This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents. Prices of
new books are listed in the first FEDERAL
REGISTER issue of each week.
Rules and Regulations Federal Register
90949
Vol. 81, No. 242
Friday, December 16, 2016
1 12 U.S.C. 1820(d). Section 10(d) of the FDI Act
was added by section 111 of the Federal Deposit
Insurance Corporation Improvement Act of 1991.
2 Public Law 114–94, 129 Stat. 1312 (2015).
3 Depository institutions are evaluated under the
Uniform Financial Institutions Rating System
(commonly referred to as ‘‘CAMELS’’). CAMELS is
an acronym that is drawn from the first letters of
the individual components of the rating system:
Capital adequacy, Asset quality, Management,
Earnings, Liquidity, and Sensitivity to market risk.
CAMELS ratings of ‘‘1’’ and ‘‘2’’ correspond with
ratings of ‘‘outstanding’’ and ‘‘good.’’ In addition to
having a CAMELS composite rating of ‘‘1’’ or ‘‘2,’’
an IDI is considered to be ‘‘well managed’’ for the
purposes of section 10(d) of the FDI Act only if the
IDI also received a rating of ‘‘1’’ or ‘‘2’’ for the
management component of the CAMELS rating at
its most recent examination. See 72 FR 17798 (Apr.
10, 2007).
DEPARTMENT OF TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 4
[Docket ID OCC–2016–0001]
RIN 1557–AE01
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 211
[Docket No. R–1531]
RIN 7100–AE45
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 337, 347, and 390
RIN 3064–AE42
Expanded Examination Cycle for
Certain Small Insured Depository
Institutions and U.S. Branches and
Agencies of Foreign Banks
AGENCY: Office of the Comptroller of the
Currency (OCC), Treasury; Board of
Governors of the Federal Reserve
System (Board); and Federal Deposit
Insurance Corporation (FDIC).
ACTION: Joint final rules.
SUMMARY: The OCC, Board, and FDIC
(collectively, the agencies) are jointly
adopting as final and without change
the agencies’ interim final rules
published in the Federal Register on
February 29, 2016, that implemented
section 83001 of the Fixing America’s
Surface Transportation Act (FAST Act).
Section 83001 of the FAST Act permits
the agencies to conduct a full-scope, on-
site examination of qualifying insured
depository institutions with less than $1
billion in total assets no less than once
during each 18-month period. Prior to
enactment of the FAST Act, only
qualifying insured depository
institutions with less than $500 million
in total assets were eligible for an 18-
month on-site examination cycle. The
final rules, like the interim final rules,
generally allow well capitalized and
well managed institutions with less than
$1 billion in total assets to benefit from
the extended 18-month examination
schedule. In addition, the final rules
adopt as final parallel changes to the
agencies’ regulations governing the on-
site examination cycle for U.S. branches
and agencies of foreign banks,
consistent with the International
Banking Act of 1978. Finally, through
this rulemaking, the FDIC has integrated
its regulations regarding the frequency
of safety and soundness examinations
for State nonmember banks and State
savings associations.
DATES: Effective on January 17, 2017.
FOR FURTHER INFORMATION CONTACT:
OCC: Deborah Katz, Assistant
Director, or Melissa J. Lisenbee,
Attorney, Legislative and Regulatory
Activities Division, (202) 649–5490;
Scott Schainost, Midsize and
Community Bank Supervision Liaison,
Midsize and Community Bank
Supervision, (202) 649–8173.
Board: Division of Banking
Supervision and Regulation—Richard
Naylor, Associate Director, (202) 728–
5854; Richard Watkins, Deputy
Associate Director, (202) 452–3421;
Virginia Gibbs, Manager, (202) 452–
2521; or Alexander Kobulsky,
Supervisory Financial Analyst, (202)
452–2031; and Legal Division—Laurie
Schaffer, Associate General Counsel,
(202) 452–2277; Brian Chernoff, Senior
Attorney, (202) 452–2952; or Mary
Watkins, Attorney, (202) 452–3722.
