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2000 - Rules and Regulations
{{4-30-07 p.2637}}
PART 337UNSAFE AND UNSOUND BANKING PRACTICES
Sec. 337.1
Scope.
337.2
Standby letters of credit.
337.3
Limits on extensions of credit to executive officers, directors, and
principal shareholders of insured nonmember banks.
337.4
[Reserved]
337.5
Exemption.
337.6
Brokered deposits.
337.7-337.9
[Reserved]
337.10
Waiver.
337.11
Effect on other banking practices.
337.12
Frequency of examination.
Authority: 12 U.S.C. 375a(4), 375b, 1816, 1818(a),
1818(b), 1819, 1820(d)(10), 1821(f), 1828(j)(2), 1831.
SOURCE: 39 FR 29179, Aug. 14, 1974, unless otherwise
noted.
§ 337.1 Scope.
The provisions of this part apply to certain banking practices which
are likely to have adverse effects on the safety and soundness of
insured state nonmember banks or which are likely to result in
violations of law, rule, or regulation.
[Codified to 12 C.F.R. § 337.1]
§ 337.2 Standby Letters of Credit.
(a) Definition. As used in this § 337.2, the term
"standby letter of credit" means any letter of credit, or similar
arrangement however named or described, which represents an obligation
to the beneficiary on the part of the issuer (1) to repay money
borrowed by or advanced to or for the account of the account party, or
(2) to make payment on account of any indebtedness undertaken by the
account party, or (3) to make payment on account of any default
(including any statement of default) by the account party in the
performance of an obligation. 1
The term "similar arrangement" includes the creation of an
acceptance or similar undertaking.
(b) Restriction. A standby letter of credit issued by
an insured state nonmember bank shall be combined with all other
standby letters of credit and all loans for purposes of applying any
legal limitation on loans of the bank (including limitations on loans
to any one borrower, on loans to affiliates of the bank, or on
aggregate loans); Provided, however, That if such standby
letter of credit is subject to separate limitation under applicable
state or federal law, then the separate limitation shall apply in lieu
of the loan limitation. 2
(c) Exceptions. All standby letters of credit shall be
subject to the provisions of paragraph (b) of this section except
where:
(1) Prior to or at the time of issuance, the issuing bank is paid
an amount equal to the bank's maximum liability under the standby
letter of credit; or,
(2) Prior to or at the time of issuance, the issuing bank has set
aside sufficient funds in a segregated deposit account, clearly
earmarked for that purpose, to cover the bank's maximum liability under
the standby letter of credit.
(d) Disclosure. Each insured state nonmember bank must
maintain adequate control and subsidiary records of its standby letters
of credit comparable to the records maintained
{{4-30-07 p.2638}}in connection with the
bank's direct loans so that at all times the bank's potential liability
thereunder and the bank's compliance with this section 337.2 may be
readily determined. In addition, all such standby letters of credit
must be adequately reflected on the bank's published financial
statements.
[Codified to 12 C.F.R.
§ 337.2]
§ 337.3 Limits on extensions of credit to executive officers,
directors, and principal shareholders of insured nonmember banks.
(a) With the exception of 12 CFR 215.5(b), 215.5(c)(3), 215.5(c)4,
and 215.11, insured nonmember banks are subject to the restrictions
contained in subpart A of Federal Reserve Board Regulation O
(12 CFR Part 215, subpart A) to
the same extent and to the same manner as though they were member
banks.
(b) For the purposes of compliance with § 215.4(b) of Federal
Reserve Board Regulation O, no insured nonmember bank may extend credit
or grant a line of credit to any of its executive officers, directors,
or principal shareholders or to any related interest of any such person
in an amount that, when aggregated with the amount of all other
extensions of credit and lines of credit by the bank to that person and
to all related interests of that person, exceeds the greater of $25,000
or five percent of the bank's capital and unimpaired
surplus, 3
or $500,000 unless (1) the extension of credit or line of credit has
been approved in advance by a majority of the entire board of directors
of that bank and (2) the interested party has abstained from
participating directly or indirectly in the voting.
(c)(1) No insured nonmember bank may extend credit in an aggregate
amount greater than the amount permitted in paragraph (c)(2) of this
section to a partnership in which one or more of the bank's executive
officers are partners and, either individually or together, hold a
majority interest. For the purposes of paragraph (c)(2) of this
section, the total amount of credit extended by an insured nonmember
bank to such partnership is considered to be extended to each executive
officer of the insured nonmember bank who is a member of the
partnership.
