Federal Register / Vol. 61, No. 129 / Wednesday, July 3, 1996 / Proposed Rules 34749

1 12 CFR 218.101–218.114.

2This interpretation has been upheld by the

courts. Securities Industry Association v. Board of

Governors of the Federal Reserve System, 839 F.2d

47, 62 (2d Cir. 1988), cert. denied, 486 U.S. 1059

(1988).

3The Board is proposing to adopt a new

interpretation of section 32 to clarify this point.

4A footnote to Regulation R that dates to 1936

makes it clear that a broker who is engaged solely

in executing orders for the purchase and sale of

securities on behalf of others in the open market is

not engaged in the business referred to in section

32. The Board has since authorized bank holding

companies to engage in this activity directly,

reiterating that securities brokerage is not a

proscribed activity under either sections 32 or 20

of the Glass-Steagall Act. BankAmerica

Corporation, 69 Federal Reserve Bulletin 105

(1983). The courts upheld the Board’s

interpretation. Securities Industry Assn. v. Board of

Governors, 468 U.S. 207 (1984). The removal of

Regulation R does not affect this interpretation.

§ 391.3 Overtime and holiday rate.

The overtime and holiday rate for

inspection services provided pursuant

to §§ 307.5, 350.7, 351.8, 351.9, 352.5,

354.101, 355.12, 362.5, and 381.38 shall

be $33.76 per hour, per program

employee.

§ 391.4 Laboratory services rate.

The rate for laboratory services

provided pursuant to §§ 350.7, 351.9,

352.5, 354.101, 355.12, and 362.5 shall

be $48.56 per hour, per program

employee.

Done at Washington, DC, on June 27, 1996.

Michael R. Taylor,

Administrator, Food Safety and Inspection

Service.

[FR Doc. 96–17000 Filed 7–2–96; 8:45 am]

BILLING CODE 3410–DM–P

FEDERAL RESERVE SYSTEM

12 CFR Parts 218 and 250

[Regulation R; Docket No. R–0931]

Relations With Dealers in Securities

Under Section 32, Banking Act of 1933;

Miscellaneous Interpretations

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Board is proposing to

amend its regulations to remove

Regulation R concerning relations with

dealers in securities under section 32 of

the Banking Act of 1933, which the

Board believes is no longer necessary.

The Board also is proposing to amend

its regulations to remove an

interpretation of section 32 of the GlassSteagall Act, which the Board believes

is no longer necessary. This

interpretation explains the position of

the Board regarding the application of

the prohibitions of section 32 to bank

holding companies.

DATES: Comments must be received by

August 2, 1996.

ADDRESSES: Comments should refer to

Docket No. R–0931 and may be mailed

to William W. Wiles, Secretary, Board of

Governors of the Federal Reserve

System, Docket No. R–0931, 20th Street

and Constitution Avenue, NW.,

Washington, DC 20551. Comments

addressed to Mr. Wiles may also be

delivered to the Board’s mail room

between 8:45 a.m. and 5:15 p.m., and to

the security control room outside of

those hours. Both the mail room and

control room are accessible from the

courtyard entrance on 20th Street

between Constitution Avenue and C

Street, NW. Comments may be

inspected in room MP–500 between 9

a.m. and 5 p.m., except as provided in

§ 261.8 of the Board’s Rules Regarding

Availability of Information, 12 CFR

261.8.

FOR FURTHER INFORMATION CONTACT:

Richard M. Ashton, Associate General

Counsel (202/452–3750), or Thomas M.

Corsi, Senior Attorney (202/452–3275),

Legal Division. For the hearing impaired

only, Telecommunications Device for

the Deaf (TDD), Dorothea Thompson

(202/452–3544).