FDIC: Thomas F. Lyons, Chief, Policy
and Program Development, (202) 898–
6850, Karen Jones Currie, Senior
Examination Specialist, (202) 898–3981
for the Division of Risk Management
Supervision; Mark A. Mellon, Counsel,
(202) 898–3884 for revisions to 12 CFR
part 337; Rodney D. Ray, Counsel, (202)
898–3556 for revisions to 12 CFR part
347; Suzanne J. Dawley, Senior
Attorney, (202) 898–6509 for revisions
to 12 CFR part 390 for the Legal
Division.
SUPPLEMENTARY INFORMATION:
I. Background
Section 10(d) of the Federal Deposit
Insurance Act (FDI Act) 1 generally
requires the appropriate Federal
banking agency for an insured
depository institution (IDI) to conduct a
full-scope, on-site examination of the
institution at least once during each 12-
month period. Prior to enactment of
section 83001 of the FAST Act,2 section
10(d)(4) of the FDI Act authorized the
appropriate Federal banking agency to
extend the on-site examination cycle for
an IDI to at least once during an 18-
month period if the IDI (1) had total
assets of less than $500 million; (2) was
well capitalized (as defined in 12 U.S.C.
1831o); (3) was found, at its most recent
examination, to be well managed 3 and
to have a composite condition of
‘‘outstanding’’ or, in the case of an
institution that has total assets of not
more than $100 million, ‘‘outstanding’’
or ‘‘good;’’ (4) was not subject to a
formal enforcement proceeding or order
by the FDIC or its appropriate Federal
banking agency; and (5) had not
undergone a change in control during
the previous 12-month period in which
a full-scope, on-site examination
otherwise would have been required.
Section 10(d)(10) of the FDI Act, prior
to the enactment of section 83001 of the
FAST Act, also gave the agencies
discretionary authority to raise the
eligibility size limit for the 18-month
examination cycle for otherwise
qualifying IDIs with an ‘‘outstanding’’ or
‘‘good’’ composite rating from $100
million to an amount not to exceed $500
million in total assets if the agencies
determined that the higher limit would
be consistent with the principles of
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asabaliauskas on DSK3SPTVN1PROD with RULES
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents. Prices of
new books are listed in the first FEDERAL
REGISTER issue of each week.
Rules and Regulations Federal Register
90949
Vol. 81, No. 242
Friday, December 16, 2016
1 12 U.S.C. 1820(d). Section 10(d) of the FDI Act
was added by section 111 of the Federal Deposit
Insurance Corporation Improvement Act of 1991.
2 Public Law 114–94, 129 Stat. 1312 (2015).
3 Depository institutions are evaluated under the
Uniform Financial Institutions Rating System
(commonly referred to as ‘‘CAMELS’’). CAMELS is
an acronym that is drawn from the first letters of
the individual components of the rating system:
Capital adequacy, Asset quality, Management,
Earnings, Liquidity, and Sensitivity to market risk.
CAMELS ratings of ‘‘1’’ and ‘‘2’’ correspond with
ratings of ‘‘outstanding’’ and ‘‘good.’’ In addition to
having a CAMELS composite rating of ‘‘1’’ or ‘‘2,’’
an IDI is considered to be ‘‘well managed’’ for the
purposes of section 10(d) of the FDI Act only if the
IDI also received a rating of ‘‘1’’ or ‘‘2’’ for the
management component of the CAMELS rating at
its most recent examination. See 72 FR 17798 (Apr.
10, 2007).
DEPARTMENT OF TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 4
[Docket ID OCC–2016–0001]
RIN 1557–AE01
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 211
[Docket No. R–1531]
RIN 7100–AE45
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 337, 347, and 390
RIN 3064–AE42
Expanded Examination Cycle for
Certain Small Insured Depository
Institutions and U.S. Branches and
Agencies of Foreign Banks
AGENCY: Office of the Comptroller of the
Currency (OCC), Treasury; Board of
Governors of the Federal Reserve
System (Board); and Federal Deposit
Insurance Corporation (FDIC).
