaking

(ANPR) inviting comment on possible

regulatory changes that could benefit

community banks. 64 FR 25469. The

purpose of this community bankfocused regulation review was to

explore ways that our regulations could

be modified, consistent with safety and

soundness, to reflect the fact that

community banks operate with more

limited resources and often present

different risk profiles than larger

institutions. We sought to identify

Federal Register / Vol. 66, No. 112 / Monday, June 11, 2001 / Rules and Regulations 31115

regulations where it would be

appropriate to develop alternative or

differential regulatory approaches that

would minimize burden on community

banks and promote community banks’

competitiveness.

We received thirty-five letters in

response to the ANPR commenting on

various aspects of the national bank

lending limit. Twelve U.S.C. 84, the

national bank lending limit, governs the

percentage of capital and surplus that a

bank may loan to any one borrower.

OCC regulations implementing section

84 are set forth at 12 CFR 32. Under

section 84 and part 32, a national bank

can make unsecured loans of up to 15

percent of its unimpaired capital and

surplus to a single borrower and extend

an amount up to an additional 10

percent of unimpaired capital and

surplus to the same borrower, if the

amount of the loan that exceeds the 15

percent limit is secured by ‘‘readily

marketable collateral.’’ Part 32 refers to

these lending limits as ‘‘the combined

general limit.’’ The statute and

regulation also provide other exceptions

to and exemptions from the combined

general limit for various types of loans

and extensions of credit. Finally, the

statute authorizes the OCC to establish

lending limits ‘‘for particular classes or

categories of loans’’ that are different

from those expressly provided by the

statute’s terms. 12 U.S.C. 84(d)(1).

A majority of commenters on the

ANPR stated that the national bank

lending limits are especially

problematic for community banks

because, according to these commenters,

the current lending limits have

prevented many community banks from

continuing to lend to creditworthy

customers, and that this has caused a

loss in potential income, especially from

valued customers whose credit needs

have increased with the growth of their

businesses or increase in local property

values. Many commenters also noted

that some states provide higher lending

limits than those set forth in section 84

and part 32. These commenters

suggested that Federal lending limits

should be the same as those available

for state banks so that national banks

can compete on an equal basis with

other financial service providers in the

markets they serve.

On September 22, 2000, the OCC

issued a notice of proposed rulemaking

(NPRM) soliciting comment on a pilot

program to modify certain aspects of the

lending limit to respond to these

concerns (65 FR 57292). We proposed to

use the authority afforded by section

84(d)(1) to create new exceptions or

special lending limits for loans secured

by 1–4 family residential real estate and

loans to small businesses for banks with

main offices located in states where a

lending limit higher than the current

Federal limit applies. To ensure that

national banks use this additional

lending authority in a way that is

consistent with safe and sound banking

practices, we proposed making the new

special limits available only to ‘‘eligible

banks,’’ subject to an application

process. We also proposed an aggregate

limit on the amount a bank could lend

under this new authority. The proposal

stated that OCC would review national

banks’ experience with the new

exceptions over the three-year pilot

period and determine whether to retain,

modify, or rescind the exceptions.

The proposed rule also contained a

separate amendment to part 32 that

modified the requirements for obtaining

a lending limit exemption for loans to

or guaranteed by obligations of state and

local governments.

Overview of Comments Received

The NPRM was published in the

Federal Register on September 22, 2000.

The public comment period closed on

November 21, 2000. The OCC received

seventeen comments on the proposal,

including comments from one

individual, one savings and loan

association, ten banks, one bank holding

company and four bank trade

associations.

The majority of the commenters

strongly supported the proposal as an

effort to reduce regulatory burden on

community banks and to enhance the

ability of community banks to compete

in today’s banking environment. The

majority of commenters also specifically

supported the new special lending

limits. They stated that an increase in

the lending limit is essential to level the

playing field for community national

banks operating in states with a higher

lending limit. One commenter suggested

that an increase in the lending limits

would enhance safety and soundness

because it would minimize loan

participations and thus allow a bank to

manage the risk of a credit ‘‘without

outside influences or outside changes in

policy.’’

One commenter also suggested that

the OCC implement the regulation as a

permanent modification to the lending

limit, instead of as a pilot project. This

commenter thought that the expense

involved in implementing the pilot

program may not be recouped by the

marginal profits made on any loans

extended at the higher limits and would

discourage banks from taking advantage

of the pilot. The commenter suggested

that, in place of a pilot program, the

OCC consider permanently raising the

limit by five percent and then, after

three years, consider an additional five

percent increase. Finally, two

commenters thought that the regulatory

burden created by the conditions

imposed by the proposal governing a

bank’s ability to take advantage of the

new exceptions would compromise any

benefits that might be gained from the

proposal.

We have considered these comments

carefully, but have determined not to

modify the proposal in the ways

suggested by these commenters. The

Federal lending limit is an important

safeguard against undue concentration

of credit risk in the national banking

system. Adjustments to the limit need to

be calibrated to enable both the OCC

and the banks affected to gauge the

impact of additional flexibility. In our

view, the incremental approach

reflected in the proposal best achieves

that objective, as a first step.

Accordingly, after consideration of the

comments received, we have adopted a

final regulation that is similar to the

proposal, with some modifications and

the clarifying changes that are described

below. Because the final rule establishes

a pilot program, however, there will be

an opportunity to revisit the constraints

imposed by the proposal at any time,

and certainly as the three-year

timeframe of the pilot nears a

conclusion.

