[Federal Register: March 3, 1998 (Volume 63, Number 41)]
[Rules and Regulations]
[Page 10293-10295]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03mr98-2]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 357
RIN 3064-AB08
Determination of Economically Depressed Regions
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
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SUMMARY: As part of the FDIC's systematic review of its regulations
under section 303(a) of the Riegle Community Development and Regulatory
Improvement Act of 1994 (CDRI Act), the FDIC is amending its
regulations to reflect changes in the marketplace, update and
streamline the regulation, improve efficiency, and reduce unnecessary
costs. The text of this final rule is substantially similar to that of
the proposed rule that was published in the Federal Register of August
6, 1996. Previous references to specific sources of data to be used in
determining whether a region is economically depressed were removed in
order to allow for more flexibility in our analyses. In addition, the
general designation of states as the geographical unit over which the
FDIC defines ``economically depressed regions'' has been changed under
this amendment. Under this amendment, the FDIC will define the
geographic unit that comprises an ``economically depressed region'' for
an institution on a case-by-case basis. Such a determination is
required because the geographic area over which institutions conduct
business varies across institutions, as well as over time for an
individual institution. After an institution's geographic market has
been defined the FDIC will next determine whether that market falls
within an ``economically depressed region''. This allows for cases
where an institution's geographic market is limited to some portion of
a state or crosses two or more state boundaries. The FDIC also will
consider relevant information from institutions regarding their
geographic market, as well as information on whether that market is
``economically depressed''. Elsewhere in this issue of the Federal
Register, the FDIC also is withdrawing a 1992 proposed amendment to the
regulation that was published on December 18, 1992.
The FDIC is required by statute to consider proposals for direct
financial assistance by Savings Association Insurance Fund (SAIF)
members having offices located in an ``economically depressed region''
as determined by the FDIC by regulation and meeting certain other
specified criteria, before grounds exist for the appointment of a
conservator or receiver for the institution. This amendment provides
guidance to enable applicants to evaluate their situations before
formally applying for assistance. Rather than periodically designating
specific ``economically depressed regions'' in light of current
economic conditions, this rule provides the criteria that the FDIC will
use to determine which regions are economically depressed.
EFFECTIVE DATE: April 2, 1998.
FOR FURTHER INFORMATION CONTACT: John P. O'Keefe, Chief, Economic
Analysis Section, (202) 898-3945, David Horne, Financial Economist,
(202) 898-3981, Division of Research and Statistics; Michael Phillips,
Counsel, Legal Division, (202) 898-3581, FDIC, 550 17th Street, N.W.,
Washington, DC 20429.
SUPPLEMENTARY INFORMATION: The FDIC is conducting a systematic review
of its regulations and written policies in accordance with section
303(a) of the CDRI Act, 12 U.S.C. 4803(a). Section 303(a) requires each
federal banking agency to streamline and modify its regulations and
written policies in order to improve efficiency, reduce unnecessary
costs, and eliminate unwarranted constraints on credit availability.
Section 303(a) also requires each federal banking agency to remove
inconsistencies and outmoded and duplicative requirements from its
regulations and written policies.
As part of this review, the FDIC has determined that its
regulations at 12 CFR part 357 should be amended to minimize the cost
of implementing the regulation, make it more flexible regarding market
standards, and give institutions more opportunity to establish that
they are located in an ``economically depressed region''.
In the Federal Register of August 6, 1996 (61 FR 40756), the FDIC
issued a proposed amendment of part 357 to provide criteria to enable
applicants to evaluate their status before formally
[[Page 10294]]
applying for assistance under sections 13(c) and 13(k)(5) of the
Federal Deposit Insurance Act (FDI Act), 12 U.S.C. 1823(c) and 12
U.S.C. 1823(k)(5). Rather than designating specific regions in light of
current economic conditions, the proposed rule provided the criteria
that it will use to determine which regions are ``economically
depressed''. The FDIC also proposed to withdraw a proposed amendment to
part 357 that updated the list of designated states that was published
on December 18, 1992 (57 FR 60140), but never adopted. No public
comments were received with respect to the 1992 and 1996 proposed
rules. Elsewhere in this issue of the Federal Register, the FDIC is
withdrawing the 1992 proposed rule.