(2) An insured nonmember bank is authorized to extend credit to
any executive officer of the bank for any other purpose not specified
in § 215.5(c)(1) and (2) of Federal Reserve Board Regulation O (12
CFR 215.5(c)(1) and (2)) if the aggregate amount of such other
extensions of credit does not exceed at any one time the higher of 2.5
percent of the bank's capital and unimpaired surplus or $25,000 but in
no event more than $100,000, provided, however, that no such extension
of credit shall be subject to this limit if the extension of credit is
secured by:
(i) A perfected security interest in bonds, notes, certificates
of indebtedness, or Treasury bills of the United States or in other
such obligations fully guaranteed as to principal and interest by the
United States;
(ii) Unconditional takeout commitments or guarantees of any
department, agency, bureau, board, commission or establishment of the
United States or any corporation wholly owned directly or indirectly by
the United States; or
(iii) A perfected security interest in a segregated deposit
account in the lending bank.
(3) Any extension of credit that was outstanding on May 28, 1992
and that would if made on or after that date violate paragraph (c)(1)
or paragraph (c)(2) of this § 337.3 shall be reduced in amount by May
28, 1993 so that the extension of credit is in compliance with the
lending limit set forth in paragraphs (c)(1) and (c)(2) of this
section. Any renewal or extension of such an extension of credit on or
after May 28, 1992 shall be made only on terms that will bring the
extension of credit into compliance with the lending limit of
paragraphs (c)(1) and (c)(2) of this section by May 28, 1993, however,
any extension of credit made before May 28, 1992 that bears a specific
maturity date of May 28, 1993 or
{{2-28-06 p.2639}}later shall be repaid in
accordance with its repayment schedule in existence on or before May
28, 1992.
(4) If an insured nonmember bank is unable to bring all
extensions of credit outstanding as of May 28, 1992 into compliance as
required by paragraph (c)(3) of this § 337.3, the bank may at the
discretion of the appropriate FDIC regional director (Division of
Supervision) obtain, for good cause shown, not more than two additional
one-year periods to come into compliance.
(5) For the purposes of paragraph (c) of this section, the
definitions of the terms used in Federal Reserve Board Regulation O
shall apply including the exclusion of executive officers of a bank's
parent bank holding company and executive officers of any other
subsidiary of that bank holding company from the definition of
executive officer for the purposes of complying with the loan
restrictions contained in section 22(g) of the Federal Reserve Act. For
the purposes of copmlying with § 215.5(d) of Federal Reserve Board
Regulation O, the reference to "the amount specified for a category
of credit in paragraph (c) of this section" shall be understood to
refer to the amount specified in paragraph (c)(2) of this § 337.3.
(Approved by the Office of Management and Budget under control number
3064--0108)
[Codified to 12 C.F.R. § 337.3]
[Section 337.3 added at 47 Fed. Reg. 47003, October 22, 1982;
amended at 48 Fed. Reg. 42970, September 21, 1983; 57 Fed. Reg. 7649,
March 4, 1992, effective May 18, 1992; 57 Fed. Reg. 17850, April 28,
1992, effective May 28, 1992; 57 Fed. Reg. 28457, June 25, 1992,
effective May 18, 1992; 59 Fed. Reg. 66668, December 28,
1994]
§ 337.4 [Reserved]
§ 337.5 Exemption.
Check guaranty card programs, customer-sponsored credit card
programs, and similar arrangements in which a bank undertakes to
guarantee the obligations of individuals who are its retail banking
deposit customers are exempted from § 337.2: Provided, however,
That the bank establishes the creditworthiness of the individual
before undertaking to guarantee his/her obligations and that any such
arrangement to which a bank's principal shareholders, directors, or
executive officers are a party be in compliance with applicable
provisions of Federal Reserve Regulation O
(12 CFR Part 215).
[Codified to 12 C.F.R. § 337.5]
[Section 337.5 added at 50 Fed. Reg. 10495, March 15, 1985,
effective April 15, 1985]
§ 337.6 Brokered deposits.
(a) Definitions. For the purposes of this § 337.6,
the following definitions apply:
(1) Appropriate federal banking agency has the same
meaning as provided under section 3(q) of the Federal Deposit Insurance
Act (12 U.S.C. 1813(q)).
(2) Brokered deposit means any deposit that is
obtained, directly or indirectly, from or through the mediation or
assistance of a deposit broker.