Section-by-Section Analysis

New Special Limits for 1–4 Family

Residential Real Estate and Small

Business Loans

1. Categories of Loans Chosen for

Special Limits

Proposed § 32.3(b)(6) contained new

limits for two categories of loans: Those

secured by 1–4 family residential real

estate and small business loans. The

proposal solicited comment on whether

the categories of loans identified would

alleviate the burden and mitigate some

of the competitive disparity for

community banks.

Several commenters, including those

from trade associations representing

community banks, urged the OCC to

revise the proposal to include farm

loans. These commenters urged the OCC

to include agricultural loans in the pilot,

so that rural community banks could

benefit from the proposal. The

commenters suggested that agricultural

loans are no riskier than small business

loans. In addition, some commenters

noted that agricultural community

banks have comparable experience and

expertise in making farm loans as they

do small business loans. Other

commenters suggested that the OCC

31116 Federal Register / Vol. 66, No. 112 / Monday, June 11, 2001 / Rules and Regulations

1The lending limit statute and regulations

currently contain special enhanced limits for

certain loans secured by documents transferring or

securing title to readily marketable staples (35

percent, in addition to the bank’s combined general

limit), livestock and dairy cattle (both 10 percent,

in addition to the bank’s combined general limit).

See 12 U.S.C. 84(c)(3), 12 CFR 32.3(b)(1); 12 U.S.C.

84(c)(9)(A), 12 CFR 32.3(b)(3); 12 U.S.C. 84(c)(9)(B),

12 CFR 32.3(b)(4).

create new limits for secured or

unsecured commercial loans.

We have decided not to expand the

categories of loans subject to special

limits until we have some experience

with the new limits initially proposed

for the pilot. We will continue to

analyze the risk characteristics of

agricultural loans of different types (e.g.,

secured by farmland or by crops) to

determine whether the goals of the pilot

program would be furthered by

including some categories of agriculture

loans.1

Accordingly, in beginning this pilot,

we have chosen categories—residential

real estate and small business loans—

that represent typical, longstanding

business lines for most community

banks. In this way, we hope to obtain

information and experience about the

effects of the pilot program

modifications to the lending limit on a

broad cross-section of community

banks. We expect to use what we learn,

not only as the basis for deciding

whether the new special limits should

be continued beyond the 3-year pilot

period, but also for considering whether

more categories of loans should be

added.

2. Limit for Residential Real Estate

Loans

Under the proposal, the special limit

in § 32.3(b)(6)(i) applied to ‘‘residential

real estate loans,’’ defined under

§ 32.2(p) to mean only loans secured by

a perfected first-lien security interest in

1–4 family residential real estate in an

amount that did not exceed 80 percent

of the appraised value of the collateral

at the time the loan was made.

The OCC received one comment on

this special limit. The commenter

questioned whether an increased

lending limit for 1–4 family homes will

have any impact because few

community banks make large dollar

residential real estate loans to one

borrower. Based upon our experience

with community banks, however, we

continue to believe that this special

limit will be helpful to community

banks located in areas where the price

of real estate is high. Therefore,

§ 32.7(a)(1) of the final rule retains a

special limit for residential real estate

loans.

However, the final rule contains a

clarification of the definition of

‘‘residential real estate loans.’’ The

definition was used to determine

whether a state had a higher lending

limit for residential real estate loans and

to restrict the type of real estate loan

that a national bank could make under

the authority contained in the pilot

program. The final rule moves the

requirements that residential real estate

loans be secured by a ‘‘perfected firstlien’’ and can ‘‘not exceed 80 percent of

the appraised value of the collateral at

the time the loan was made’’ from the

definition of a residential real estate

loan to the description of which loans

qualify for the pilot program contained

in § 32.7(a)(1). This change clarifies that

a national bank will be required to

comply with certain prudential

requirements when making residential

real estate loans, but will not be

disqualified from participating in the

pilot program because a state’s lending

limits contain different prudential limits

for residential real estate loans, for

example, a lower loan-to-value ratio.

3. Limit for Small Business Loans

The proposed special limit in

§ 32.3(b)(6)(ii) for ‘‘small business

loans,’’ defined in § 32.2(r), extended

additional lending authority for loans

that could be unsecured, or secured in

a manner that is not specified by

regulation. The proposal invited

comment on whether the special limit

for small business loans should require

specific collateral.

One commenter suggested requiring

the borrower to provide real estate

collateral to use the expanded lending

authority for small business loans. Other

commenters recommended that

collateral not be required. One reasoned

that only well run banks will be able to

use this special limit and they will

likely have prudent lending policies

that require collateral as appropriate.

The remaining commenters felt that

such loans should be secured by

specific collateral only if this

requirement is imposed on state banks.

Small business loans are typically

secured by many different types of

collateral. Accordingly, the OCC has

concluded that to specify the type of

collateral required would impose undue

constraints on the use of this special

limit. Therefore, the rule does not

require that the borrower secure small

business loans in order for the loan to

qualify under the pilot program. The

type of small business loans eligible for

the special limit is adopted as proposed,

in section § 32.2(r) of the final rule, with

some adjustment to the definition of

‘‘small business loan’’ as discussed

below.

Section 32.2(r) of the proposal defined

‘‘small business loan’’ by crossreferencing the definition of ‘‘loans to

small businesses’’ from the instructions

for preparation of the Consolidated

Reports of Condition and Income (Call

Report). This definition includes ‘‘loans

with original amounts of $1 million or

less,’’ * * * ‘‘secured by nonfarm

nonresidential properties,’’ and certain

‘‘commercial and industrial loans.’’ The

NPRM requested comment on the

definition of ‘‘small business loan.’’