Subject to the statutory prohibition in section 11(a)(4) of the FDI
Act (12 U.S.C. 1821(a)(4)), the FDIC has authority under section 13(c)
of the FDI Act, 12 U.S.C. 1823(c), to provide financial assistance to
prevent the default of an insured depository institution. Under section
13(k)(5) of the FDI Act, 12 U.S.C. 1823(k)(5), the FDIC must consider
proposals for eligible SAIF member institutions to receive assistance
pursuant to section 13(c) before grounds exist for the appointment of a
conservator or receiver for the institution. Section 13(k)(5)
establishes nine criteria for such eligibility. One of the criteria is
that an institution's offices must be located in an ``economically
depressed region'' (12 U.S.C. 1823(k)(5)(A)((ii)(VI)). In addition,
under section 13(k)(5), SAIF-member applicants must separately meet the
criteria under section 13(c) and other pertinent sections of the FDI
Act to qualify for assistance. In evaluating assistance proposals filed
under section 13(c), the statutory prohibition in section 11(a)(4) of
the FDI Act, 12 U.S.C. 1821(a)(4), must be complied with. With certain
limited exceptions, section 11(a)(4) prohibits the use of funds from
the Bank Insurance Fund or the SAIF to benefit shareholders of a failed
or failing insured depository institution.
The term ``economically depressed region'' is defined in section
13(k)(5)(C) to mean ``any geographical region which the [FDIC]
determines by regulation to be a region within which real estate values
have suffered serious decline due to severe economic conditions, such
as a decline in energy or agricultural values or prices''.
On September 17, 1990, the FDIC promulgated regulations at 12 CFR
357.1 (55 FR 38043), which determined that certain geographical regions
were ``economically depressed regions'' for purposes of section
13(k)(5) of the FDI Act. In determining which regions were
``economically depressed'', the FDIC considered the following factors:
(1) The ratio of poor quality real estate assets to total assets in the
portfolios of Bank Insurance Fund (BIF) members; (2) the ratio of poor
quality real estate assets to total assets in the portfolios of SAIF
members; and (3) unemployment figures. The statewide percentages of
impaired real estate assets for BIF and SAIF members and unemployment
rates were analyzed with reference to national levels. These factors
are subject to periodic review and application by the FDIC in light of
changing economic conditions.
As promulgated in 1990, the FDIC's regulations at 12 CFR 357.1
designated eight individual states as ``economically depressed
regions'' for purposes of section 13(k)(5) of the FDI Act. They were:
Alaska, Arizona, Arkansas, Colorado, Louisiana, New Mexico, Oklahoma,
and Texas.
Two years later, having reexamined real estate and employment
conditions based on the most recent information, the FDIC determined
that the eight states previously designated as economically depressed
regions should no longer receive that designation. The FDIC concluded
that the following nine states and the District of Columbia should be
classified as economically depressed regions: California, Connecticut,
Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode
Island, and Vermont. In December 1992, the FDIC published this list of
states in a proposed rule (see 57 FR 60140, December 18, 1992). The
FDIC had considered, as before, the ratio of poor quality real estate
assets to total assets in the portfolios of BIF and SAIF members, and
the labor market situation. In addition, the FDIC considered both the
overall unemployment rate and non-farm employment growth trends. The
December 1992 proposed rule was never adopted.
Rather than periodically revisiting the criteria used to identify
regions for designation as ``economically depressed regions'', and
listing regions so designated, the FDIC has determined that this
amendment of part 357 will provide more coherent guidance to applicants
for the evaluation of their situations before formally applying for
assistance. This final rule provides the criteria the FDIC will use to
determine which regions are ``economically depressed'' for purposes of
section 13(k)(5)(C). References to specific sources of data to be used
in the determination of whether a region is economically depressed,
which were contained in appendix A of the proposed amendment, were
removed in order to allow for greater flexibility in the FDIC's
analysis. In addition, the general designation of states as the
geographical unit over which the FDIC defines ``economically depressed
regions'' has been changed under this amendment to part 357. Under this
amendment to part 357, the FDIC will define the geographic unit that
comprises an ``economically depressed region'' for an institution on a
case-by-case basis. Such a determination is required because the
geographic area over which institutions conduct business varies across
institutions, as well as over time for an individual institution. After
an institution's geographic market has been defined the FDIC will next
determine whether that market falls within an ``economically depressed
region''. This allows for cases where an institution's geographic
market is limited to some portion of a state or crosses two or more
state boundaries. The FDIC will also consider relevant information from
institutions regarding their geographic market, as well as information
on whether that market is ``economically depressed''. As a result of
the adoption of the rule, the FDIC will no longer need to amend part
357 in order to periodically designate specific regions in light of
current economic conditions.
