FDIC Federal Register Citations

[Federal Register: April 16, 2002 (Volume 67, Number 73)]

[Notices]

[Page 18618-18621]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr16ap02-71]

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FEDERAL DEPOSIT INSURANCE CORPORATION

Policy Statement Regarding Minority Depository Institutions

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final policy statement.

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SUMMARY: The FDIC is adopting a final Policy Statement Regarding

Minority Depository Institutions. The final Policy Statement recognizes

the importance of minority depository institutions and the unique

challenges they often face in serving their communities. This FDIC

Policy Statement complies with the requirements of Section 308 of the

Financial Institutions Reform, Recovery and Enforcement Act of 1989

(``FIRREA'') by implementing an outreach program designed to preserve

and encourage minority ownership of financial institutions. Based on

comments received by the agency, the final Policy Statement amends the

proposed definition of minority-owned institution, clarifies the types

of technical assistance available from the FDIC, improves interagency

coordination and enhances communications between the FDIC and minority

institutions.

EFFECTIVE DATE: April 16, 2002.

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:

I. Background

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 original Policy Statement

provided guidance to the industry regarding the agency's efforts in

achieving the goals of Section 308 of FIRREA. On December 20, 2001, the

FDIC Board of Directors approved a new proposed Policy Statement

Regarding Minority-Owned Depository Institutions for public comment.

The revised Policy Statement attempts to provide a more structured

framework that sets forth initiatives of the FDIC to promote and

preserve the minority ownership of depository institutions, and to

provide technical assistance, training and educational programs to

minority depository institutions by working with those institutions,

their trade associations and the other Federal financial regulatory

agencies. The proposed Policy Statement was published on January 2,

2002, and the comment period ended on March 4, 2002.

II. Comments Received

The FDIC received eleven comment letters in response to the

proposed Policy Statement that raised 23 issues. The comments came from

seven insured financial institutions and four trade associations. All

of the commenters expressed support for the FDIC's proposed Policy

Statement; however, each of the commenters recommended specific changes

to the final Policy Statement. These comments and the changes and

additions made to the final Policy Statement are discussed in detail

below. It should be noted that several commenters raised issues that

are not related to the proposed Policy Statement (i.e., CRA credit for

assistance to minority- and women-owned financial institutions). These

issues are being addressed in other projects of the FDIC and the other

Federal financial institution regulators. Since the issues raised by

those comments relate to other initiatives, they are not specifically

discussed herein.

Four commenters suggested that the FDIC develop a definition of

``minority-owned institution'' consistent with that used by other

Federal agencies. Two commenters suggested that the FDIC change the

term Black American to African American. Another commenter suggested

that the definition of minority include multi-racial individuals. One

commenter suggested that the definition of minority-owned include

institutions owned by women. Three comments suggested that the FDIC

expand the program to include legal residents of the United States as

opposed to only citizens of the United States. The FDIC received a

number of comments relating to whether an institution should continue

to be considered minority-owned if it is merged with an institution

that is publicly traded and/or widely held if the board of directors,

account holders and community that it serves are predominantly

minority. One commenter vehemently disagreed with expanding the

definition to include publicly traded and widely held institutions

under these circumstances, stating that the expanded definition would

contradict the language and intent of Section 308 of FIRREA. Two

commenters recommended expanding the definition of minority-owned to

include any institution if a majority of its board of directors,

account holders, and the community that it serves is predominantly

minority. Another commenter suggested changing the requirement to allow

publicly traded and widely held institutions to be considered minority-

owned if any one of the three specified criteria were met. Two

commenters suggested the definition of minority-owned be based on

ownership or control by minority individuals. Another commenter

preferred eliminating the ownership requirement entirely and basing the

definition on the customers and community served. Several commenters

suggested that the FDIC be more proactive and expeditious in

identifying and notifying qualified bidders in the event a minority-

owned institution failed. The agency also received several comments

seeking further clarification as to the level of technical assistance

the FDIC would provide. One commenter suggested that the FDIC consider

hosting an annual conference designed to promote and encourage the

creation of new minority-owned depository institutions. One commenter

suggested that the return visit after examinations to provide technical

assistance be available upon request rather than routinely offered to

the institutions. One commenter recommended that the FDIC's national

coordinator evaluate the training needs of individual minority-owned

institutions. Two commenters recommended that the FDIC form an advisory

board of minority-owned institution bankers to provide additional

guidance in administering the program. Two commenters suggested that

the content of the FDIC's Webpage contain information determined

relevant by conducting a survey of all the minority-owned depository

institutions and contain information regarding the FDIC's rules and

regulations. Finally, three commenters suggested that the FDIC reduce

the reporting burden on

[[Page 18619]]

minority institutions as a result of the program. The FDIC has

responded to these comments by defining the term minority depository

institution, expanding the definition for purposes of this policy

statement to include those institutions where its board of directors

and community that it serves are predominantly minority, and providing

a better explanation of technical assistance under the FDIC's outreach

program. More specific discussions of the FDIC's particular responses

to the comments are found in the section-by-section analysis.