One commenter thought that the

cross-reference to the Call Report was

difficult to find and urged that the

regulation include its own definition of

small business loan. Another

commenter suggested that the OCC

eliminate the $1 million cap on small

business loans and permit a bank to

loan the lesser of $10 million or 10

percent of its capital to any one

company.

We continue to believe that a crossreference to the Call Report is a readily

available and easy-to-use method of

defining business loans. Moreover,

banks are familiar with the Call Report

definitions which they regularly use

when filing their quarterly Call Reports.

However, we agree that the dollar

limitation in the Call Report definition

of ‘‘loans to small businesses’’ is

unnecessary because of the separate

percentage and dollar limits established

as part of the special limit for small

business loans. Therefore, the final rule

eliminates the $1 million cap that was

part of the definition of small business

loan. However, the definition continues

to identify the small business loans

covered by the pilot program by crossreference to the definitions of ‘‘secured

by nonfarm nonresidential properties,’’

and ‘‘commercial and industrial loans’’

set forth in the Call Report instructions,

Schedule RC–C, Part I (rev. 3–01).

4. Additional Lending Authority

Under § 32.3(b)(6) of the proposal, a

bank was permitted to extend another

ten percent of its capital and surplus, in

addition to the amounts permissible

under the currently applicable lending

limits, to a single borrower for certain

real estate and small business loans,

respectively, if a bank’s main office was

located in a state with a higher limit that

applies to these categories of loans.

Commenters on this provision,

including those representing

community banks, agreed that ten

percent is an appropriate and sufficient

amount to alleviate the current

competitive disadvantage faced by

community banks. However, one

Federal Register / Vol. 66, No. 112 / Monday, June 11, 2001 / Rules and Regulations 31117

2However, as described in section 6, below, the

total outstanding amount of a national bank’s loans

and extensions of credit to one borrower made

pursuant to 12 CFR 32.3(a) and (b), together with

loans and extensions of credit to the borrower made

under the pilot program, cannot exceed 25 percent

of the bank’s capital and surplus.

3Under 12 CFR 6.4(b), ‘‘well capitalized’’ means

that the bank: (1) Has a total risk-based capital ratio

of 10.0 percent or greater; (2) has a Tier 1 risk-based

capital ratio of 6.0 percent or greater; (3) has a

leverage ratio of 5.0 percent or greater; and (4) is

not subject to any written agreement, order or

capital directive, or prompt corrective action

directive issued by the OCC pursuant to section 8

of the Federal Deposit Insurance Act (FDI Act), the

International Lending Supervision Act of 1983 or

section 38 of the FDI Act, or any regulation

thereunder, to meet and maintain a specific capital

level for any capital measure.

commenter thought that the limits per

borrower should be the same as statechartered non-member banks.

A regulation that would provide exact

parity between a national and a state

bank located in the same state would be

complicated if the goal is to achieve

lending limit parity for all fifty states,

but only for two categories of loans, and

no others. We believe that this

complexity would reduce the utility of

the new special limits. For this reason,

we originally proposed allowing

national banks in the pilot program to

simply extend ten percent of its capital

and surplus to a single borrower for real

estate and small business loans,

respectively, if a bank’s main office is

located in a state with a higher limit

available for these categories of loans,

without regard to the amount of the

state limit. However, it is not the goal

of the pilot program to provide national

banks with a competitive advantage

over similarly situated state banks in

states where the applicable limit is

lower than the additional 10 percent we

proposed to permit for national banks.

Thus, we have modified the two special

limits in § 32.7(a)(1) and (2) of the final

rule to permit additional extensions of

credit to a single borrower in the lesser

of the following two amounts: (i) 10

percent of its capital and surplus; or (ii)

the percentage of capital and surplus

that a state bank is permitted to lend

under a state lending limit that would

be available for residential real estate,

small business or unsecured loans in the

state where the main office of the

national bank is located and that

exceeds 15 percent—the general

unsecured limit for national banks set

forth in 12 CFR 32.2(a). Under this

approach, for example, in any state

where the state unsecured limit is 20

percent (and the state has no other,

higher, special lending limit available

for 1–4 family residential real estate

loans or small business loans), the

special limits available to a national

bank under the pilot program would be

the lesser of 5 percent or $10 million.

Section 32.3(b)(6) of the proposal also

provided that to be eligible for the pilot

program a national bank’s main office

had to be located in a state where the

‘‘state lending limit’’ that is available for

residential real estate or small business

loans is higher than the limit for

national banks. However, state lending

limits may involve higher percentage

limits, a different method of calculating

the percentage of bank capital and

surplus that can be loaned to a single

borrower, or different rules for

combining loans. In order to simplify

this process, the special limits described

above now make clear that only

situations where the state has a higher

percentage limit that would be available

for residential real estate or small

business loans will trigger a national

bank’s eligibility for the pilot program.

The preamble to the proposed

regulations also stated that to

demonstrate its eligibility for the pilot

program, a bank could reference a state’s

‘‘specific, general or other limit that

applies to 1–4 family residential real

estate or small business loans.’’ Sections

32.7(a)(1) and (2) now clarify that the

applicable limit is the state lending

limit for state banks that is available for

residential real estate loans or small

business loans, as defined in the final

rule, or the state unsecured limit. Thus,

for example, where the state unsecured

limit is 20 percent and the state also has

a 5 percent special lending limit

available for 1–4 family residential real

estate loans, the special limits available

to a national bank would be the lesser

of 10 percent or $10 million for

residential real estate loans, and the

lesser of 5 percent or $10 million for

small business loans.2

5. Applicable Safeguards

The proposal incorporated a number

of safeguards to ensure that a national

bank’s use of the additional authority

provided by the new special limits is

consistent with safety and soundness.

