This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

19805

Vol. 61, No. 87

Friday, May 3, 1996

1 Under the banking agencies’ risk-based capital

guidelines, Tier 1 capital includes common equity,

some noncumulative perpetual preferred stock and

related surplus, and minority interest in equity

accounts of consolidated subsidiaries. Tier 2 capital

includes the ALLL up to 1.25 percent of the bank’s

weighted risk assets, perpetual preferred stock and

related surplus, hybrid capital instruments, and

certain types of subordinated debt.

FEDERAL RESERVE SYSTEM

12 CFR Part 250

[Docket No. R–0902]

Transactions With Affiliates

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Final rule.

SUMMARY: The Board is adopting a

definition of capital stock and surplus

for purposes of section 23A of the

Federal Reserve Act that conforms to the

definition of unimpaired capital and

unimpaired surplus used by the Board

in calculating the limits in Regulation O

for insider lending and by the Office of

the Comptroller of the Currency (OCC)

in calculating the limit on loans by a

national bank to a single borrower. The

final rule will reduce the burden for

member banks and other insured

depository institutions monitoring

lending to their affiliates.

EFFECTIVE DATE: July 1, 1996.

FOR FURTHER INFORMATION CONTACT:

Pamela G. Nardolilli, Senior Attorney

(202/452–3289) Legal Division, or

Barbara Bouchard, Supervisory

Financial Analyst (202/452–3072),

Division of Banking Supervision and

Regulation, Board of Governors of the

Federal Reserve System. For users of the

Telecommunications Device for the Deaf

(TDD) only, please contact Dorothea

Thompson (202/452–3544).

SUPPLEMENTARY INFORMATION: Section

23A of the Federal Reserve Act, 12

U.S.C. 371c, regulates lending and asset

purchase transactions between insured

depository institutions and their

affiliates. In general, section 23A

prohibits an insured depository

institution from engaging in covered

transactions (which include extensions

of credit and purchases of assets) with

any single affiliate in excess of 10

percent of the institution’s capital stock

and surplus. A 20 percent aggregate

limit is imposed on the total amount of

covered transactions by a bank with all

affiliates. Under section 23A, all

extensions of credit between an insured

depository institution and its affiliate

must meet certain collateral

requirements. Section 23A also

prohibits an insured depository

institution from purchasing any lowquality assets from an affiliate and

requires that all transactions with an

affiliate must be conducted on terms

that are consistent with safe and sound

banking practices. Although section

23A, by its terms, applies only to

member banks, the Federal Deposit

Insurance Act applies section 23A to all

nonmember insured banks (12 U.S.C.

1828 (j)), and the Home Owners’ Loan

Act applies section 23A to savings

associations (12 U.S.C. 1468).

Section 23A does not include an

explicit definition of ‘‘capital stock and

surplus.’’ A 1964 Board interpretation

refers to the definition of capital as ‘‘the

amount of unimpaired common stock

plus the amount of preferred stock

outstanding and unimpaired’’ but

explicitly excludes debt-like

instruments from the definition of

capital and surplus. 12 CFR 250.161. In

the interpretation, the Board recognized

that certain notes and debentures could

be considered as capital or capital stock

for purposes of membership in the

Federal Reserve System, but concluded

that for purposes of certain Federal

Reserve Act limitations and

requirements, such instruments could

not be regarded as part of either capital

or capital stock. A subsequent Board

interpretation issued in 1971 states that

capital stock and surplus, as used in

provisions of the Federal Reserve Act,

includes undivided profits, which are

defined to include reserves for loan

losses and valuation reserves for

securities. 12 CFR 250.162. As a

practical matter, this definition of

capital and surplus has been

implemented as total equity capital and

the allowance for loan and lease losses

(ALLL) as set forth in the bank’s Report

of Condition and Income (Call Report).

Revisions to the Definition of Capital

Stock and Surplus

In February 1995, the OCC amended

its regulation governing the amount a

national bank may lend to a single

counterparty, and revised the definition

of unimpaired capital and unimpaired

surplus upon which this lending limit

was based. 60 FR 8526 (February 15,

1995) (to be codified at 12 CFR 32.2(b)).

