15882 Federal Register / Vol. 60, No. 59 / Tuesday, March 28, 1995 / Proposed Rules

that section have arisen from bank

holding companies selling property they

acquired in satisfaction of a debt

previously contracted (‘‘dpc property’’)

where the bank holding company was

trying to recoup its losses on a loan from

the sale of the collateral. In these cases,

the record indicates that the divestitures

and financing arrangements have been

conducted on an arm’s-length basis, and

there is no evidence of divesting

companies exercising control of the

assets after the sale. In other cases

where a bank holding company sold an

asset or subsidiary that it had acquired

in the normal course of business and

financed the sale of the asset or

subsidiary, the assets were sold because,

in most cases, the bank holding

company was no longer interested in

engaging in that business.

The elimination of the requirement to

obtain a control determination will

reduce the regulatory burden on bank

holding companies without eliminating

the Board’s ability to supervise any

attempt to control the divested asset in

the future. Although the Board would

no longer require a bank holding

company to obtain a control

determination, the Board, through the

examination process, can review the

authority under which a bank holding

company controls the asset in question,

and take appropriate supervisory action

if any unlawful control is found to

persist. In addition, the Board would

continue to require a divesting company

to obtain a 2(g)(3) determination if: (i)

The asset were transferred to an affiliate

or principal shareholder of the divesting

holding company, or a company

controlled by the principal shareholder;

or (ii) an interlock existed between the

divesting company and the acquiring

person. In these cases, staff believes that

there is a greater potential for continued

control by the bank holding company

that should be reviewed. The General

Counsel will continue to review these

divestitures on a case by case basis to

determine if a control determination is

appropriate.

Regulatory Flexibility Act Analysis

Pursuant to section 605(b) of the

Regulatory Flexibility Act (5 U.S.C. 601

et seq.), the Board certifies that the

proposed amendment will not have a

significant adverse economic impact on

a substantial number of small entities

and that any impact on those entities

should be positive. The amendments

would reduce regulatory burdens

imposed by Regulation Y, and the

amendment would have no particular

adverse effect on other entities.

Paperwork Reduction Act Analysis

No collection of information pursuant

to section 3504(h) of the Paperwork

Reduction Act (44 U.S.C. 3501, et seq.)

is contained in these changes.

List of Subjects in 12 CFR Part 225

Administrative practice and

procedure, Banks, banking, Federal

Reserve System, Holding companies,

Reporting and recordkeeping

requirements, Securities.

For the reasons set forth in the

preamble, the Board proposes to amend

12 CFR part 225 as set forth below:

PART 225—BANK HOLDING

COMPANIES AND CHANGE IN BANK

CONTROL (REGULATION Y)

1. The authority citation for 12 CFR

part 225 continues to read as follows:

Authority: 12 U.S.C. 1817(j)(13), 1818,

1831i, 1831p–1, 1843(c)(8), 1844(b), 1972(l),

3106, 3108, 3310, 3331–3351, 3907, and

3909.

2. In § 225.32, paragraph (a)(2) is

redesignated as paragraph (a)(3) and a

new paragraph (a)(2) is added to read as

follows:

§ 225.32 Divestiture proceedings.

(a) * * *

(2) The presumption of control in

paragraph (a)(1)(i) of this section shall

not apply to the sale or divestiture of

assets or voting securities by a divesting

company if:

(i) The acquiring person is not an

affiliate or a principal shareholder of the

divesting company, or a company

controlled by such a principal

shareholder; and

(ii) The acquiring person does not

have any officer, director, trustee, or

beneficiary in common with or subject

to control by the divesting company.

* * * * *

By order of the Board of Governors of the

Federal Reserve System, March 22, 1995.

William W. Wiles,

Secretary of the Board.

[FR Doc. 95–7518 Filed 3–27–95; 8:45 am]

BILLING CODE 6210–01–P

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 334

RIN 3064–AB06

Contracts Adverse to Safety and

Soundness of Insured Depository

Institutions

AGENCY: Federal Deposit Insurance

Corporation.

ACTION: Proposed rule; withdrawal.