III. Final Policy Statement--Section-by-Section Analysis

Title

The FDIC is changing the title of the statement to Policy Statement

Regarding Minority Depository Institutions to reflect the change in the

definition of minority depository institution for purposes of this

policy statement.

Definition

The FDIC made a few technical amendments to this section of the

Policy Statement. We reviewed the comments relating to a change in the

definition of minority for purposes of this Policy Statement. The FDIC

used the definition of minority as that term is defined in section 308

of the Financial Institutions Reform, Recovery, and Enforcement Act

(``FIRREA''). While we understand and appreciate the sensitivity

surrounding the suggested changes to the definition of minority, the

FDIC has no authority to change the statutory language, and therefore

the agency is using the exact definition provided in the law.

Accordingly, the definition of minority is unchanged in the Final

Policy Statement.

Three commenters suggested that the FDIC expand its program under

the Policy Statement to include legal residents of the United States.

Section 308 of FIRREA does not address the citizenship issue. Permanent

legal residents are legally accorded the privilege of residing

permanently in the United States. The FDIC's Minority Depository

Institutions Program is centered on outreach, and institutions do not

receive any direct economic benefit from participation. Therefore, the

Policy Statement has been changed to include ownership by minority

individuals that are permanent legal residents of the United States.

Several commenters discussed the suggested criteria relating to board

membership, account holders and the community served being

predominantly minority to determine whether mutual institutions,

publicly traded and widely held institutions should be considered

minority-owned institutions. Based on the comments received, the FDIC

is defining the term ``minority depository institution'' as any

Federally insured depository institution where 51 percent or more of

the voting stock is owned by minority individuals. In addition, for

purposes of this Policy Statement, the FDIC is including in the

definition of minority depository institution, institutions are not

minority-owned but a majority of its Board of Directors and the

community that it serves are predominantly minority. The FDIC is not

including for consideration a criterion that the majority of account

holders of an institution be predominantly minority. The FDIC does not

intend to suggest that institutions should collect information

regarding the race and national origin of their account holders in

order to be considered minority depository institutions.

As a result, the term minority depository institution is being used

throughout the policy statement in place of the term minority-owned

institution.

Identification of Minority Depository Institutions

There are no changes to this section of the Policy Statement.

Organizational Structure

A technical change to this section that eliminates the requirement

for the national coordinator to consult with officials from the FDIC's

Division of Compliance and Consumer Affairs merely reflects an internal

change in the FDIC's organizational structure. The FDIC is further

clarifying the scope of its program under the Policy Statement by

changing the final Policy Statement to reflect that the agency's

regional coordinators will contact minority depository institutions

directly supervised by the FDIC on an annual basis.

Technical Assistance

The proposed Policy Statement clarified the meaning of technical

assistance and provided examples as to the types of assistance that

FDIC employees could provide to minority depository institutions. While

the Policy Statement cannot address every possible action by which the

FDIC could assist an institution, the final Policy Statement further

clarifies that FDIC employees can advise on risk management procedures,

accounting practices, recruiting techniques, etc., but will not

actually perform tasks expected of bank personnel. The final Policy

Statement also emphasizes that the return visits are optional, and to

be proactive, we feel the return visits should be offered rather than

available upon request.

Training and Educational Programs

One of the goals specified in Section 308 of FIRREA is ``promoting

and encouraging creation of new minority depository institutions.''

Therefore, the final Policy Statement has been amended to state that

the national and regional coordinators will work with trade

associations and other organizations to attempt to identify groups that

may be interested in establishing new minority depository institutions.

FDIC representatives will be available to address such groups to

discuss the application process, the requirements of becoming FDIC

insured, and the various programs geared toward minority depository

institutions. In response to those comments regarding the FDIC's

training and educational programs, the final Policy Statement

emphasizes that we will work with trade associations representing

minority depository institutions and other regulatory agencies to

periodically assess the need for, and provide for, training and

educational opportunities. The FDIC will partner with the trade

associations to offer these types of programs during their annual

conferences and other regional meetings. To address the specific needs

of each institution, the agency will offer to have staff members return

after examinations of minority depository institutions directly

supervised by the FDIC to provide technical assistance.