(3) Capital categories. (i) For purposes of section
29 of the Federal Deposit Insurance Act and this § 337.6, the terms
well capitalized, adequately capitalized, and
undercapitalized, 11
shall have the same meaning as to each insured depository institution
as provided under regulations implementing section 38 of the Federal
Deposit Insurance Act
{{2-28-06 p.2640}}issued by the appropriate
federal banking agency for that
institution. 12
(ii) If the appropriate federal banking agency reclassifies a
well capitalized insured depository institution as adequately
capitalized pursuant to section
38 of the Federal DepositInsurance Act, the institution so
reclassified shall be subject to the provisions applicable to such
lower capital category under this § 337.6.
(iii) An insured depository institution shall be deemed to be
within a given capital category for purposes of this § 337.6 as of
the date the institution is notified of, or is deemed to have notice
of, its capital category, under regulations implementing section 38 of
the Federal Deposit Insurance Act issued by the appropriate federal
banking agency for that institution. 13
(4) Deposit has the same meaning as provided under
section 3(l) of the Federal Deposit Insurance
Act (12 U.S.C.
1813(l)).
(5) Deposit broker. (i) The term deposit broker
means:
(A) Any person engaged in the business of placing deposits, or
facilitating the placement of deposits, of third parties with insured
depository institutions, or the business of placing deposits with
insured depository institutions for the purpose of selling interests in
those deposits to third parties; and
(B) An agent or trustee who establishes a deposit account to
facilitate a business arrangement with an insured depository
institution to use the proceeds of the account to fund a prearranged
loan.
(ii) The term deposit broker does not include:
(A) An insured depository institution, with respect to funds
placed with that depository institution;
(B) An employee of an insured depository institution, with
respect to funds placed with the employing depository institution;
(C) A trust department of an insured depository institution, if
the trust or other fiduciary relationship in question has not been
established for the primary purpose of placing funds with insured
depository institutions;
(D) The trustee of a pension or other employee benefit plan, with
respect to funds of the plan;
(E) A person acting as a plan administrator or an investment
adviser in connection with a pension plan or other employee benefit
plan provided that person is performing managerial functions with
respect to the plan;
(F) The trustee of a testamentary account;
(G) The trustee of an irrevocable trust (other than one described
in paragraph (a)(5)(i)(B) of this section), as long as the trust in
question has not been established for the primary purpose of placing
funds with insured depository institutions;
(H) A trustee or custodian of a pension or profit-sharing plan
qualified under section 401(d) or 403(a) of the Internal Revenue Code
of 1986 (26 U.S.C. 401(d) or 403(a));
{{2-28-06 p.2641}}
(I) An agent or nominee whose primary purpose is not the
placement of funds with depository institutions; or
(J) An insured depository institution acting as an intermediary
or agent of a U.S. government department or agency for a government
sponsored minority or women-owned depository institution deposit
program.
(iii) Notwithstanding paragraph (a)(5)(ii) of this section, the
term deposit broker includes any insured depository
institution that is not well-capitalized, and any employee of any such
insured depository institution, which engages, directly or indirectly,
in the solicitation of deposits by offering rates of interest (with
respect to such deposits) which are significantly higher than the
prevailing rates of interest on deposits offered by other insured
depository institutions in such depository institution's normal market
area.
(6) Employee means any employee: (i) Who is employed
exclusively by the insured depository institution;
(ii) Whose compensation is primarily in the form of a salary;
(iii) Who does not share such employee's compensation with a
deposit broker; and
(iv) Whose office space or place of business is used exclusively
for the benefit of the insured depository institution which employs
such individual.
(7) FDIC means the Federal Deposit Insurance
Corporation.
(8) Insured depository institution means any bank,
savings association, or branch of a foreign bank insured under the
provisions of the Federal Deposit Insurance Act (12 U.S.C. 1811 et.
seq.).
(b) Solicitation and acceptance of brokered deposits by
insured depository institutions.
(1) A well capitalized insured depository institution may solicit
and accept, renew or roll over any brokered deposit without restriction
by this section.
(2)(i) An adequately capitalized insured depository institution
may not accept, renew or roll over any brokered deposit unless it has
applied for and been granted a waiver of this prohibition by the FDIC
in accordance with the provisions of this section.
(ii) Any adequately capitalized insured depository institution
that has been granted a waiver to accept, renew or roll over a brokered
deposit may not pay an effective yield on any such deposit which, at
the time that such deposit is accepted, renewed or rolled over, exceeds
by more than 75 basis points:
(A) The effective yield paid on deposits of comparable size and
maturity in such institution's normal market area for deposits accepted
from within its normal market area; or
(B) The national rate paid on deposits of comparable size and
maturity for deposits accepted outside the institution's normal market
area. For purposes of this paragraph (b)(2)(ii)(B), the national rate
shall be:
(1) 120 percent of the current yield on similar
maturity U.S. Treasury obligations; or
(2) In the case of any deposit at least half of which
is uninsured, 130 percent of such applicable yield.