SUMMARY: The Federal Deposit

Insurance Corporation (FDIC) is

withdrawing its proposed rule which

would have implemented the statutory

prohibition on contracts that adversely

affect the safety or soundness of insured

depository institutions. The statutory

provision remains in place and

unchanged. The FDIC has decided to

withdraw the proposed rule because the

existence of adverse contracts involving

insured institutions has decreased

considerably since the proposed rule

was issued for public comment on April

1, 1991, because of the overwhelmingly

negative comments received from the

industry to the proposal, and because of

an FDIC policy statement that

recommends the withdrawal of

proposed rules that have not been acted

upon by the FDIC Board of Directors

within nine months of the date of

proposal. Many of the negative

comments received in response to the

proposal expressed the view that such a

regulation would create unnecessary

regulatory burden and that the Federal

banking agencies already possess the

necessary supervisory authority to deal

with adverse contracts. Since the type of

activity that the proposed rule was

intended to eliminate (i.e., abuses

involving contracts made by or on

behalf of an insured institution that

seriously jeopardize or misrepresent its

safety and soundness) has been

substantially reduced through greater

industry awareness and use of

alternative supervisory actions by the

Federal banking agencies, there appears

to be no need to promulgate such a

regulation at this time. However, the

FDIC may decide at a later date to

publish a new proposal if it determines

that the existence of adverse contracts

has increased or that such action is

otherwise necessary or appropriate.

DATES: The withdrawal of proposed Part

334 is made on March 28, 1995.

FOR FURTHER INFORMATION CONTACT:

Robert F. Miailovich, Associate Director,

Division of Supervision, (202) 898–

6918; Michael D. Jenkins, Examination

Specialist, Division of Supervision,

(202) 898–6896; or Gwen E. Factor,

Counsel, Legal Division, (202) 898–

8522, Federal Deposit Insurance

Corporation, 550 17th Street NW.,

Washington, D.C. 20429.

SUPPLEMENTARY INFORMATION:

Background

Section 225 of the Financial

Institutions Reform, Recovery, and

Enforcement Act of 1989 added new

section 30 to the Federal Deposit
Federal Register / Vol. 60, No. 59 / Tuesday, March 28, 1995 / Proposed Rules 15883

Insurance Act (Act), 12 U.S.C. 1831g,

which prohibits any insured depository

institution from entering into a written

or oral contract with any person to

provide goods, products or services to or

for the benefit of the institution if the

performance of such contract would

adversely affect its safety or soundness.

Section 30(b) authorizes the FDIC to

prescribe such regulations as may be

necessary to carry out the purposes of

section 30. In accordance with this

authority, the FDIC Board of Directors

issued for public comment a proposal to

add new Part 334 to the FDIC’s rules

and regulations (which was published

in the Federal Register on April 1, 1991

(56 FR 13291)) to address adverse

contracts.

The proposed rule would have

implemented section 30 of the Act by

prohibiting any insured depository

institution from entering into any

contract determined to be adverse and

would have treated all adverse contracts

uniformly without distinguishing

between contracts with affiliates and

those with non-affiliates. The proposed

rule would not have defined with

specificity the types of contracts that

would be considered adverse. Instead,

the proposal provided examples of

terms that could indicate an adverse

arrangement and identified prohibited

actions by a discussion of previously

encountered abuses.

Under the proposed rule, each

contract would have been evaluated

separately on the basis of its own terms

and by comparison with the terms of

similar contracts entered into by the

institution and other institutions. The

burden of establishing the propriety of

a contract with respect to which the

appropriate Federal banking agency has

made an initial determination of adverse

effect on the institution’s safety or

soundness would have been on the

institution and its contractor. As

discussed in the preamble, the

‘‘preponderance of evidence’’ standard

normally would have applied, but

where there was evidence of bad faith,

intentional wrong-doing or fraud, the

propriety and legality of the contract

would have been determined by clear

and convincing evidence. The proposed

rule also would have made clear that

enforcement actions may be taken

directly against any contractor, as an

‘‘institution-affiliated party’’.