ACTION: Joint final rules.
SUMMARY: The OCC, Board, and FDIC
(collectively, the agencies) are jointly
adopting as final and without change
the agencies’ interim final rules
published in the Federal Register on
February 29, 2016, that implemented
section 83001 of the Fixing America’s
Surface Transportation Act (FAST Act).
Section 83001 of the FAST Act permits
the agencies to conduct a full-scope, on-
site examination of qualifying insured
depository institutions with less than $1
billion in total assets no less than once
during each 18-month period. Prior to
enactment of the FAST Act, only
qualifying insured depository
institutions with less than $500 million
in total assets were eligible for an 18-
month on-site examination cycle. The
final rules, like the interim final rules,
generally allow well capitalized and
well managed institutions with less than
$1 billion in total assets to benefit from
the extended 18-month examination
schedule. In addition, the final rules
adopt as final parallel changes to the
agencies’ regulations governing the on-
site examination cycle for U.S. branches
and agencies of foreign banks,
consistent with the International
Banking Act of 1978. Finally, through
this rulemaking, the FDIC has integrated
its regulations regarding the frequency
of safety and soundness examinations
for State nonmember banks and State
savings associations.
DATES: Effective on January 17, 2017.
FOR FURTHER INFORMATION CONTACT:
OCC: Deborah Katz, Assistant
Director, or Melissa J. Lisenbee,
Attorney, Legislative and Regulatory
Activities Division, (202) 649–5490;
Scott Schainost, Midsize and
Community Bank Supervision Liaison,
Midsize and Community Bank
Supervision, (202) 649–8173.
Board: Division of Banking
Supervision and Regulation—Richard
Naylor, Associate Director, (202) 728–
5854; Richard Watkins, Deputy
Associate Director, (202) 452–3421;
Virginia Gibbs, Manager, (202) 452–
2521; or Alexander Kobulsky,
Supervisory Financial Analyst, (202)
452–2031; and Legal Division—Laurie
Schaffer, Associate General Counsel,
(202) 452–2277; Brian Chernoff, Senior
Attorney, (202) 452–2952; or Mary
Watkins, Attorney, (202) 452–3722.
FDIC: Thomas F. Lyons, Chief, Policy
and Program Development, (202) 898–
6850, Karen Jones Currie, Senior
Examination Specialist, (202) 898–3981
for the Division of Risk Management
Supervision; Mark A. Mellon, Counsel,
(202) 898–3884 for revisions to 12 CFR
part 337; Rodney D. Ray, Counsel, (202)
898–3556 for revisions to 12 CFR part
347; Suzanne J. Dawley, Senior
Attorney, (202) 898–6509 for revisions
to 12 CFR part 390 for the Legal
Division.
SUPPLEMENTARY INFORMATION:
I. Background
Section 10(d) of the Federal Deposit
Insurance Act (FDI Act) 1 generally
requires the appropriate Federal
banking agency for an insured
depository institution (IDI) to conduct a
full-scope, on-site examination of the
institution at least once during each 12-
month period. Prior to enactment of
section 83001 of the FAST Act,2 section
10(d)(4) of the FDI Act authorized the
appropriate Federal banking agency to
extend the on-site examination cycle for
an IDI to at least once during an 18-
month period if the IDI (1) had total
assets of less than $500 million; (2) was
well capitalized (as defined in 12 U.S.C.
1831o); (3) was found, at its most recent
examination, to be well managed 3 and
to have a composite condition of
‘‘outstanding’’ or, in the case of an
institution that has total assets of not
more than $100 million, ‘‘outstanding’’
or ‘‘good;’’ (4) was not subject to a
formal enforcement proceeding or order
by the FDIC or its appropriate Federal
banking agency; and (5) had not
undergone a change in control during
the previous 12-month period in which
a full-scope, on-site examination
otherwise would have been required.