SUPPLEMENTARY INFORMATION:

Section 303 of the Riegle Community

Development and Regulatory

Improvement Act of 1994 (CDRI Act)

Section 303(a) of the CDRI Act (12

U.S.C. 4803(a)) requires the Board, as

well as the other federal banking

agencies, to review its regulations and

written policies in order to streamline

and modify these regulations and

policies to improve efficiency, reduce

unnecessary costs, and eliminate

unwarranted constraints on credit

availability. The Board has reviewed its

interpretations of section 32 of the

Glass-Steagall Act (12 U.S.C. 78) with

this purpose in mind, and, as is

explained in greater detail in the text

that follows, proposes to amend these

interpretations in a way designed to

meet the goals of section 303(a).

Substantive Provisions of Regulation R

The Board’s Regulation R (12 CFR

Part 218) implements section 32 of the

Glass-Steagall Act. Section 32 prohibits

officer, director and employee interlocks

between member banks and firms

‘‘primarily engaged’’ in underwriting

and dealing in securities, and authorizes

the Board to exempt from this

prohibition, under limited

circumstances, certain interlocks by

regulation. Currently, Regulation R

restates the statutory language of section

32, and sets forth the only exemption

adopted by the Board since passage of

the Glass-Steagall Act. The Board also

has codified in the CFR 14

interpretations of the substantive

provisions of section 32 and the

regulation.1 The Board also has issued

other interpretations of section 32 that

are contained in the Federal Reserve

Regulatory Service (FRRS).

The exemption in Regulation R,

adopted by the Board in 1969, permits

interlocks between member banks and

securities firms whose securities

underwriting and dealing activities are

limited to underwriting and dealing in

only securities that a national bank

would be authorized to underwrite and

deal in. The adoption of the express

exemption was apparently based on the

assumption that the literal language of

the section 32 prohibition could at least

arguably cover bank-eligible securities

activities.

Subsequently, in orders approving

applications under the Bank Holding

Company Act (12 U.S.C. 1841 et seq.),

the Board interpreted the prohibitions of

section 20 of the Glass-Steagall Act,

which prohibits a member bank from

being affiliated with a firm engaged

principally in underwriting and dealing

in securities, as not applying on their

face to underwriting and dealing in

securities that may be underwritten and

dealt in directly by a state member bank.

In these decisions, the Board also

expressed the view that section 32

similarly did not cover an interlock

between a member bank and a firm that

was not engaged in securities activities

covered by section 20.2 Accordingly, in

light of the Board’s more recent view of

the scope of section 32, the express

exemption from the provisions of

section 32 for bank-eligible securities

activities is no longer necessary.3

Moreover, the Board has never adopted

any other exemption to the interlocks

provision and historically, requests that

the Board create new exemptions have

been infrequent and have been

uniformly denied.4

Since the exemption in Regulation R

is no longer necessary, and it is not

necessary to have a substantive

regulation solely to restate a statutory

provision, the Board is proposing to

rescind Regulation R.

Bank Holding Company Interpretation

of Section 32 of the Glass-Steagall Act

With one exception, the 14

interpretations of section 32 now

contained in the CFR, would be retained

and transferred to 12 CFR Part 250,
34750 Federal Register / Vol. 61, No. 129 / Wednesday, July 3, 1996 / Proposed Rules

5 12 CFR 218.114.

6As noted in the Board’s interpretation, section

32 is directed to the probability or likelihood that

a bank director interested in the underwriting

business may use his or her influence in the bank

to involve it or its customers in securities sold by

his or her underwriting house.

7The provisions extending the prohibitions of

section 32 to nonmember banks and thrifts expired

in 1988.

8Should the Board determine to rescind this

interpretation, this action would not affect other

Board decisions or determinations that restrict

interlocks to ensure compliance with section 20 of

the Glass-Steagall Act (12 U.S.C. 377). See, e.g.,

Mellon Bank Corporation, 79 Federal Reserve

Bulletin 626 (1993).

which contains miscellaneous Board

interpretations.

By their terms, the prohibitions of

section 32 apply only to member banks.

In 1969, the Board issued an

interpretation that extended the

prohibitions of section 32 to a bank

holding company where the principal

activity of the bank holding company is

the ownership and control of member

banks.5 The Board is now seeking public

comment on rescinding this

interpretation.