In June 1995, the Board amended its

Regulation O, 60 FR 31053 (June 13,

1995) (to be codified at 12 CFR 215.2),

to revise the definition of capital used

to limit loans to insiders, to a definition

that is consistent with that used for

purposes of the OCC’s single borrower

lending limits. The Board took this

action to eliminate discrepancies in the

definitions of capital used for different

lending limit purposes and to reduce

regulatory burden for banks monitoring

lending to their insiders. Under the

revised OCC regulation, unimpaired

capital and unimpaired surplus is

defined as Tier 1 and Tier 2 capital, as

calculated under the risk-based capital

guidelines, plus the balance of the

allowance for loan and lease losses

(ALLL) excluded from Tier 2 capital.1

On December 4, 1995, the Board

proposed adopting a definition of

‘‘capital stock and surplus’’ for purposes

of section 23A that is the same as the

capital definitions used for Regulation O

and the national bank lending limits.

(60 FR 62050 (1995)). Unlike the current

capital definition for section 23A, the

revised definition will permit banks to

include in capital the bank’s

subordinated debt that qualifies for

inclusion in Tier 2 capital. On the other

hand, unlike equity capital, Tier 1

capital does not include securities

revaluation reserves, in particular, gains

and losses on available-for-sale

securities, which under Statement of

Financial Accounting Standards

Number 115 (FAS 115) are considered a

component of equity capital. Tier 1

capital also excludes certain intangible

assets, most notably goodwill. Based on

June 1995 Call Report data, the revised

definition will decrease the limits for

transactions with affiliates for a majority

of banks. Overall, it is estimated that the

revised definition of capital and surplus

will result in a change for most banks

of 5 percent or less from their current

limit, although a few community and
19806 Federal Register / Vol. 61, No. 87 / Friday, May 3, 1996 / Rules and Regulations

mid-sized banks may experience

substantial changes principally due to

large gains or losses on available-for-sale

securities.

Notwithstanding the decrease for

many banks in the amount of capital

that will be used to calculate their

section 23A limit under the revised

definition, the Board believes that, over

all, revising the definition will be

beneficial for all insured depository

institutions for two reasons. First, the

revised definition will provide

consistency in the capital definition

used for section 23A, Regulation O, and

the national bank lending limits.

Second, the revised definition will

result in a more stable limit over time

than the current definition because the

revised definition excludes revaluation

gains and losses on available-for-sale

securities, a component of equity capital

that tends to be volatile.

Public Comment

The Board received seventeen

comments regarding its proposed

definition of capital stock and surplus.

The Board received eight comments

from Reserve Banks, six comments from

commercial banking organizations and

three comments from trade associations.

All the commenters supported the

Board’s efforts to reduce regulatory

burden and provide greater uniformity

in defining capital for regulatory

purposes. Seven commenters also noted

that the proposed definition will

provide greater stability over time

because the proposed definition

excludes the gains and losses on

available-for-sale securities.

Several commenters questioned

whether an institution will be in

violation of section 23A if, as a result of

the change in the definition of capital

stock and surplus, the institution’s

amount of outstanding covered

transactions exceeded the quantitative

limits of section 23A. In general, the

Board believes that a change in

circumstances, such as a change in the

capital definition, should not adversely

affect existing transactions that were

entered into in good faith by an insured

depository institution and its affiliate. In

the past, when an institution exceeded

its quantitative limit because of a

change in circumstances, the Board has

allowed the insured depository

institution to retain the nonconforming

transaction, but has not allowed the

institution to engage in additional

covered transactions until the

institution was in compliance with

section 23A. Accordingly, based on this

precedent, the Board has determined

that any institution whose outstanding

covered transactions with its affiliates

exceed its quantitative limits as a result

of this rule will be allowed to retain

those transactions. However, these

institutions are not allowed to engage in

any additional covered transactions

with any affiliate, including any

renewal transactions, until the

institution’s outstanding amount of

covered transactions is in compliance

with the institution’s new quantitative

limit.

The Board also amends 12 CFR

250.161 and 12 CFR 250.162 to delete

the reference to section 23A to reflect

the change.

Determination of Effective Date

Because the final rule adjusts a

requirement on insured depository

institutions, the final rule will become

effective July 1, 1996, the first day of the

calendar quarter after the date of the

final rule’s publication. See 12 U.S.C.

4802(b).

Final Regulatory Flexibility Act

Analysis

The Regulatory Flexibility Act (5

U.S.C. 601 et seq.) (the ‘‘Act’’) requires

an agency to publish a final regulatory

flexibility analysis with any final

rulemaking. The Act requires that the

regulatory flexibility analysis of a final

rule provide a description of the reasons

why the action by the agency is being

considered and a statement of the

objectives of, and legal basis for, the rule

and a summary of the issues raised by

the public comments received, the

agency assessment thereof, and any

change made in response thereto. This

information is contained in the

supplementary information above. No

significant alternatives to the final rule

were considered by the agency.