The proposed rule also requested

specific comment on how to prevent

abuses involving contracts with holding

companies and other affiliates.

Although an approach for dealing with

affiliate contracts was discussed in the

preamble, no rule was proposed. It was

suggested that the FDIC might establish

a rebuttable regulatory presumption that

certain types of contracts between an

insured institution and its affiliates are

adverse. However, it was specifically

noted that such a rebuttable

presumption would not prohibit all

affiliate contracts. Instead, only certain

specified types of contracts would be

covered and contracts with other

insured institutions or with subsidiaries

of insured institutions would be

excluded from being presumed adverse.

Discussion

Summary of Comments Received

The FDIC received 206 comments on

the proposed rule. Almost all of the

comments received opposed the

proposed rule or suggested major

changes, while many commenters

requested that the FDIC withdraw the

proposed rule. Many commenters

expressed the view that a regulation

dealing with adverse contracts would

create an unnecessary regulatory burden

and that the Federal banking agencies

already possess the necessary

supervisory authority to deal with such

contracts. Many of the objections to the

proposal focused on the possibility of

treating contracts with affiliates

differently from those with nonaffiliates and were virtually unanimous

in their opposition to developing an

additional rule dealing with affiliate

contracts. Other objections to the

proposed rule focused on: (1)

Inadequacies in the definition of

‘‘contract’’; (2) the requirement that an

insured institution must rebut a prima

facie case that a particular contract is

adverse with clear and convincing

evidence; and (3) including

independent contractors as ‘‘institutionaffiliated parties’’ who could be joined

to FDIC cease-and-desist actions against

insured institutions and/or named as

respondents in civil money penalty and

prohibition actions.

Policy Statement

The FDIC’s policy statement on

Development and Review of FDIC Rules

and Regulations (44 FR 31007, May 30,

1979) calls for withdrawal of any

proposed regulation with respect to

which final action by the FDIC Board of

Directors has not been taken within nine

months from the date of proposal. The

FDIC believes that withdrawal of the

proposed rule is appropriate because no

action has been taken with respect to

the proposal for over nine months.

Effect of Withdrawal of Proposed Rule

Section 30 of the Act authorizes (but

does not require) the FDIC to

promulgate such regulations as may be

necessary to administer and carry out

the purposes of, and prevent evasions

of, the statutory prohibition. The statute

is enforceable by its own terms by the

FDIC and the other Federal banking

agencies in the absence of an

implementing regulation. The FDIC has

decided to withdraw the proposed rule

because of the significant decrease in

the type of activity that the proposed

rule was intended to eliminate (i.e.,

abuses involving contracts made by or

on behalf of an insured institution that

seriously jeopardize or misrepresent its

safety and soundness), the

overwhelmingly negative comments

received on the proposed rule, and an

FDIC policy statement that recommends

the withdrawal of proposed rules that

have not been acted upon by the FDIC

Board of Directors within nine months

of the date of proposal. Moreover, the

FDIC believes that the statute can be

administered without regulation. The

FDIC may decide, however, at a later

date to publish a new proposal if it

determines that the existence of adverse

contracts has increased or that such

action is otherwise necessary or

appropriate. If the FDIC wishes at a later

date to promulgate a regulation that

deals with or addresses adverse

contracts, it will begin the rulemaking

process anew.

In consideration of the foregoing, the

FDIC hereby withdraws proposed new

Part 334 of Title 12 of the Code of

Federal Regulations.

By Order of the Board of Directors.

Dated at Washington, DC, this 21st day of

March 1995.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Acting Executive Secretary.

[FR Doc. 95–7522 Filed 3–27–95; 8:45 am]

BILLING CODE 6714–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Parts 27 and 29

Airworthiness Standards; Fiscal Year

1998 Rotorcraft Research and

Development Initiative, Program

Identification

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Call for part 27 and 29 research

and development program proposals.

SUMMARY: This notice announces a call

for proposals that will define the

Federal Aviation Administration (FAA),

Aircraft Certification Service, Rotorcraft

Directorate Research and Development