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###### Federal Deposit Insurance Corporation

# AGENCY:

Federal Deposit Insurance Corporation (FDIC).

# ACTION:

Policy statement.

# SUMMARY:

The FDIC is proposing to revise its Policy Statement Regarding Minority-Owned Depository Institutions. Section 308 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) requires the Secretary of the Treasury to consult with the Director of the Office of Thrift Supervision and the Chairperson of the Board of Directors of the FDIC to determine the best methods for preserving and encouraging minority ownership of depository institutions. The FDIC has long recognized the unique role and importance of minority-owned depository institutions and has historically taken steps to preserve and encourage minority ownership of financial institutions. The revised Policy Statement updates, expands, and clarifies the agency's policies and procedures related to minority-owned institutions.

# DATES:

Written comments must be received on or before March 4, 2002.

# ADDRESSES:

                        All comments should be addressed to Robert E. Feldman, Executive Secretary, Attention: Comments/OES, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. Comments may be hand delivered to the guard station at the rear of the 550 17th Street Building (located on F Street) on business days between 7 a.m. and 5 p.m. (fax number (202) 898-3838; Internet address:                         *comments@fdic.gov*). Comments may be posted on the FDIC Internet site at                         *http://www.fdic.gov/​regulations/​laws/​federal/​propose.html*                         and may be inspected and photocopied in the FDIC Public Information Center, Room 100, 801 17th Street, NW., Washington, DC 20429, between 9 a.m. and 4:30 p.m. on business days.                    

# FOR FURTHER INFORMATION CONTACT:

Brett A. McCallister, Risk Management and Applications Section, Division of Supervision (202) 898-3803 or Grovetta N. Gardineer, Counsel, Legal Division, (202) 898-3728, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.

# SUPPLEMENTARY INFORMATION:

On April 3, 1990, the Board of Directors of the FDIC adopted a Policy Statement on Encouragement and Preservation of Minority Ownership of Financial Institutions. The framework for the original Policy Statement resulted from several key provisions contained in Section 308 of FIRREA, which enumerated several goals as follows: (1) Preserving the number of minority depository institutions; (2) preserving the minority character in cases of merger or acquisition; (3) providing technical assistance to prevent insolvency of institutions not now insolvent; (4) promoting and encouraging creation of new minority depository institutions; and (5) providing for training, technical assistance, and education programs.

                    The original Policy Statement provided guidance to the industry regarding the agency's efforts in achieving the goals of Section 308. The revised Policy Statement attempts to provide a more structured framework that sets forth initiatives of the FDIC to promote the preservation of, as well as to provide technical assistance, training and educational programs to, minority-owned institutions by working with                           ( print page 78)                        those institutions, their trade associations and the other federal financial regulatory agencies.                

Section 308(b) of FIRREA provides that “minority” means any Black American, Native American, Hispanic American or Asian American. The FDIC adopts this definition of minority in the revised Policy Statement. Section 308(b) of FIRREA defines the term “minority depository institution” as: any depository institution that—(A) If a privately owned institution, 51 percent is owned by one or more socially and economically disadvantaged individuals; (B) if publicly owned, 51 percent of the stock is owned by one or more socially and economically disadvantaged individuals; and (C) in the case of a mutual institution where the majority of the Board of Directors, account holders, and the community which it services is predominantly minority. The revised Policy Statement defines the term “minority-owned institution” as any Federally insured depository institution where 51 percent or more of the voting stock is owned by minority individuals. Additionally mutual, publicly traded, and widely held institutions will be considered minority-owned if a majority of the Board of Directors, account holders, and the community which the institution serves are predominantly minority, regardless of non-minority or non-U.S. citizen ownership of the capital stock. The proposed Policy Statement also clarifies that the FDIC's program is targeted at institutions owned by U.S. citizens, and ownership by non-U.S. citizens is not counted in determining minority-owned status. The FDIC invites the public to comment on the proposed definition of “minority-owned institution”. The FDIC specifically seeks comment on the proposed treatment of mutual, publicly traded and widely held institutions, as to the feasibility of collecting information regarding the account holders and the community in making a determination regarding its status as a minority-owned institution.