Section 10(d)(10) of the FDI Act, prior
to the enactment of section 83001 of the
FAST Act, also gave the agencies
discretionary authority to raise the
eligibility size limit for the 18-month
examination cycle for otherwise
qualifying IDIs with an ‘‘outstanding’’ or
‘‘good’’ composite rating from $100
million to an amount not to exceed $500
million in total assets if the agencies
determined that the higher limit would
be consistent with the principles of
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asabaliauskas on DSK3SPTVN1PROD with RULES
90950 Federal Register / Vol. 81, No. 242 / Friday, December 16, 2016 / Rules and Regulations
4 12 U.S.C. 1820(d)(10).
5 12 U.S.C. 1820(d)(3).
6 12 U.S.C. 3105(c)(1)(C).
7 See 12 CFR 4.6 and 4.7 (OCC), 12 CFR 208.64
and 211.26 (Board), 12 CFR 337.12, 347.211, and
390.351 (FDIC).
8 Corresponding to a CAMELS or Risk
management, Operational controls, Compliance,
and Asset quality (ROCA) rating of ‘‘2.’’
9 See 62 FR 6449 (Feb. 12, 1997) (interim final
rule); see also 63 FR 16377 (Apr. 2, 1998) (final
rule); see also 72 FR 17798 (Apr. 10, 2007) (interim
final rule); see also 72 FR 54347 (Sept. 25, 2007)
(final rule).
10 Public Law 114–94, 129 Stat. 1312 (2015).
11 Id.
12 81 FR 10063 (Feb. 29, 2016).
13 A list of failed institutions can be found on the
FDIC’s Web site at https://www.fdic.gov/bank/
individual/failed/banklist.html.
14 The agencies continue to reserve the right in
their regulations to examine an IDI or U.S. branch
or agency of a foreign bank more frequently than
is required by the FDI Act or IBA. See 12 CFR 4.6(c)
and 4.7(c) (OCC), 12 CFR 208.64(c) and 211.26(c)(3)
(Board), 12 CFR 337.12(c), 347.211(c) (FDIC), and
390.351(c).
15 Call report data, March 31, 2016.
safety and soundness.4 Under section
10(d)(3), the Board and the FDIC, as the
appropriate Federal banking agencies
for State-chartered insured banks and
savings associations, are permitted to
conduct on-site examinations of such
IDIs on alternating 12-month or 18-
month periods with the institution’s
State supervisor, if the Board or FDIC,
as appropriate, determines that the
alternating examination conducted by
the State carries out the purposes of
section 10(d) of the FDI Act.5
Section 7(c)(1)(C) of the International
Banking Act (IBA) provides that a
Federal or a State branch or agency of
a foreign bank shall be subject to on-site
examination by its appropriate Federal
banking agency or State bank supervisor
as frequently as a national or State bank
would be subject to such an
examination by the agency.6 The
agencies previously adopted regulations
to implement the examination cycle
requirements of section 10(d) of the FDI
Act and section 7(c)(1)(C) of the IBA,
including the extended 18-month
examination cycle available to
qualifying small institutions and U.S.