Failing Institutions

Several commenters suggested the FDIC be proactive and expeditious

in identifying qualified interested bidders in the case of a failing

minority-owned institution. The process of notifying qualified minority

depository institutions is handled by the FDIC's Division of

Resolutions and Receiverships (``DRR''). This Division already contacts

all qualified minority-owned institutions nationwide in the case of a

failing minority-owned institution. The process is handled as quickly

as possible considering that the FDIC must be relatively certain that

an institution will actually fail before soliciting the interest of

other institutions. A technical amendment to this section is being made

to ensure that the FDIC consults with all trade associations that

represent minority depository institutions in maintaining a list of

qualified and interested bidders.

[[Page 18620]]

Reporting Requirements

No changes are being made to this section of the Final Policy

Statement since the program does not impose any reporting burden on

minority depository institutions participating in the program.

Internet Site

A technical change is being made to this section based on comments

aimed at making the site more beneficial. The final Policy Statement is

being changed to indicate that the Webpage will provide links to

various FDIC resources of information available to the public such as

the FDIC's Rules and Regulations. The final Policy Statement also

provides a general description of the proposed Webpage and states that

visitors will have the opportunity to provide feedback regarding the

FDIC's program and the usefulness of the Webpage.

For the reasons set forth above, the final Policy Statement is

amended to read as follows:

Federal Deposit Insurance Corporation

Policy Statement Regarding Minority Depository Institutions

Minority depository institutions often promote the economic

viability of minority and under-served communities. The FDIC has long

recognized the importance of minority depository 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 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 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.''

Section 308 of FIRREA defines ``minority depository institution'' as

any Federally insured depository institution where 51 percent or more

of the voting stock is owned by one or more ``socially and economically

disadvantaged individuals.'' Given the ambiguous nature of the phrase

``socially and economically disadvantaged individuals,'' for the

purposes of this Policy Statement, minority depository institution is

defined as 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. Ownership must be by U.S.

citizens or permanent legal U.S. residents to be counted in determining

minority ownership. In addition to the institutions that meet the

ownership test, for the purposes of this Policy Statement, institutions

will be considered minority depository institutions if a majority of

the Board of Directors is minority and the community that the

institution serves is predominantly minority.

Identification of Minority Depository Institutions

To ensure that all minority depository institutions are able to

participate in the program, the FDIC will maintain a list of Federally

insured minority depository institutions. Institutions that are not

already identified as minority depository institutions 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 appropriateness of an institution being on

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 depository 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 depository institution

program is voluntary. Any minority depository institution not wishing

to participate in this program will be removed from the official list

upon request.

Organizational Structure

The FDIC has designated a national coordinator for the FDIC's

minority depository institutions program in the Washington Office and a

regional coordinator in each Regional Office. The national coordinator

will consult with officials from 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 depository 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 depository

institutions. Representatives of other divisions and offices may

participate in these meetings.

The regional coordinators are knowledgeable about minority bank

issues and are available to answer questions or to direct inquiries to

the 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 depository institution directly supervised by the

FDIC in their respective regions to discuss the FDIC's efforts to

promote and preserve minority ownership of financial institutions and

to 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 State

nonmember banks identified through insurance applications, merger

applications, or change in control notices to familiarize the

institutions with the FDIC's minority depository institution program.

Technical Assistance

The FDIC can provide technical assistance to minority depository

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

[[Page 18621]]

recommendations and should offer to help management understand

satisfactory methods to address such recommendations.

At the conclusion of each examination of a minority depository

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 visits will be to assist

management in understanding and implementing examination

recommendations, not to identify new problems. The level of technical

assistance provided should be commensurate with the issues facing the

institution. As such, institutions where more examination

recommendations are made would generally be offered more detailed

technical assistance in implementing those recommendations.

FDIC employees can advise on risk management procedures, accounting

practices, recruiting techniques, etc., but will not actually 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 recommend a specific transaction.

Training and Educational Programs

The FDIC will work with trade associations representing minority

depository 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.

The national coordinator and the regional coordinators will also

work with trade associations and other organizations to attempt to

identify groups that may be interested in establishing new minority

depository institutions. FDIC representatives will be available to

address such groups to discuss the application process, the

requirements of becoming FDIC insured, and the various programs geared

toward minority depository institutions.

Failing Institutions

The FDIC will attempt to preserve the minority character of failing

institutions during the resolution process. In the event of a potential

failure of a minority depository institution, the Division of

Resolutions and Receiverships will contact all minority depository

institutions nationwide that qualify to bid on failing institutions.

The Division of Resolutions and Receiverships will solicit qualified

minority depository 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 depository institutions 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 Depository 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

depository 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 depository institutions.

Visitors will have the opportunity to provide feedback regarding the

FDIC's program and the usefulness of the Webpage.

By order of the Board of Directors.

Dated at Washington, DC, this 9th day of April, 2002.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 02-9155 Filed 4-15-02; 8:45 am]

BILLING CODE 6714-01-P