The OCC solicited comment on each of

these safeguards and invited comment

on whether additional safeguards were

warranted.

The first proposed safeguard, set forth

in proposed § 32.3(b)(6)(i) and (ii), was

a dollar cap of $10 million dollars

limiting loans to a single borrower for

real estate and small business loans,

respectively, in addition to the

percentage limits described in the

preceding section, for loans made in

reliance upon the new special limits.

We received one comment on this

dollar cap from a trade association

representing community banks. This

commenter stated that the $10 million

cap is adequate for the majority of

community national banks. We believe

this limit is appropriate, particularly

during the period of the pilot program.

Therefore, this safeguard is adopted as

proposed in § 32.7(a)(1) and (2) of the

final rule.

The second proposed safeguard,

found in § 32.3(b)(6)(iii), was an

aggregate lending cap on all loans, to all

of a bank’s borrowers made in reliance

upon the real estate and small business

special limits. Under the proposal, the

total amount of these loans, or portions

of loans, together, could not equal more

than 100 percent of a bank’s capital and

surplus.

Some commenters supported an

aggregate lending cap. Other

commenters thought that the aggregate

cap would create an unnecessary

burden and would make compliance

with part 32 more complicated as

national banks will have to keep track

of aggregate totals. Some commenters

thought that the proposed aggregate cap

was too restrictive and should be

increased to 150 or 200 percent of

capital.

We agree that the aggregate cap will

require banks to monitor the total

amount of loans extended under this

new authority. However, this additional

requirement is consistent with the

purpose of the cap. Throughout, and at

the conclusion of the pilot program, we

will be in a position to consider whether

the cap is too restrictive and whether it

should be increased. Therefore the

aggregate cap is adopted as proposed in

§ 32.7(a)(4).

The third safeguard made the special

limits in § 32.3(b)(6)(i) and (ii) available

only to ‘‘eligible banks,’’ defined in

§ 32.2(i), as a bank that is well

capitalized, as defined in 12 CFR

6.4(b)(1),3 and has a rating of 1 or 2

under the Uniform Financial

Institutions Rating System, with at least

a rating of 2 for the management

component of this rating system.

We did not receive any comments on

this safeguard, however, upon further

consideration, we have determined that

adding the qualification that the bank

must have received a rating of at least

2 for the asset quality component of its

rating to the other qualifications of an

‘‘eligible bank,’’ will help to ensure that

only those banks that have

demonstrated sound lending practices

are eligible to participate in the pilot

program. Accordingly, the final rule

includes this qualification standard, in

addition to those proposed.

In addition, § 32.3(b)(6)(iv) of the

proposed rule required a bank to apply

31118 Federal Register / Vol. 66, No. 112 / Monday, June 11, 2001 / Rules and Regulations

4Section 32.3 is the provision containing the

general and existing special lending limits and

exceptions to the lending limits. This section

includes a bank’s combined general limit for

unsecured loans and loans secured by readily

marketable collateral (§ 32.3(a)); and other special

lending limits (§ 32.3(b)), such as limits for loans

secured by documents covering livestock.

5The documentation exemption described in the

‘‘Interagency Policy Statement on Documentation

for Loans to Small- and Medium-sized Businesses

and Farms’’ contained in Banking Bulletin 93–18,

issued by the OCC on April 2, 1993, is not available

for loans made under the Pilot Program.

to its supervisory office and receive

approval before using either of the new

special limits. The proposal required an

application to contain the following

information to be deemed complete: (1)

Certification that the applicant is an

eligible bank; (2) citation to relevant

state laws or regulations showing that

the bank’s main office is located in a

state where the state lending limit

available for residential real estate or

small business loans or unsecured loans

is higher than the limit for national

banks; (3) a written resolution by the

majority of the bank’s board of directors

approving the use of the new special

limits and confirming the terms and

conditions for use of this lending

authority; and (4) a description of how

the bank’s board intends to exercise its

continuing responsibility to oversee the

use of this lending authority.

While one commenter supported this

application procedure, most

commenters criticized this approach as

too complicated and burdensome. Two

commenters suggested that the OCC

consider establishing minimum

requirements and a notice procedure,

for example, for banks that are 1 or 2

rated and ‘‘well-capitalized.’’ One of

these commenters felt that the

application requirement would create

unnecessary paperwork and discourage

banks from making use of this new

lending authority.

We believe that an application

process will better enable us to monitor

use of the new lending authority and

will help to ensure bank safety and

soundness is not compromised under

the pilot program. We will revisit the

application requirement after we have

had experience with the benefits, as

well as burdens, that arise. Therefore,

§ 32.7(b) of the final rule adopts the

proposed application procedures with

the clarifying changes noted below.

Some commenters specifically

objected to the requirement in

§ 32.3(b)(6)(iv)(B) that the application

cite to relevant state laws and

regulations showing that the bank’s

main office is located in a state with

higher lending limits available for

residential real estate or small business

loans. One commenter suggested that

the OCC expand the lending authority to

all banks without regard to where a

bank’s main office is located. This

commenter noted that nothing in 12

U.S.C. 84 requires competitive equality

between national and state-chartered

banks. Another commenter thought that

the regulation should reference the

location of the origination of the loan,

and not the location of the head office

of the bank, since that is the location

where a bank will be competing.