branches and agencies of foreign banks.7
The agencies have also exercised their
discretion, under section 10(d)(10) of
the FDI Act, to extend the 18-month
examination cycle for otherwise
qualifying institutions with ‘‘good’’
composite ratings,8 first, in 1997, for
such institutions with total assets of
$250 million or less, and, again, in 2007,
for such institutions with total assets of
$500 million or less.9
Section 83001 of the FAST Act,
effective on December 4, 2015, amended
section 10(d) of the FDI Act to raise,
from $500 million to $1 billion, the total
asset threshold below which an agency
may apply an 18-month (rather than a
12-month) on-site examination cycle for
IDIs with ‘‘outstanding’’ composite
ratings, and to raise, from not more than
$100 million to not more than $200
million, the total asset threshold below
which an agency may apply an 18-
month examination cycle to an
institution with an ‘‘outstanding’’ or
‘‘good’’ composite rating.10 Section
83001 also amended section 10(d)(10) of
the FDI Act to authorize the appropriate
Federal banking agency to increase, by
regulation, the maximum amount
limitation for IDIs with ‘‘outstanding’’ or
‘‘good’’ composite ratings from not more
than $200 million to not more than $1
billion if the appropriate Federal
banking agency determines that the
higher amount would be consistent with
the principles of safety and soundness
for IDIs.11
These FAST Act amendments reduce
regulatory burdens on small, well
capitalized, and well managed
institutions and allow the agencies to
better focus their supervisory resources
on those IDIs and U.S. branches and
agencies of foreign banks that may
present capital, managerial, or other
issues of supervisory concern.
II. Discussion of the Final Rules
On February 29, 2016, the agencies
published and requested comment on
interim final rules to implement the
amendments to section 10(d) made by
section 83001 of the FAST Act.12 The
agencies are adopting the interim final
rules as final without change. In
particular, the agencies are adopting as
final the increase, from $500 million to
$1 billion, in the total asset threshold
below which an IDI that meets the
criteria in section 10(d) and the
agencies’ rules may qualify for an 18-
month, full-scope, on-site examination
cycle. In addition, as authorized by
section 83001 of the FAST Act, the
agencies have determined that it is
consistent with principles of safety and
soundness to permit institutions with
total assets of $200 million or greater
and not exceeding $1 billion that
received a composite CAMELS rating of
‘‘1’’ or ‘‘2,’’ and that meet other
qualifying criteria set forth in section
10(d) and the agencies’ rules, to qualify
for an 18-month examination cycle.
Consistent with section 7(c)(1)(C) of the
IBA, the agencies also are adopting as
final conforming changes to the
regulations that govern the on-site
examination cycle of a U.S. branch or
agency of a foreign bank. These changes
permit a U.S. branch or agency of a
foreign bank with total assets of less
than $1 billion to qualify for an 18-
month examination cycle if the U.S.
branch or agency of a foreign bank
received a composite ROCA rating of
‘‘1’’ or ‘‘2’’ at its most recent
examination and meets the other
applicable criteria.
The FDIC analyzed the frequency
with which institutions rated a
composite CAMELS rating of ‘‘1’’ or ‘‘2’’
failed within five years, versus the
frequency with which institutions rated
a composite CAMELS rating of ‘‘3,’’ ‘‘4,’’
or ‘‘5’’ failed within five years. FDIC
analysis indicates that between 1985
and 2011,13 FDIC-insured depository
institutions with assets less than $1
billion and a composite CAMELS rating
of ‘‘1’’ or ‘‘2’’ had a five-year failure rate
that was one-seventh as high as
institutions with a CAMELS rating of
‘‘3,’’ ‘‘4,’’ or ‘‘5.’’ Moreover, the
relationship between failure rates in the
two ratings groups did not meaningfully
change when the analysis was restricted
to institutions with assets between $200
million and $500 million compared to
institutions with assets between $500
million to $1 billion. This analysis
suggests that extending the examination
cycle for well-rated institutions with
$500 million to $1 billion in assets by
an additional six months, combined
with the agencies’ off-site monitoring
activities and ability to examine an
institution more frequently as necessary
or appropriate, is unlikely to negatively
affect the safe and sound operations of
qualifying institutions or the ability of
the agencies to effectively supervise and
protect the safety and soundness of
institutions with total assets of less than
$1 billion.14 Furthermore, the agencies
note that, in order to qualify for an 18-
month examination cycle, any
institution with total assets of less than
$1 billion—including one with a
CAMELS composite rating of ‘‘2’’—must
meet the other capital, managerial, and
supervisory criteria set forth in section
10(d). The agencies estimate that the
changes adopted by the final rules will
increase the number of institutions that
may qualify for an extended 18-month
examination cycle by approximately 611
institutions (372 of which are
supervised by the FDIC, 142 by the
OCC, and 97 by the Board), bringing the
total number of institutions that may
qualify for an extended 18-month
examination cycle to 4,793 IDIs.15
Approximately 89 U.S. branches and
agencies of foreign banks would be
eligible for the extended examination
cycle based on the final rules, an
increase of 30 (one of which is
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4 12 U.S.C. 1820(d)(10).