(3)(i) An undercapitalized insured depository institution may not
accept, renew or roll over any brokered deposit.
(ii) An undercapitalized insured depository institution may not
solicit deposits by offering an effective yield that exceeds by more
than 75 basis points the prevailing effective yields on insured
deposits of comparable maturity in such institution's normal market
area or in the market area in which such deposits are being solicited.
(4) For purposes of the restriction contained in paragraphs
(b)(2)(ii)(A) and (b)(3)(ii) of this section, the effective yields in
the relevant markets are the average of effective yields offered by
other insured depository institutions in the market area in which
deposits are being solicited. An effective yield on a deposit with an
odd maturity violates paragraphs (b)(2)(ii)(A) and (b)(3)(ii) of this
section if it is more than 75 basis points higher than the yield
calculated by interpolating between the yields offered by other insured
depository institutions on deposits of the next longer and shorter
maturities offered in the market. A market area is any readily defined
geographical area in which the rates offered by any one
{{2-28-06 p.2642}}
insured depository institution soliciting deposits in that area may
affect the rates offered by other insured depository institutions
operating in the same area.
(c) Waiver. The FDIC may, on a case-by-case basis and
upon application by an adequately capitalized insured depository
institution, waive the prohibition on the acceptance, renewal or
rollover of brokered deposits upon a finding that such acceptance,
renewal or rollover does not constitute an unsafe or unsound practice
with respect to such institution. The FDIC may conclude that it is not
unsafe or unsound and may grant a waiver when the acceptance, renewal
or rollover of brokered deposits is determined to pose no undue risk to
the institution. Any waiver granted may be revoked at any time by
written notice to the institution. For filing requirements, consult
12 CFR 303.243.
(d) Exclusion for institutions in FDIC conservatorship.
No insured depository institution for which the FDIC has been
appointed conservator shall be subject to the prohibition on the
acceptance, renewal or rollover of brokered deposits contained in the
§ 337.6 or section 29 of
the Federal Deposit Insurance Act for 90 days after the date on which
the institution was placed in conservatorship. During this 90-day
period, the institution shall, nevertheless, be subject to the
restriction on the payment of interest contained in paragraph
(b)(2)(ii) of the section. After such 90-day period, the institution
may not accept, renew or roll over any brokered deposit.
(e) [Reserved]
[Codified to 12 C.F.R. § 337.6]
[Section 337.6 added at 54 Fed. Reg. 51014, December 12,
1989; amended at 55 Fed. Reg. 23187, June 7, 1990; 55 Fed. Reg. 28885,
July 16, 1990; 55 Fed. Reg. 39139, September 25, 1990, effective
October 25, 1990; 57 Fed. Reg. 23941, June 5, 1992, effective June 16,
1992; 58 Fed. Reg. 54935, October 25, 1993, effective November 24,
1993; 60 Fed. Reg. 31384, June 15, 1995, effective June 18, 1995; 63
Fed. Reg. 44750, August 20, 1998, effective October 1, 1998; 66 Fed.
Reg. 17622, April 3, 2001]
§§ 337.7337.9 [Reserved]
{hang}§ 337.10 Waiver.
An insured state nonmember bank has the right to petition the Board
of Directors of the Corporation for a waiver of this part or any
subpart thereof with respect to any particular transaction or series of
similar transactions. A waiver may be granted at the discretion of the
Board upon a showing of good cause. All such petitions should be filed
with the Executive Secretary, Federal Deposit Insurance Corporation,
550 17th Street, N.W., Washington, D.C. 20429.
[Codified to 12 C.F.R. § 337.10]
[Section 337.10 amended at 67 Fed. Reg. 71071, November 29,
2002]
§ 337.11 Effect on other banking practices.
Nothing in this part shall be construed as restricting in any manner
the Corporation's authority to deal with any banking practice which is
deemed to be unsafe or unsound or otherwise not in accordance with law,
rule, or regulation; or which violates any condition imposed in writing
by the Corporation in connection with the granting of any application
or other request by an insured state nonmember bank, or any written
agreement entered into by such bank with the Corporation. Compliance
with the provisions of this part shall not relieve an insured State
nonmember bank from its duty to conduct its operations in a safe and
sound manner nor prevent the Corporation from taking whatever action it
deems necessary and desirable to deal with specific acts or practices
which, although they do not violate the provisions of this part, are
considered detrimental to the safety and sound operation of the bank
engaged therein.
