FDIC Federal Register Citations

Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Attention: Comments/OES

Re: Study of Banking Regulations Regarding the Online Delivery of Banking Services (66 FR 37029)

Dear Mr. Feldman:

The Conference of State Bank Supervisors is pleased to respond to the Federal Deposit Insurance Corporation's ("FDIC") request for comment on the study of banking regulations relating to the online delivery of banking services. CSBS is the national organization of state officials responsible for chartering, regulating and supervising the nation's 6,868 state-chartered commercial and savings banks and 419 state-licensed branches and agencies of foreign banks.

General CSBS Position

Advances in technology continue to dramatically alter the products, services and delivery methods offered by financial institutions to their customers. The speed and scope of these changes pose a challenge to supervisory authorities responsible for ensuring the safety and soundness of the institutions they supervise. In light of this responsibility, CSBS firmly believes that all chartering authorities should be guided by three fundamental principles. First, innovations in the electronic delivery of traditional and developing financial products and services should be accompanied by effective safety and soundness guidance and appropriate consumer protections. Second, regulatory requirements should not significantly interfere with a financial institution's ability to offer innovative products and services. Third, where feasible, regulated entities should not be placed at a competitive disadvantage to their non-regulated counterparts. We hope these principles, and the following specific comments, will be helpful and will guide the FDIC in its regulatory review.

Location

The FDIC asks whether the scope of its regulatory references to a bank's location should be expanded so that it comprises alternative banking platforms such as those conducted in an electronic environment. For example, the FDIC defines "branch" in terms of its physical characteristics. As a result, the definition does not directly address electronic banking activities.

We urge the FDIC to clarify where a state bank is located for the purposes of electronic banking activities. We believe clarity is needed not only to eliminate any uncertainty with respect to which state's law applies when a state bank conducts electronic banking activities in multiple states, but also to establish regulatory parity with federally chartered depository institutions.

A state-chartered bank's location is a key component in determining when a particular state's usury provisions are triggered. For example, Section 27 of the Federal Deposit Insurance Act ("Section 1831d") permits state-chartered banks to "export" interest charges allowed by the state where the lender is located to out-of-state borrowers. The FDIC outlined in a general counsel's opinion ("General Counsel's Opinion No. 11") the applicability of Section 1831d to a state-chartered bank chartered in one state (the bank's home state) with a branch or branches in another state (the host state). According to General Counsel's Opinion No. 11, a state bank can be "located" for purposes of Section 1831d in the state in which it is chartered, as well as the states where one or more branches are located.

A state bank may export interest rates on loans made to out-of-state borrowers from that bank's home state, even if the bank maintains a branch in the state where the borrower resides. However, if an out-of-state branch or branches of a bank in a single host state performs all the non-ministerial functions (approval of an extension of credit, extension of the credit, and disbursal of loan proceeds to a customer) related to a loan, it "makes" the loan to the customer in the host state and the loan should be governed by the usury provisions of the host state.

We fully support the FDIC's cogent analysis of Section 1831d in General Counsel's Opinion No. 11. However, the applicability of Section 1831d and General Counsel's Opinion No. 11 to electronic banking activities is potentially ambiguous, especially where a bank conducts its activities exclusively over the Internet. CSBS suggests that this potential ambiguity may be rectified by additional clarity. We therefore urge the FDIC to clarify how Section 1831d, and General Counsel's Opinion No. 11 apply to electronic banking activities.

We note that the Office of the Comptroller of the Currency ("OCC"), Board of Governors of the Federal Reserve System, and Office of Thrift Supervision are reviewing their regulations to determine their impact, if any, on the electronic banking activities of the institutions they supervise. The review prompted the OCC to issue a proposed regulation governing the location of national banks conducting electronic banking activities.

In light of these efforts, we believe that any regulation issued by the FDIC governing the location of the electronic banking activities of state-chartered banks should be consistent with those of other regulatory agencies. We therefore request that the FDIC work on a joint interagency basis to clarify where a depository institution's internet banking operations are located. We believe that such an approach will maintain competitive equality among all depository institutions.

Conclusion

Technological advancements are changing the financial services industry at unheralded speed. We commend the FDIC for seeking to promote regulatory clarity in this dynamic environment. CSBS stands ready to work collaboratively with all supervisory authorities to ensure that the dual banking system remains vibrant and fundamentally sound regardless of how it is transformed by technological or other evolutionary forces. We invite you to call on us if we can provide further assistance.

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¹ 66 Fed. Reg. 37029, (July 16, 2001).
² Id. at 37030.
³ 12 C.F.R. 303.41(a).
⁴ 12 U.S.C. 1831d.
⁵ FDIC General Counsel’s Opinion No. 11, 63 Fed. Reg. 27282 (May 18, 1998).
⁶ Id.
⁷ See 65 Fed. Reg. 4895 (Feb. 2, 2000); 66 Fed. Reg. 27912 (May 21, 2001) and 66 Fed. Reg. 31186 (June 11, 2001).
⁸ 66 Fed. Reg. 34863 (July 2, 2001).

Regards,

Neil Milner,
President and CEO