The special limits are designed to

afford some degree of competitive parity

between national banks and state

chartered lenders. Therefore, these new

limits are available only to banks

located in states where they are

operating at an artificial competitive

disadvantage as compared to state

banks. The second commenter seems to

suggest that the state lending limit of the

location of the borrower should

determine whether a special limit

applies. Determining the location of a

borrower often may be complicated. For

example, a company may be

incorporated in Delaware and have

offices in multiple states. Further, this

suggestion would be inconsistent with

the OCC’s approach in other areas

where the location of the bank, rather

than the borrower, is the operative

control. Therefore, we have not adopted

this suggestion.

Finally, because state lending limits

vary so greatly among the states, the

scope of a national bank’s ability to use

the pilot program may be unclear.

Where such questions arise, the OCC’s

Chief Counsel will determine the extent

to which the pilot program is available

for national banks located in a particular

state.

6. New Safeguards

The OCC also has determined that

two additional safeguards are necessary

to balance the flexibility afforded to

banks through the new special limits

with safety and soundness concerns.

The first of these safeguards addresses a

concern that a bank’s use of the special

limits, together with its combined limit

and the other available statutory limits,

may result in an undue concentration of

loans to a single borrower. To address

this issue, § 32.7(a)(3) of the final rule

provides that the total outstanding

amount of a national bank’s loans and

extensions of credit to one borrower

made pursuant to § 32.3 (a) and (b),4

together with loans and extensions of

credit to the borrower made under the

pilot program, cannot exceed 25 percent

of the bank’s capital and surplus.

As is the case with all the general and

specific lending limits, these new

special lending limit thresholds do not

insulate loans below the thresholds

from supervisory oversight. Thus, loans

within the parameters of the pilot

program are still subject to criticism if

they are poorly underwritten, poorly

administered, or if loans made under

the program are part of an excessive

concentration by a bank in certain types

of loans.5

Moreover, we also have included in

the final rule a procedure to rescind a

bank’s authority to use the special

lending limits in the event that safety

and soundness problems arise. Under

§ 32.7(a)(4)(d) of the final rule, the OCC

reserves the right to rescind a bank’s

authority to use the special lending

limits, based upon concerns about credit

quality, undue concentrations in the

bank’s portfolio of residential or small

business loans, or about a bank’s overall

credit risk management systems and

controls. The bank must cease new

extensions of credit in reliance on the

special lending limits after receiving

written notice from the OCC that its

authority has been rescinded.

7. Duration of Approval

The proposed rule was structured as

a three-year pilot program. However,

§ 32.3(b)(v) of the proposal stated that

OCC approval of a bank’s authority to

use the special limits would be effective

for three years and could be renewed.

Section 32.7(c) of the final rule corrects

this provision by clarifying that a bank

that has received OCC approval to

participate in the pilot program may

continue to make loans under the

special lending limits only for the

duration of the three-year program,

provided the bank remains an eligible

bank. Accordingly, a bank that receives

OCC approval to participate in the pilot

program one year after the effective date

of this regulation may use the authority

granted under this pilot program for no

longer than two more years.

8. Duration of Program

As described above, the proposed rule

was structured as a three-year pilot

program. The final rule retains the

three-year duration that we proposed.

Accordingly, new section § 32.7(e) of

the final rule contains an express

termination date of June 11, 2004. This

section also states that the OCC also

retains the ability to terminate the pilot

program prior to that date. We

contemplate that the circumstance

where the pilot program could be

terminated early would be where our

monitoring of loans made under the

program indicates that overall

experience with the program is raising

Federal Register / Vol. 66, No. 112 / Monday, June 11, 2001 / Rules and Regulations 31119

significant safety and soundness

concerns. Prior to the conclusion of the

three-year pilot program the OCC will

evaluate the experience under the

program and determine whether, and

under what circumstances, the program

should be extended. In its evaluation of

the program and its consideration of

conditions under which the program

might be extended, the OCC will

consider, among other matters, whether

increases in concentration resulting

from any new authority should be offset

by additional portfolio diversification

requirements.

9. Transition Issues

The preamble to the proposal stated

that as long as a bank was ‘‘eligible,’’

any loan made by the bank during the

three year period following approval

would remain legal, even if the bank

subsequently became ineligible.

Two comments raised transition

issues. One commenter requested that

the OCC clarify that a national bank that

made a loan in compliance with the

pilot program would not be found in

violation of part 32 if the bank

subsequently were to become

disqualified as an eligible bank during

the three-year period. A second

commenter requested that the OCC

clarify that any loans made when a bank

was eligible to use the higher limits will

not have to be reduced or called early,

if after three years, the bank becomes

ineligible or the program is

discontinued.

We agree that various transition issues

may arise and should be addressed in

the final rule. Therefore, § 32.7(f) of the

final rule now clarifies that loans made

by a bank in compliance with the

requirements of the pilot program will

not be deemed a lending limit violation

and will not be treated as

nonconforming under § 32.6 if, for

example, the bank becomes ineligible or

the pilot program is discontinued.

However, no additional funds may be

advanced to the borrower as long as the

outstanding amount of a national bank’s

loans and extensions of credit to the

borrower exceed the lending limit.

Exemptions for Loans Secured by State

and Local Governments

Part 32 provides that a loan or

extension of credit made by a national

bank to, or guaranteed by general

obligations of a State or political

subdivision is exempt from any lending

limit. See 12 CFR 32.3(c)(5). The term

‘‘general obligation’’ is defined in 12

CFR part 1. In addition, to obtain this

exemption, this section currently

requires the bank to obtain an opinion

of counsel that the loan or extension of

credit or guarantee is a valid and

enforceable general obligation of the

State or political subdivision. However,

the requirement for an opinion of

counsel is not statutorily required.