Under the final rule, for the purpose of determining ``economically
depressed regions'', the FDIC will determine whether an institution
qualifies as being located in an ``economically depressed region'' on a
case-by-case basis. That determination will be based on four criteria:
(1) High unemployment rates; (2) declines in non-farm employment; (3)
high levels of problem real estate assets at insured depository
institutions; and (4) evidence indicating declining real estate values.
The FDIC will also consider relevant information from institutions
regarding their geographic market area, as well as information on
whether that market is ``economically depressed''.
Regulatory Flexibility Act
Under section 605(b) of the Regulatory Flexibility Act (RFA), 5
U.S.C. 605(b), the regulatory flexibility analysis otherwise required
under section 604 of the RFA (5 U.S.C. 604) is not required if the head
of the agency certifies that the rule will not have a significant
economic impact on a substantial number of small entities and the
agency publishes such certification and a statement providing the
factual basis for such certification in the Federal Register along with
the final rule.
[[Page 10295]]
Pursuant to section 605(b) of the RFA, the FDIC certifies that this
final rule will not have a significant economic impact on a substantial
number of small entities. The rule replaces the current list of states
that were determined in 1990 to constitute ``economically depressed
regions'' for purposes of section 13(k)(5) of the FDI Act with the
criteria that the FDIC will use in reaching such determinations
concerning such in the future. The rule involves one of nine criteria
in section 13(k)(5) of the FDI Act that must be considered along with
various requirements in sections 13(c) and the prohibition in 11(a)(4)
of the FDI Act, for purposes of applications from insured depository
institutions for financial assistance. The rule will at most effect a
very small number of institutions.
Paperwork Reduction Act
In accordance with section 3506 of the Paperwork Reduction Act of
1995 (44 U.S.C. 3506; see also 5 CFR part 1320 appendix a.1), the FDIC
has reviewed the final rule and has determined that no collections of
information pursuant to the Paperwork Reduction Act are contained in
this rule. Accordingly, no information has been submitted to the Office
of Management and Budget for review.
Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996 (the
1996 Act), Pub. L. 104-121, 110 Stat. 857, provides generally for
agencies to report rules to Congress and for Congress to review the
rules. The reporting requirement is triggered in instances where the
agency in question issues a final rule as defined in the Administrative
Procedure Act at 5 U.S.C. 551. The agency will file the appropriate
reports pursuant to the 1996 Act concerning any final rule.
The Office of Management and Budget has determined that this final
rule does not constitute a ``major'' rule as defined by the 1996 Act.
List of Subjects in 12 CFR Part 357
Bank deposit insurance, Grant programs--housing and community
development, Savings associations.
For the reasons set forth in the preamble, the FDIC hereby amends
12 CFR part 357 as set forth below.
PART 357--DETERMINATION OF ECONOMICALLY DEPRESSED REGIONS
1. The authority citation for part 357 is revised to read as
follows:
Authority: 12 U.S.C. 1819, 1823(k)(5).
2. Section 357.1 is amended by revising paragraph (b) to read as
follows:
Sec. 357.1 Economically depressed regions.
* * * * *
(b) Economically depressed regions. (1) For the purpose of
determining ``economically depressed regions'', the FDIC will determine
whether an institution qualifies as being located in an ``economically
depressed region'' on a case-by-case basis. That determination will be
based on four criteria:
(i) High unemployment rates;
(ii) Significant declines in non-farm employment;
(iii) High delinquency rates of real estate assets at insured
depository institutions; and
(iv) Evidence indicating declining real estate values.
(2) In addition, the FDIC will also consider relevant information
from institutions regarding their geographic market area, as well as
information on whether that market is ``economically depressed''.
By order of the Board of Directors.
Dated at Washington, D.C., this tenth day of February 1998.
Federal Deposit Insurance Corporation
Robert E. Feldman,
Executive Secretary.
[FR Doc. 98-4891 Filed 3-2-98; 8:45 am]
BILLING CODE 6714-01-P
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