The proposed Policy Statement also provides for the FDIC to maintain a list of minority-owned institutions to ensure that all eligible minority-owned depository institutions are able to participate in the program. If not already identified as minority-owned, an institution can be added to the list by self-certifying that the institution meets the above definition. FDIC examiners will review the accuracy of the list during regular examinations, and case managers will incorporate any changes due to mergers, acquisitions, and changes in control. The FDIC will also work with the other Federal regulatory agencies to make certain that the minority-owned institutions that they supervise are included on the list. The revised Policy Statement makes it clear, however, that inclusion on the list is voluntary and any institution that does not want to be included will be removed from the official list. The FDIC invites comments on this approach to compile a list of minority-owned institutions.

The revised Policy Statement also proposes to designate a national coordinator for the FDIC's minority-owned institution program. The national coordinator will be located at the FDIC's Washington, DC headquarters. That person will act as a liaison between the Division of Supervision and officials from the Division of Compliance and Consumer Affairs, the Office of Diversity and Economic Opportunity and the Division of Resolutions and Receiverships and the other federal financial regulators. The national coordinator will regularly contact the various minority-owned institution trade associations to obtain feedback on the FDIC's efforts under the program. The national coordinator will be responsible for contacting the other Federal financial regulatory agencies to discuss their outreach efforts and to identify opportunities for the agencies to work together to assist minority-owned institutions. The national coordinator will also guide subject matter experts in each of the FDIC's eight regional offices who will oversee their region's efforts under the program. The FDIC believes that the more formalized structure within the Division of Supervision will facilitate more meaningful and helpful communications between the FDIC and minority-owned institutions since these employees will be available to answer questions or provide assistance on issues presented by minority-owned institutions. The FDIC specifically seeks comment on this proposed organizational structure.

The revised Policy Statement also discusses the types of technical assistance that will be provided by the FDIC to minority-owned institutions. The Policy Statement sets forth examples of ways that FDIC staff will be able to provide assistance to minority-owned institutions while making it clear that staff will not perform duties and tasks reserved for management of a minority-owned institution. In addition to being available to answer questions and provide guidance to a minority-owned institution, the FDIC is also proposing to have staff return to any minority-owned institution approximately 90 to 120 days after the conclusion of an examination to review any areas of concern identified during the examination or any issues of particular interest to the institution. The minority-owned institution may accept or decline this offer of assistance. The FDIC invites comments on the scope of technical assistance that would be provided by the FDIC and the optional return visit at the conclusion of an examination of a minority-owned institution.

The revised Policy Statement also proposes that the FDIC work with trade associations representing minority-owned institutions, as well as other regulatory agencies, to discuss and provide for training opportunities for minority-owned institutions. The proposed Policy Statement provides that the FDIC will partner with certain trade associations to offer training programs during their annual conferences and regional meetings. The FDIC solicits comments on other methods to identify and provide training and educational programs that would be beneficial to minority-owned institutions.

                    The revised Policy Statement also discusses the issue of failing institutions. The revised Policy Statement states that the Division of Resolutions and Receiverships is the appropriate division in the FDIC to deal with issues regarding failing institutions. While the original Policy Statement provided for certain preferences to be given to minority-owned institutions in the resolution of failed institutions pursuant to Sections 13(k) and 13(f)(12) of the FDI Act, the revised Policy Statement takes into account both the decision of the United States Supreme Court in                     *Adarand Constructors, Inc.*                     v.                     *Pena,*                     115 S. Ct. 2097 (1995) and the statutory requirement under Section 13(c)(4) enacted in 1991 that failed institutions be resolved in a manner that results in the least cost to the insurance fund. The                     *Adarand*                     decision held that federal affirmative action programs that use racial and ethnic criteria as a basis for decisionmaking are subject to strict judicial scrutiny. The decision set forth a two-prong test to determine whether federally administered affirmative action programs are constitutional. The first prong of the test requires the government to demonstrate a compelling interest in remedying past or persistent continuing or lingering discrimination against minorities and the second prong requires that any remedy be narrowly tailored to cure a specific identified problem. While                     *Adarand*                     was a contracts case, the strict scrutiny standard of review will apply whenever the federal government voluntarily adopts a racial or ethnic                           ( print page 79)                        classification as a basis for decisionmaking. As a result, this ruling has had a significant impact on the FDIC's ability to give preference to minority institutions in a resolutions context. In October of 2001, the U.S. Supreme Court heard another case involving Adarand Constructors. While the FDIC had hoped to gain additional guidance on what actions may be permissible regarding the minority preference statutes, the Supreme Court declined to render a decision in the case citing procedural problems with the case that prevented the Court from addressing the merits of the affirmative action complaint.                