The proposed rule revised § 32.3(c)(5)

to allow a bank to either obtain an

opinion of counsel or rely on the

opinion of a State attorney general (or

other State legal official with authority

to opine on the obligation in question)

on the validity and enforceability of the

obligation, extension of credit, or

guarantee in question. All but one

commenter supported this change.

These commenters agreed that obtaining

an opinion of counsel can be expensive

and time consuming for community

banks, particularly for those banks that

make a substantial number of

agricultural loans under loan guarantee

programs. They stated that allowing

community banks to rely upon an

opinion of a State’s attorney general is

a significant improvement.

One commenter thought that it would

be more difficult to obtain an opinion of

a state’s attorney general than an

opinion of counsel. The OCC notes that

this provision provides national banks

with more and not less flexibility. It will

permit a bank to obtain either an

opinion of counsel, an opinion of a

state’s attorney general or other State

legal official with authority to opine on

the obligation in question, whichever is

easier. Moreover, in some cases, banks

may be able to rely on existing opinions

from state officials to satisfy this

requirement. See, e.g., OCC Interpretive

Letter No. 899 (May 15, 2000), reprinted

in Fed. Banking L. Rep. (CCH) ¶81–418

(for purposes of qualifying for the

exemption in 12 CFR 32.3(c)(5), national

banks may rely on an Illinois Attorney

General opinion providing that loans

guaranteed by the Illinois Farm

Development Authority are backed by

the full faith and credit of the State of

Illinois). Therefore, this provision is

adopted as proposed in § 32.3(c)(5) of

the final rule.

Regulatory Analysis

A. Paperwork Reduction Act

The OCC may not conduct or sponsor,

and an organization is not required to

respond to, an information collection

unless it displays a currently valid

Office of Management and Budget

(OMB) control number.

OMB has reviewed and approved the

collection of information requirements

contained in this rule under control

number 1557–0221, in accordance with

the Paperwork Reduction of 1995 (44

U.S.C. 3501 et seq.). OMB clearance will

expire on December 31, 2003.

The OCC sought commment on all

aspects of the burden estimates for the

information collection contained in the

proposed rule. The OCC received no

comments.

The information collection

requirements contained in 12 CFR part

32 are contained in section 32.7(b).

Under this section, the final regulation

would require national banks to provide

the OCC with certain information in

connection with an application to

receive approval from its supervisory

office before using the new special

lending limits for 1–4 family residential

real estate loans and loans to small

businesses for national banks.

The potential respondents are national

banks.

Estimated number of respondents: 2,140

Estimated number of responses: 2,140

Estimated burden hours per response:

26

Estimated total burden: 55,640

The OCC has a continuing interest in

the public’s opinion regarding

collections of information. Members of

the public may submit comments, at any

time, regarding any aspects of these

collections of information. Comments

may be sent to Jessie Dunaway,

Clearance Officer, Office of the

Comptroller of the Currency, 250 E

Street, SW, Mailstop 8–4, Washington,

DC 20219.

B. Regulatory Flexibility Act Analysis

Pursuant to section 605(b) of the

Regulatory Flexibility Act (RFA), 5

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

analysis otherwise required under

section 603 of the RFA, 5 U.S.C. 603, is

not required if the head of the agency

certifies that the rule will not have a

significant economic impact on a

substantial number of small entities and

the agency publishes such certification

and a statement explaining the factual

basis for such certification in the

Federal Register along with its final

rule.

On the basis of the information

currently available, the OCC is of the

opinion that this final rule will not have

a significant impact on a substantial

number of small entities, within the

meaning of those terms as used in the

RFA. The final regulation requires

national banks that would like to

participate in the pilot program to

submit an application containing certain

information and receive approval from

its supervisory office before using the

new special limits for 1–4 family

residential real estate loans and loans to

small businesses. However, the OCC

does not believe that this application

requirement will have a significant

31120 Federal Register / Vol. 66, No. 112 / Monday, June 11, 2001 / Rules and Regulations

impact on a substantial number of small

entities. Accordingly, a regulatory

flexibility analysis not required.

C. Executive Order 12866 Determination

The Comptroller of the Currency has

determined that this final rule would

not constitute a ‘‘significant regulatory

action’’ for the purposes of Executive

Order 12866. Under the most

conservative cost scenarios that the OCC

can develop on the basis of available

information, the impact of the final rule

falls well short of the thresholds

established by the Executive Order.

D. Unfunded Mandates Reform Act of

1995 Determinations

Section 202 of the Unfunded

Mandates Reform Act of 1995, 2 U.S.C.

1532 (Unfunded Mandates Act),

requires that an agency prepare a

budgetary impact statement before

promulgating any rule likely to result in

a Federal mandate that may result in the

expenditure by State, local, and tribal

governments, in the aggregate, or by the

private sector, of $100 million or more

in any one year. If a budgetary impact

statement is required, section 205 of the

Unfunded Mandates Act also requires

the agency to identify and consider a

reasonable number of regulatory

alternatives before promulgating the

rule. However, an agency is not required

to assess the effects of its regulatory

actions on the private sector to the

extent that such regulations incorporate

requirements specifically set forth in

law. 2 U.S.C. 1531.

The OCC has determined that this

final rule will not result in expenditures

by State, local, and tribal governments,

in the aggregate, or by the private sector,

of $100 million or more in any one year.