The Board based its 1969

interpretation not so much on the literal

language of section 32, but on its belief

that where the ownership and control of

member banks is the principal activity

of a bank holding company, the same

possibilities of abuse that section 32 was

designed to prevent would be present in

the case of a director of the holding

company as in the case of the member

bank.6 The Board believed that giving

cognizance to the separate corporate

entities in such a situation would

partially frustrate Congressional

purpose in enacting section 32.

The Board now believes that it could

rescind this interpretation and give

some measure of regulatory burden

relief to bank holding companies in a

manner consistent with section 32, and

without frustrating the Congressional

purpose underlying the section. The

Board is not barred by the literal terms

of the Glass-Steagall Act from

rescinding the interpretation. As noted

above, section 32 specifically restricts

only those interlocks involving member

banks. While the bank holding company

structure was not in widespread use

when section 32 was adopted, Congress

has amended section 32 since the

section was adopted and since bank

holding companies have become

commonplace, but never has extended

the prohibitions in the section to bank

holding companies. Notably, in 1987,

Congress extended the prohibitions of

section 32 to cover interlocks involving

nonmember banks and thrift institutions

but not interlocks involving bank

holding companies.7

The potential that removal of the

interpretation could frustrate

Congressional purpose in enacting

section 32 is mitigated by the fact that

the prohibitions of section 32 would

continue to apply to member banks.

Accordingly, the directors, officers and

employees of these banks, none of

whom may be interlocked with a

securities firm, could serve as a check

against the possibilities of abuse that

section 32 is intended to prohibit. In

addition, the Board believes that by

rescinding this interpretation, it would

be granting some measure of regulatory

relief to bank holding companies by

giving them access to a larger pool of

persons from which to choose their

officers, directors, and employees.8

Other Interpretations of Section 32

The Board also seeks comment on

whether any of the other interpretations

of section 32 previously adopted by the

Board could be amended.

Regulatory Flexibility Act Analysis

Pursuant to section 605(b) of the

Regulatory Flexibility Act (Pub. L. 95–

354, 5 U.S.C. 601 et seq.), the Board of

Governors of the Federal Reserve

System certifies that adoption of this

proposed rule will not have a significant

economic impact on a substantial

number of small entities that would be

subject to the regulation.

This amendment will remove a

regulation and an interpretation that the

Board believes are no longer necessary.

The amendment does not impose more

burdensome requirements on bank

holding companies than are currently

applicable.

Paperwork Reduction Act

In accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3506;

5 CFR 1320 Appendix A.1), the Board

reviewed the proposed rule under the

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 proposed rule.

List of Subjects

12 CFR Part 218

Antitrust, Federal Reserve System,

Securities.

12 CFR Part 250

Federal Reserve System.

For the reasons set forth in the

preamble and under the authority of 12

U.S.C. 248, the Board proposes to

amend Chapter II of the Code of Federal

Regulations as set forth below:

PART 218—[AMENDED]

§§ 218.101 through 218.113 [Redesignated

as §§ 250.400 through 250.412]

1. Sections 218.101 through 218.113

are redesignated as set forth in the

following table:

0ld

Section

New

section

218.101 ......................................... 250.400

218.102 ......................................... 250.401

218.103 ......................................... 250.402

218.104 ......................................... 250.403

218.105 ......................................... 250.404

218.106 ......................................... 250.405

218.107 ......................................... 250.406

218.108 ......................................... 250.407

218.109 ......................................... 250.408

218.110 ......................................... 250.409

218.111 ......................................... 250.410

218.112 ......................................... 250.411

218.113 ......................................... 250.412

PART 218—[REMOVED]

2. Part 218 is removed.

PART 250—MISCELLANEOUS

INTERPRETATIONS

1. The authority citation for part 250

is revised to read as follows:

Authority: 12 U.S.C. 78, 248(i) and 371c(e).