Additionally, the least-cost resolution requirement also significantly reduced the ability of the FDIC to give preference to minority institutions in the resolution of failed institutions. However, the Division of Resolutions and Receiverships will work with the Division of Supervision and the Office of Diversity and Economic Opportunity to ensure that all qualified minority institutions and individuals that have expressed an interest in acquiring a minority-owned institution are notified of any potential failure. The FDIC invites the public to comment on the methodology to be used to ensure that all qualified minority-owned institutions will be made aware of situations involving the failure of a minority-owned institution.

                    To ensure that the regional coordinators are meeting the goals associated with the revised Policy Statement, the proposed Policy Statement requires them to provide quarterly reports to the national coordinator on their region's activities relating to minority-owned institutions. The national coordinator, in turn, will compile the results of the eight regional reports and provide a quarterly summary to the Office of the Chairman. The FDIC's Annual Report will also contain information relating to the agency's efforts to promote and preserve minority-owned financial institutions. The proposed Policy Statement also provides for the FDIC to create a Webpage on its Internet site (                    *www.fdic.gov*) to promote the minority-owned institution program. It is anticipated that the Webpage will describe the program, contain information regarding the national coordinator and the regional coordinators and provide links to the list of minority-owned institutions, their trade associations and other programs that specifically affect minority-owned institutions. The FDIC invites the public to comment on the types of information that would be helpful and beneficial to include on the agency's Web page regarding the minority-owned institution program.                

The text of the proposed Policy Statement follows:

## Federal Deposit Insurance Corporation

## Policy Statement Regarding Minority-Owned Depository Institutions

Minority-owned depository institutions often promote the economic viability of minority and under-served communities. The FDIC has long recognized the importance of minority-owned institutions and has historically taken steps to preserve and encourage minority ownership of insured financial institutions.

### Statutory Framework

In August 1989, Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). Section 308 of FIRREA established the following goals:
    - Preserve the number of minority-owned depository institutions;
    - Preserve the minority character in cases of merger or acquisition;
    - Provide technical assistance to prevent insolvency of institutions not now insolvent;
    - Promote and encourage creation of new minority-owned depository institutions; and
    - Provide for training, technical assistance, and educational programs.

### Definition

“Minority” as defined by Section 308 of FIRREA means any Black American, Asian American, Hispanic American, or Native American. For the purposes of this Policy Statement, the term “minority-owned institution” means any Federally insured depository institution where 51 percent or more of the voting stock is owned by minority individuals. This includes institutions collectively owned by a group of minority individuals, such as a Native American Tribe. However, ownership by non-U.S. citizens will not be counted in determining minority-owned status. Mutual, publicly traded, and widely held institutions will be considered minority-owned if a majority of the Board of Directors, account holders, and the community which the institution serves are predominantly minority, regardless of non-minority or non-U.S. citizen ownership.

### Identification of Minority-Owned Institutions

To ensure that all minority-owned depository institutions are able to participate in the program, the FDIC will maintain a list of federally insured minority-owned institutions. Institutions that are not already identified as minority-owned by the FDIC can request to be designated as such by certifying that they meet the above definition. For institutions supervised directly by the FDIC, our examiners will review the accuracy of the list during the examination process. In addition, case managers in our regional offices will note changes to the list while processing deposit insurance applications, merger applications, change of control notices, or failures of minority-owned institutions. The FDIC will work closely with the other Federal regulatory agencies to ensure that institutions not directly supervised by the FDIC are accurately captured on our list. In addition, the FDIC will periodically provide the list to relevant trade associations and seek input regarding its accuracy. Inclusion in the FDIC's minority-owned institution program is voluntary. Any minority-owned institution not wishing to participate in this program will be removed from the official list upon request.