[Codified to 12 C.F.R. § 337.11]
{{4-30-08 p.2643}}
§ 337.12 Frequency of examination.
(a) General. The Federal Deposit Insurance Corporation
examines insured state nonmember banks pursuant to authority conferred
by section 10 of the Federal Deposit Insurance Act
(12 U.S.C. 1820). The FDIC is
required to conduct a full-scope, on-site examination of every insured
state nonmember bank at least once during each 12-month period.
(b) 18-month rule for certain small institutions. The
FDIC may conduct a full-scope, on-site examination of an insured state
nonmember bank at least once during each 18-month period, rather than
each 12-month period as provided in paragraph (a) of this section, if
the following conditions are satisfied:
(1) The bank has total assets of less than $500 million;
(2) The bank is well capitalized as defined in
§ 325.103(b)(1) of this
chapter;
(3) At the most recent FDIC or applicable State banking agency
examination, the FDIC--
(i) Assigned the bank a rating of 1 or 2 for management as part
of the bank's composite rating under the Uniform Financial
Institutions Rating System (commonly referred to as CAMELS); and
(ii) Assigned the bank a composite rating of 1 or 2 under the
Uniform Financial Institutions Rating System (copies of which are
available at the addresses specified in § 309.4 of this chapter);
(4) The bank currently is not subject to a formal enforcement
proceeding or order by the FDIC, OCC or the Federal Reserve and
(5) No person acquired control of the bank during the preceding
12-month period in which a full-scope, on-site examination would have
been required but for this section.
(6) No person acquired control of the bank during the preceding
12-month period in which a full-scope, on-site examination would have
been required but for this section.
(c) Authority to conduct more frequent examinations.
This section does not limit the authority of the FDIC to examine
any insured state nonmember bank as frequently as the agency deems
necessary.
[Codified to 12 C.F.R. § 337.12]
[Section 337.12 added at 62 Fed. Reg. 6453, February 12,
1997; amended at 63 Fed. Reg. 16381, April 2, 1998; 72 Fed. Reg. 17803,
April 10, 2007; 72 Fed. Reg. 54349, September 25, 2007]
[The page following this is 2647.]
1 As defined in this paragraph (a), the term "standby letter
of credit" would not include commercial letters of credit and
similar instruments where the issuing bank expects the beneficiary to
draw upon the issuer, which do not "guaranty" payment of a money
obligation of the account party and which do not provide that payment
is occasioned by default on the part of the account party. Go Back to Text
2 Where the standby letter of credit is subject to a
non-recourse participation agreement with another bank or other banks,
this section shall apply to the issuer and each participant in the same
manner as in the case of a participated loan. Go Back to Text
3 For the purposes of § 337.3, an insured nonmember bank's
capital and unimpaired surplus shall have the same meaning as found in
§ 215.2(f) of Federal Reserve Board Regulation O (12 CFR 215.2(f)).
Editor's Note: There are no footnotes numbered 4 thru 10, the
next footnote is number 11. Go Back to Text
11The term undercapitalized includes any institution
that is significantly undercapitalized or critically
undercapitalized under regulations implementing section 38 of the
Federal Deposit Insurance Act and issued by the appropriate federal
banking agency for that institution. Go Back to Text
12For the most part, the capital measure terms are defined in
the following regulations: FDIC--12
CFR part 325, subpart B; Board of Governors of the Federal
Reserve System--12 CFR part 208; Office of the Comptroller of the
Currency--12 CFR part 6; Office of Thrift Supervision--12 CFR part 565.
Go Back to Text
13The regulations implementing section 38 of the Federal
Deposit Insurance Act and issued by the federal banking agencies
generally provide that an insured depository institution is deemed to
have been notified of its capital levels and its capital category as of
the most recent date: (1) A Consolidated Report of Condition and Income
or Thrift Financial Report is required to be filed with the appropriate
federal banking agency; (2) A final report of examination is delivered
to the institution; or (3) Written notice is provided by the
appropriate federal banking agency to the institution of its capital
category for purposes of section 38 of the Federal Deposit Insurance
Act and implementing regulations or that the institution's capital
category has changed. Provisions specifying the effective date of
determination of capital category are generally published in the
following regulations: FDIC--12
CFR 325.102. Board of Governors of the Federal Reserve
System--12 CFR 208.32. Office of the Comptroller of the Currency--12
CFR 6.3. Office of Thrift Supervision--12 CFR 565.3. Go Back to Text
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