Another requirement for the

regulatory flexibility analysis is a

description of, and where feasible, an

estimate of the number of small entities

to which the proposed rule will apply.

The final rule will apply to all insured

depository institutions, regardless of

size. The Board has determined that its

final rule will impose no additional

reporting or recordkeeping

requirements, and that there are no

relevant federal rules that duplicate,

overlap, or conflict with the proposed

rule. In addition, the final rule is not

expected to have a significant economic

impact on small institutions. Instead,

the final rule is expected to relieve the

regulatory burden on the majority of

insured depository institutions.

Paperwork Reduction Act

In accordance with section 3506 of

the Paperwork Reduction Act of 1995

(44 U.S.C. 3501 et seq.; 5 CFR 1320

Appendix A.1.), the Board reviewed the

final rule under authority delegated to

the Board by the Office of Management

and Budget. No collections of

information pursuant to the Paperwork

Reduction Act are contained in the final

rule.

List of Subjects in 12 CFR Part 250

Credit, Federal Reserve System.

For the reasons set forth in the

preamble, the Board amends 12 CFR

part 250 as set forth below:

PART 250—MISCELLANEOUS

INTERPRETATIONS

1. The authority citation for part 250

will continue to read as follows:

Authority: 12 U.S.C. 248(i) and 371c(e).

§ 250.161 [Amended]

2. In § 250.161 paragraph (d) is

amended by removing the words ‘‘loans

to affiliates (12 U.S.C. 371c),’’ in the first

sentence.

§ 250.162 [Amended]

3. In § 250.162, paragraph (a) is

amended by removing the words ‘‘Loans

to affiliates (12 U.S.C. 371c), purchases’’

in the first sentence and adding

‘‘Purchases’’ in their place.

4. A new § 250.242 is added to read

as follows:

§ 250.242 Section 23A of the Federal

Reserve Act—definition of capital stock and

surplus.

(a) An insured depository institution’s

capital stock and surplus for purposes of

section 23A of the Federal Reserve Act

(12 U.S.C. 371c) is:

(1) Tier 1 and Tier 2 capital included

in an institution’s risk-based capital

under the capital guidelines of the

appropriate Federal banking agency,

based on the institution’s most recent

consolidated Report of Condition and

Income filed under 12 U.S.C. 1817(a)(3);

and

(2) The balance of an institution’s

allowance for loan and lease losses not

included in its Tier 2 capital for

purposes of the calculation of risk-based

capital by the appropriate Federal

banking agency, based on the

institution’s most recent consolidated

Report of Condition and Income filed

under 12 U.S.C. 1817(a)(3).

(b) For purposes of this section, the

terms appropriate Federal banking

agency and insured depository

institution are defined as those terms are

defined in section 3 of the Federal

Deposit Insurance Act, 12 U.S.C. 1813.
Federal Register / Vol. 61, No. 87 / Friday, May 3, 1996 / Rules and Regulations 19807

By order of the Board of Governors of the

Federal Reserve System, April 26, 1996.

Jennifer J. Johnson,

Deputy Secretary of the Board.

[FR Doc. 96–10891 Filed 5–2–96; 8:45 am]

BILLING CODE 6210–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 95–CE–47–AD; Amendment 39–

9578; AD 96–09–04]

RIN 2120–AA64

Airworthiness Directives; de Havilland

Model DHC–3 Airplanes

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Final rule.

SUMMARY: This amendment supersedes

Airworthiness Directive (AD) 90–12–08,

which currently requires the following

on de Havilland Model DHC–3

airplanes: repetitively inspecting (using

dye penetrant methods) the tailplane

main rib forward flanges and the main

rib forward lower flanges at the

tailplane front attachment fitting for

cracks and repairing any cracked flange.

This AD action will retain the repetitive

inspections currently required by AD

90–12–08, and will allow a certain

modification as terminating action for

these repetitive inspections. This action

is prompted by the Federal Aviation

Administration’s determination that

installing new angles and plates on the

tailplane root ribs on de Havilland

Model DHC–3 airplanes provides an

equivalent level of safety to the

repetitive inspections required by AD

90–12–08. The actions specified by this

AD are intended to prevent failure of the

tailplane structure caused by cracked

tailplane main rib forward flanges or

main rib forward lower flanges at the

tailplane front attachment fitting,

which, if not detected and corrected,

could result in loss of control of the

airplane.

DATES: Effective May 17, 1996.

The incorporation by reference of

certain publications listed in the

regulations is approved by the Director

of the Federal Register as of May 17,

1996.