2. A new center heading is added

immediately preceding newly

designated § 250.400 to read as follows:

Interpretations of Section 32 of the

Glass-Steagall Act

3. Section 250.413 is added to read as

follows:

§ 250.413 ‘‘Bank-eligible’’ securities

activities.

Section 32 of the Glass-Steagall Act

(12 U.S.C. 78) prohibits any officer,

director, or employee of any corporation

or unincorporated association, any

partner or employee of any partnership,

and any individual, primarily engaged

in the issue, flotation, underwriting,

public sale, or distribution, at wholesale

or retail, or through syndicate

participation, of stocks, bonds, or other

similar securities, from serving at the

same time as an officer, director, or

employee of any member bank of the

Federal Reserve System. The Board is of

the opinion that to the extent that a

company, other entity or person is

engaged in securities activities that are

expressly authorized for a state member

bank under section 16 of the GlassSteagall Act (12 U.S.C. 24(7), 335), the

company, other entity or individual is

not engaged in the types of activities

described in section 32. In addition, a

securities broker who is engaged solely

in executing orders for the purchase and
Federal Register / Vol. 61, No. 129 / Wednesday, July 3, 1996 / Proposed Rules 34751

1Technically, each Oakar transaction generates

its own AADA. Oakar institutions typically

participate in several Oakar transactions.

Accordingly, and Oakar institution generally has an

overall or composite AADA that consists of all the

individual AADAs generated in the various Oakar

transactions, plus the growth attributable to each

individual AADA. The composite AADA can

generally be treated as a unit as a practical matter,

because all the constituent AADAs (except initial

AADAs) grow at the same rate.

sale of securities on behalf of others in

the open market is not engaged in the

business referred to in section 32.

By order of the Board of Governors of the

Federal Reserve System.

Date: June 26, 1996.

William W. Wiles,

Secretary of the Board.

[FR Doc. 96–16841 Filed 7–02–96; 8:45am]

Billing Code 6210–01–P

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 327

RIN 3064–AB59

Assessments

AGENCY: Federal Deposit Insurance

Corporation.

ACTION: Proposed Rule.

SUMMARY: The Federal Deposit

Insurance Corporation (FDIC) is

proposing to amend its assessment

regulations by adopting interpretive

rules regarding certain provisions

therein that pertain to so-called Oakar

institutions: institutions that belong to

one insurance fund (primary fund) but

hold deposits that are treated as insured

by the other insurance fund (secondary

fund). Recent merger transactions and

branch-sale cases have revealed

weaknesses in the FDIC’s procedures for

attributing deposits to the two insurance

funds and for computing the growth of

the amounts so attributed. The

interpretive rules would repair those

weaknesses.

In addition, the FDIC is proposing to

simplify and clarify the existing rule by

making changes in nomenclature.

DATES: Comments must be received by

the FDIC on or before September 3,

1996.

ADDRESSES: Send comments to the

Office of the Executive Secretary,

Federal Deposit Insurance Corporation,

550 17th Street, N.W., Washington, D.C.

20429. Comments may be handdelivered to Room F–400, 1776 F Street,

N.W., Washington, D.C., on business

days between 8:30 a.m. and 5:00 p.m.

(FAX number: 202/898–3838. Internet

address: comments@fdic.gov).

Comments will be available for

inspection in the FDIC Public

Information Center, Room 100, 801 17th

Street, N.W., Washington, D.C. between

9:00 a.m. and 4:30 p.m. on business

days.

FOR FURTHER INFORMATION CONTACT:

Allan K. Long, Assistant Director,

Division of Finance, (703) 516–5559;

Stephen Ledbetter, Chief, Assessments

Evaluation Section, Division of

Insurance (202) 898–8658; Jules

Bernard, Counsel, Legal Division, (202)

898–3731, Federal Deposit Insurance

Corporation, Washington, D.C. 20429.

SUPPLEMENTARY INFORMATION: This

proposed interpretive regulation would

alter the method for determining the

assessments that Oakar institutions pay

to the two insurance funds.