### Organizational Structure

The Division of Supervision has designated a national coordinator for the FDIC's minority-owned institutions program in the Washington Office and a regional coordinator in each Regional Office. The national coordinator will consult with officials from the Division of Compliance and Consumer Affairs, the Office of Diversity and Economic Opportunity, the Legal Division, and the Division of Resolutions and Receiverships to ensure appropriate personnel are involved in program initiatives. The national coordinator will regularly contact the various minority-owned institution trade associations to seek feedback on the FDIC's efforts under this program, discuss possible training initiatives, and explore options for preserving and promoting minority ownership of depository institutions. As the primary Federal regulator for State nonmember banks, the FDIC will focus its efforts on these institutions. However, the national coordinator will meet with the other Federal regulators periodically to discuss each agency's outreach efforts, to share ideas, and to identify opportunities where the agencies can work together to assist minority-owned institutions. Representatives of other divisions and offices may participate in these meetings.

                    The regional coordinators are knowledgeable about minority-owned bank issues and are available to answer questions or to direct inquiries to the                           ( print page 80)                        appropriate office. However, each FDIC insured institution has previously been assigned a specific case manager in their regional office who will continue to be the institution's central point of contact at the FDIC. At least annually, regional coordinators will contact each minority-owned, State nonmember bank in their respective regions to discuss the FDIC's efforts to promote and preserve minority ownership of financial institutions and will offer to have a member of regional management meet with the institution's board of directors to discuss issues of interest. Finally, the regional coordinators will contact all new minority-owned State nonmember banks identified through insurance applications, merger applications, or change in control notices to familiarize the institutions with the FDIC's minority-owned institution program.                

### Technical Assistance

The FDIC can provide technical assistance to minority-owned institutions in several ways on a variety of issues. An institution can contact its case manager for assistance in understanding bank regulations, FDIC policies, examination procedures, etc. Case managers can also explain the application process and the type of analysis and information required for different applications. During examinations, examiners are expected to fully explain any supervisory recommendations and should offer to help management understand satisfactory methods to address such recommendations.

At the conclusion of each examination of a minority-owned institution directly supervised by the FDIC, the FDIC will offer to have representatives return to the institution approximately 90 to 120 days later to review areas of concern or topics of interest to the institution. The purpose of the return visit will be to provide technical assistance, not to identify new problems. The level of technical assistance provided should be commensurate with the issues facing the institution, but FDIC employees will not perform tasks expected of an institution's management or employees. For example, FDIC employees may explain Call Report instructions as they relate to specific accounts, but will not assist in the preparation of an institution's Call Report. As another example, FDIC employees may provide information on community reinvestment opportunities, but will not participate in a specific transaction.

### Training and Educational Programs

The FDIC will work with trade associations representing minority-owned institutions and other regulatory agencies to periodically assess the need for, and provide for, training opportunities and educational opportunities. We will partner with the trade associations to offer training programs during their annual conferences and other regional meetings.

### Failing Institutions

In the event of a potential failure of a minority-owned institution, the Division of Resolutions and Receiverships will contact all minority-owned institutions nationwide that qualify to bid on failing institutions. The Division of Resolutions and Receiverships will solicit qualified minority-owned institutions' interest in the failing institution, discuss the bidding process, and upon request, offer to provide technical assistance regarding completion of the bid forms. In addition, the Division of Resolutions and Receiverships, with assistance from the Office of Diversity and Economic Opportunity, will maintain a list of minority individuals and nonbank entities that have expressed an interest in acquiring failing minority-owned institutions. Trade associations that represent minority-owned institutions (the National Bankers Association, the American League of Financial Institutions, and the North American Native Bankers Association) will also be contacted periodically to help identify possible interested parties.

### Reporting

The regional coordinators will report their region's activities related to this Policy Statement to the national coordinator quarterly. The national coordinator will compile the results of the regional offices' reports and submit a quarterly summary to the Office of the Chairman. Our efforts to preserve and promote minority ownership of depository institutions will also be highlighted in the FDIC's Annual Report.

### Internet Site

                    The FDIC will create a Webpage on its Internet site (                    *www.fdic.gov*) to promote the minority-owned institution program. Among other things, the page will describe the program and include the name, phone number, and email address of the national coordinator and each regional coordinator. The page will also contain links to the list of minority-owned institutions, pertinent trade associations, and other regulatory agency programs. We will also explore the feasibility and usefulness of posting other items to the page, such as statistical information and comparative data for minority-owned institutions. Visitors will have the opportunity to provide feedback regarding the program on the Web page.                

By order of the Board of Directors.

Dated at Washington, DC., this 20th day of December, 2001.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 01-32155 Filed 12-31-01; 8:45 am]

BILLING CODE 6714-01-P