Accordingly, the OCC has not prepared

a budgetary impact statement or

specifically addressed the regulatory

alternatives considered.

List of Subjects in 12 CFR Part 32

National banks, Reporting and

recordkeeping requirements.

Authority and Issuance

For the reasons set forth in the

preamble, part 32 of chapter I of title 12

of the Code of Federal Regulations is

amended as follows:

PART 32—LENDING LIMITS

1. The authority citation for part 32

continues to read as follows:

Authority: 12 U.S.C. 1 et seq., 84, and 93a.

2. In § 32.2:

A. Paragraph (p) is redesignated as

paragraph (s);

B. Paragraph (o) is redesignated as

paragraph (q);

C. Paragraphs (i) through (n) are

redesignated as paragraphs (j) through

(o); and

D. New paragraphs (i), (p), and (r) are

added to read as follows:

§ 32.2 Definitions.

* * * * *

(i) Eligible bank means a national

bank that:

(1) Is well capitalized as defined in 12

CFR 6.4(b)(1); and

(2) Has a composite rating of 1 or 2

under the Uniform Financial

Institutions Rating System in

connection with the bank’s most recent

examination or subsequent review, with

at least a rating of 2 for asset quality and

for management.

* * * * *

(p) Residential real estate loan means

a loan or extension of credit that is

secured by 1–4 family residential real

estate.

* * * * *

(r) Small business loan means a loan

or extension of credit ‘‘secured by

nonfarm nonresidential properties’’ or

‘‘a commercial or industrial loan’’ as

defined in the instructions for

preparation of the Consolidated Report

of Condition and Income.

* * * * *

3. In § 32.3, paragraph (c)(5) is revised

to read as follows:

§ 32.3 Lending limits.

* * * * *

(c) * * *

(5) Loans to or guaranteed by general

obligations of a State or political

subdivision. (i) A loan or extension of

credit to a State or political subdivision

that constitutes a general obligation of

the State or political subdivision, as

defined in part 1 of this chapter, and for

which the lending bank has an opinion

of counsel or the opinion of that State

Attorney General, or other State legal

official with authority to opine on the

obligation in question, that the loan or

extension of credit is a valid and

enforceable general obligation of the

borrower; and

(ii) A loan or extension of credit,

including portions thereof, to the extent

guaranteed or secured by a general

obligation of a State or political

subdivision and for which the lending

bank has an opinion of counsel or the

opinion of that State Attorney General,

or other State legal official with

authority to opine on the guarantee or

collateral in question, that the guarantee

or collateral is a valid and enforceable

general obligation of that public body.

* * * * *

4. A new § 32.7 is added to read as

follows:

§ 32.7 Pilot program for residential real

estate and small business loans.

(a) Residential real estate and small

business loans. (1) In addition to the

amount that a national bank may lend

to one borrower under § 32.3, an eligible

national bank may make residential real

estate loans or extensions of credit to

one borrower in the lesser of the

following two amounts: 10 percent of its

capital and surplus; or the percent of its

capital and surplus, in excess of 15

percent, that a State bank is permitted

to lend under the State lending limit

that is available for residential real

estate loans or unsecured loans in the

State where the main office of the

national bank is located. Any such loan

or extension of credit must be secured

by a perfected first-lien security interest

in 1–4 family real estate in an amount

that does not exceed 80 percent of the

appraised value of the collateral at the

time the loan or extension of credit is

made. In no event may a bank lend more

than $10 million to one borrower under

this authority.

(2) In addition to the amount that a

national bank may lend to one borrower

under § 32.3, an eligible national bank

may make small business loans or

extensions of credit to one borrower in

the lesser of the following two amounts:

10 percent of its capital and surplus; or

the percent of its capital and surplus, in

excess of 15 percent, that a State bank

is permitted to lend under the State

lending limit that is available for small

business loans or unsecured loans in the

State where the main office of the

national bank is located. In no event

may a bank lend more than $10 million

to one borrower under this authority.

(3) The total outstanding amount of a

national bank’s loans and extensions of

credit to one borrower made under

§§ 32.3(a) and (b), together with loans

and extensions of credit to the borrower

made pursuant to paragraphs (a)(1) and

(2) of this section, shall not exceed 25

percent of the bank’s capital and

surplus.

(4) The total outstanding amount of a

national bank’s loans and extensions of

credit to all of its borrowers made

pursuant to the special lending limits

provided in paragraphs (a)(1) and (2) of

this section may not exceed 100 percent

of the bank’s capital and surplus.

(b) Application process. An eligible

bank must submit an application to, and

receive approval from, its supervisory

office before using the special lending

limits in paragraphs (a)(1) and (2) of this

section. The supervisory office may

approve a completed application if it

Federal Register / Vol. 66, No. 112 / Monday, June 11, 2001 / Rules and Regulations 31121

finds that approval is consistent with

safety and soundness. To be deemed

complete, the application must include:

(1) Certification that the bank is an

‘‘eligible bank’’ as defined in § 32.2(i);

(2) Citations to relevant State laws or

regulations;

(3) A copy of a written resolution by

a majority of the bank’s board of

directors approving the use of the limits

provided in paragraphs (a)(1) and (2) of

this section, and confirming the terms

and conditions for use of this lending

authority; and

(4) A description of how the board

will exercise its continuing

responsibility to oversee the use of this

lending authority.

(c) Duration of approval. Except as

provided in § 32.7(d), a bank that has

received OCC approval may continue to

make loans and extensions of credit

under the special lending limits in

paragraphs (a)(1) and (2) of this section

until the date three years after

September 10, 2001, provided the bank

remains an ‘‘eligible bank.’’