Accordingly, the proposed regulation

would directly affect all Oakar

institutions. The proposed regulation

would also indirectly affect non-Oakar

institutions, however, by altering the

business considerations that non-Oakar

institutions must take into account

when they transfer deposits to or from

an Oakar institution (including an

institution that becomes an Oakar

institution as a result of the transfer).

I. Background

Section 5(d)(2) of the FDI Act, 12

U.S.C. 1815(d)(2), places a moratorium

on inter-fund deposit-transfer

transactions: mergers, acquisitions, and

other transactions in which an

institution that is a member of one

insurance fund (primary fund) assumes

the obligation to pay deposits owed by

an institution that is a member of the

other insurance fund (secondary fund).

The moratorium is to remain in place

until the reserve ratio of the Savings

Association Insurance Fund (SAIF)

reaches the level prescribed by statute.

Id. 1815(d)(2)(A)(ii); see id.

1817(b)(2)(A)(iv) (setting the target ratio

at 1.25 percentum).

The next paragraph of section 5(d)—

section 5(d)(3) of the FDI Act—is known

as the Oakar Amendment. See Financial

Institutions Reform, Recovery and

Enforcement Act of 1989 (FIRREA), Pub.

L. 101–73 section 206(a)(7), 103 Stat.

183, 199–201 (Aug. 9, 1989); 12 U.S.C.

1815(d)(3). The Amendment permits

certain deposit-transfer transactions that

would otherwise be prohibited by

section 5(d)(2) (Oakar transactions).

The Oakar Amendment introduces the

concept of the ‘‘adjusted attributable

deposit amount’’ (AADA). An AADA is

an artificial construct: a number,

expressed in dollars, that is generated in

the course of an Oakar transaction, and

that pertains to the buyer. The initial

value of a buyer’s AADA is equal to the

amount of the secondary-fund deposits

that the buyer acquires from the seller.

The Oakar Amendment specifies that

the AADA then increases at the same

underlying rate as the buyer’s overall

deposit base—that is, at the rate of

growth due to the buyer’s ordinary

business operations, not counting

growth due to the acquisition of

deposits from another institution (e.g.,

in a merger or a branch purchase). Id.

1815(d)(3)(C)(iii). The FDIC has adopted

the view that ‘‘growth’’ and ‘‘increases’’

can refer to ‘‘negative growth’’ under the

FDIC’s interpretation of the

Amendment, an AADA decreases when

the institution’s deposit base shrinks.

An AADA is used for the following

purposes:

—Assessments. An Oakar institution

pays two assessments to the FDIC—

one for deposit in the institution’s

secondary fund, and the other for

deposit in its primary fund. The

secondary-fund assessment is based

on the portion of the institution’s

assessment base that is equal to its

AADA. The primary-fund assessment

is based on the remaining portion of

the assessment base.

—Insurance. The AADA measures the

volume of deposits that are ‘‘treated

as’’ insured by the institution’s

secondary fund. The remaining

deposits are insured by the primary

fund. If an Oakar institution fails, and

the failure causes a loss to the FDIC,

the two insurance funds share the loss

in proportion to the amounts of

deposits that they insure.

For assessment purposes, the AADA

is applied prospectively, as is the

assessment base. An Oakar institution

has an AADA for a current semiannual

period, which is used to determine the

institution’s assessment for that period.1

The current-period AADA is calculated

using deposit-growth and other

information from the prior period.

II. The proposed rule

A. Attribution of transferred deposits

1. The FDIC’s Current Interpretation:

The ‘‘Rankin’’ Rule

The FDIC has developed a

methodology for attributing deposits to

the Bank Insurance Fund (BIF) on one

hand and to the SAIF on the other when

the seller is an Oakar institution. See

FDIC Advisory Op. 90–22, 2 FED.

DEPOSIT INS. CORP., LAW,

REGULATIONS, RELATED ACTS 4452

(1990) (Rankin letter). The Rankin letter

adopts the following rule: an Oakar

institution transfers its primary-fund

deposits first, and only begins to