ADDRESSES: Service information that

applies to this AD may be obtained from

Bombardier Inc., (the parent company of

de Havilland) Bombardier Regional

Aircraft Division, Garrett Boulevard,

Downsview, Ontario, Canada M3K 1Y5;

telephone (416) 633–7310. This

information may also be examined at

the Federal Aviation Administration

(FAA), Central Region, Office of the

Assistant Chief Counsel, Attention:

Rules Docket 95–CE–47–AD, Room

1558, 601 E. 12th Street, Kansas City,

Missouri 64106; or at the Office of the

Federal Register, 800 North Capitol

Street, NW., suite 700, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Mr.

Jeff Casale, Aerospace Engineer, FAA,

New York Aircraft Certification Office,

10 5th St., 3rd Floor, Valley Stream,

New York 11581; telephone (516) 256–

7521; facsimile (516) 568–2716.

SUPPLEMENTARY INFORMATION: A

proposal to amend part 39 of the Federal

Aviation Regulations (14 CFR part 39) to

include an AD that would apply to de

Havilland Model DHC–3 airplanes was

published in the Federal Register on

November 14, 1995 (60 FR 57201). This

action would retain the repetitive

inspections currently required by AD

90–12–08, and would allow

incorporating a certain modification as

terminating action for these repetitive

inspections. Accomplishment of this

action will be in accordance with de

Havilland Service Bulletin (SB) No. 3/

46, Revision B, dated December 1, 1989

and de Havilland SB No. 3/50, Revision

A, dated February 17, 1995.

Interested persons have been afforded

an opportunity to participate in the

making of this amendment. No

comments were received on the

proposed rule or the FAA’s

determination of the cost to the public.

After careful review of all available

information related to the subject

presented above, the FAA has

determined that air safety and the

public interest require the adoption of

the rule as proposed except for minor

editorial corrections. The FAA has

determined that these minor corrections

will not change the meaning of the AD

and will not add any additional burden

upon the public than was already

proposed.

The FAA estimates that 49 airplanes

in the U.S. registry will be affected by

this AD, that it will take approximately

35 workhours per airplane to

accomplish the inspection and that the

average labor rate is approximately $60

an hour. Based on these figures, the total

cost impact of this AD on U.S. operators

is estimated to be $102,900 or $2,100

per airplane. This figure represents the

cost of the initial inspection, and does

not reflect the costs for repetitive

inspections or possible repairs. The

FAA has no way of determining how

many tailplane main rib forward or

main rib forward lower flanges may

need to be repaired or how many

repetitive inspections each owner/

operator of the affected airplanes would

incur over the life of the airplane.

The regulations adopted herein will

not have substantial direct effects on the

States, on the relationship between the

national government and the States, or

on the distribution of power and

responsibilities among the various

levels of government. Therefore, in

accordance with Executive Order 12612,

it is determined that this final rule does

not have sufficient federalism

implications to warrant the preparation

of a Federalism Assessment.

For the reasons discussed above, I

certify that this action (1) is not a

‘‘significant regulatory action’’ under

Executive Order 12866; (2) is not a

‘‘significant rule’’ under DOT

Regulatory Policies and Procedures (44

FR 11034, February 26, 1979); and (3)

will not have a significant economic

impact, positive or negative, on a

substantial number of small entities

under the criteria of the Regulatory

Flexibility Act. A copy of the final

evaluation prepared for this action is

contained in the Rules Docket. A copy

of it may be obtained by contacting the

Rules Docket at the location provided

under the caption ADDRESSES.

List of Subjects in 14 CFR Part 39

Air transportation, Aircraft, Aviation

safety, Incorporation by reference,

Safety.

Adoption of the Amendment

Accordingly, pursuant to the

authority delegated to me by the

Administrator, the Federal Aviation

Administration amends part 39 of the

Federal Aviation Regulations (14 CFR

part 39) as follows:

PART 39—AIRWORTHINESS

DIRECTIVES

1. The authority citation for part 39

continues to read as follows:

Authority: 49 U.S.C. 106(g), 40113, 44701.

§ 39.13 [Amended]

2. Section 39.13 is amended by

removing AD 90–12–08, Amendment

39–6622, and by adding a new

airworthiness directive (AD) to read as

follows:

96–09–04 De Havilland: Amendment 39–

9578. Docket No. 95–CE–47–AD;

Supersedes AD 90–12–08, Amendment

39–6622.

Applicability: Model DHC–3 airplanes (all

serial numbers), certificated in any category,

that do not have Modification 3/935

incorporated in accordance with de

Havilland Service Bulletin (SB) number (No.)

3/50, Revision A, dated February 17, 1995.