(d) Discretionary termination of

authority. The OCC may rescind a

bank’s authority to use the special

lending limits in paragraphs (a)(1) and

(2) of this section based upon concerns

about credit quality, undue

concentrations in the bank’s portfolio of

residential or small business loans, or

concerns about the bank’s overall credit

risk management systems and controls.

The bank must cease making new loans

or extensions of credit in reliance on the

special limits upon receipt of written

notice from the OCC that its authority

has been rescinded.

(e) Duration of pilot program. The

pilot program will terminate on June 11,

2004, unless it is terminated sooner by

the OCC.

(f) Existing loans. Any loans or

extensions of credit made by a bank

under the special lending limits in

paragraphs (a)(1) and (2) of this section,

that were in compliance with this

section when made, will not be deemed

a lending limit violation and will not be

treated as nonconforming under § 32.6.

Dated: May 31, 2001.

John D. Hawke, Jr.,

Comptroller of the Currency.

[FR Doc. 01–14529 Filed 6–8–01; 8:45 am]

BILLING CODE 4810–33–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 98–NM–326–AD; Amendment

39–12163; AD 2001–06–16]

RIN 2120–AA64

Airworthiness Directives; McDonnell

Douglas Model DC–9–80 Series

Airplanes and Model MD–88 Airplanes

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Final rule; correction.

SUMMARY: This document corrects

information in an existing airworthiness

directive (AD) that applies to all

McDonnell Douglas Model DC–9–80

series airplanes and Model MD–88

airplanes. That AD currently requires

revisions to the Airplane Flight Manual

(AFM) and installation of inspection

aids on the wing upper surfaces. That

AD also requires, among other actions,

installation of an overwing heater

blanket system or primary upper wing

ice detection system, and installation of

a heater protection panel or an

equipment protection device on certain

overwing heater blanket systems. This

document corrects an incorrect

paragraph reference. This correction is

necessary to ensure that operators are

aware of an incorrect paragraph

reference in paragraph (d)(2)(ii)(A) of

the existing AD.

DATES: Effective May 7, 2001.

The incorporation by reference of

certain publications listed in the

regulations was approved previously by

the Director of the Federal Register as of

January 17, 1992 (57 FR 2014,

November 12, 1998).

The incorporation by reference of

certain other publications listed in the

regulations was approved previously by

the Director of the Federal Register as of

May 7, 2001 (66 FR 17499, April 2,

2001).

ADDRESSES: The service information

referenced in this AD may be obtained

from Boeing Commercial Aircraft

Group, Long Beach Division, 3855

Lakewood Boulevard, Long Beach,

California 90846, Attention: Data and

Service Management, Dept. C1–L5A

(800–0024). This information may be

examined at the Federal Aviation

Administration (FAA), Transport

Airplane Directorate, Rules Docket,

1601 Lind Avenue, SW., Renton,

Washington; or at the FAA, Los Angeles

Aircraft Certification Office, 3960

Paramount Boulevard, Lakewood,

California; or at the Office of the Federal

Register, 800 North Capitol Street, NW.,

suite 700, Washington, DC.

FOR FURTHER INFORMATION CONTACT:

Albert Lam, Aerospace Engineer,

Systems and Equipment Branch, ANM–

130L, FAA, Los Angeles Aircraft

Certification Office, 3960 Paramount

Boulevard, Lakewood, California

90712–4137; telephone (562) 627–5346;

fax (562) 627–5210.

SUPPLEMENTARY INFORMATION: On March

23, 2001, the Federal Aviation

Administration (FAA) issued AD 2001–

06–16, amendment 39–12163 (66 FR

17499, April 2, 2001), which applies to

all McDonnell Douglas Model DC–9–80

series airplanes and Model MD–88

airplanes. That AD supersedes an

existing AD to continue to require

revisions to the Airplane Flight Manual

(AFM) and installation of inspection

aids on the wing upper surfaces. That

AD also requires, among other actions,

installation of an overwing heater

blanket system or primary upper wing

ice detection system, and installation of

a heater protection panel or an

equipment protection device on certain

overwing heater blanket systems. That

AD was prompted by incidents in which

ice accumulation on the wing upper

surfaces shed into the engines during

takeoff. The actions required by that AD

are intended to prevent ice

accumulation on the wing upper

surfaces, which could result in ingestion

of ice into one or both engines and

consequent loss of thrust from one or

both engines.

Need for the Correction

As discussed in the preamble of AD

2001–06–16, the FAA deleted paragraph

(f)(1)(iii) and other subparagraphs of the

supplemental NPRM from the final rule.

Although we deleted these paragraphs,

we inadvertently did not update an

associated paragraph reference in

paragraph (d)(2)(ii)(A) of AD 2001–06–

16. As a result, paragraph (d)(2)(ii)(A)

incorrectly references paragraph

(f)(1)(iii)(B) for installation of an

equipment protective device (EPD); the

correct reference is paragraph (f)(2)(i).

The FAA has determined that a

correction to AD 2001–06–16 is

necessary to revise an incorrect

paragraph reference in paragraph

(d)(2)(ii)(A) of AD 2001–06–16.

Correction of Publication

This document corrects the error and

correctly adds the AD as an amendment

to § 39.13 of the Federal Aviation

Regulations (14 CFR 39.13).

The AD is reprinted in its entirety for

the convenience of affected operators.

The effective date of the AD remains

May 7, 2001.