5 12 U.S.C. 1820(d)(3).
6 12 U.S.C. 3105(c)(1)(C).
7 See 12 CFR 4.6 and 4.7 (OCC), 12 CFR 208.64
and 211.26 (Board), 12 CFR 337.12, 347.211, and
390.351 (FDIC).
8 Corresponding to a CAMELS or Risk
management, Operational controls, Compliance,
and Asset quality (ROCA) rating of ‘‘2.’’
9 See 62 FR 6449 (Feb. 12, 1997) (interim final
rule); see also 63 FR 16377 (Apr. 2, 1998) (final
rule); see also 72 FR 17798 (Apr. 10, 2007) (interim
final rule); see also 72 FR 54347 (Sept. 25, 2007)
(final rule).
10 Public Law 114–94, 129 Stat. 1312 (2015).
11 Id.
12 81 FR 10063 (Feb. 29, 2016).
13 A list of failed institutions can be found on the
FDIC’s Web site at https://www.fdic.gov/bank/
individual/failed/banklist.html.
14 The agencies continue to reserve the right in
their regulations to examine an IDI or U.S. branch
or agency of a foreign bank more frequently than
is required by the FDI Act or IBA. See 12 CFR 4.6(c)
and 4.7(c) (OCC), 12 CFR 208.64(c) and 211.26(c)(3)
(Board), 12 CFR 337.12(c), 347.211(c) (FDIC), and
390.351(c).
15 Call report data, March 31, 2016.
safety and soundness.4 Under section
10(d)(3), the Board and the FDIC, as the
appropriate Federal banking agencies
for State-chartered insured banks and
savings associations, are permitted to
conduct on-site examinations of such
IDIs on alternating 12-month or 18-
month periods with the institution’s
State supervisor, if the Board or FDIC,
as appropriate, determines that the
alternating examination conducted by
the State carries out the purposes of
section 10(d) of the FDI Act.5
Section 7(c)(1)(C) of the International
Banking Act (IBA) provides that a
Federal or a State branch or agency of
a foreign bank shall be subject to on-site
examination by its appropriate Federal
banking agency or State bank supervisor
as frequently as a national or State bank
would be subject to such an
examination by the agency.6 The
agencies previously adopted regulations
to implement the examination cycle
requirements of section 10(d) of the FDI
Act and section 7(c)(1)(C) of the IBA,
including the extended 18-month
examination cycle available to
qualifying small institutions and U.S.
branches and agencies of foreign banks.7
The agencies have also exercised their
discretion, under section 10(d)(10) of
the FDI Act, to extend the 18-month
examination cycle for otherwise
qualifying institutions with ‘‘good’’
composite ratings,8 first, in 1997, for
such institutions with total assets of
$250 million or less, and, again, in 2007,
for such institutions with total assets of
$500 million or less.9
Section 83001 of the FAST Act,
effective on December 4, 2015, amended
section 10(d) of the FDI Act to raise,
from $500 million to $1 billion, the total
asset threshold below which an agency
may apply an 18-month (rather than a
12-month) on-site examination cycle for
IDIs with ‘‘outstanding’’ composite
ratings, and to raise, from not more than
$100 million to not more than $200
million, the total asset threshold below
which an agency may apply an 18-
month examination cycle to an
institution with an ‘‘outstanding’’ or
‘‘good’’ composite rating.10 Section
83001 also amended section 10(d)(10) of
the FDI Act to authorize the appropriate
Federal banking agency to increase, by
regulation, the maximum amount
limitation for IDIs with ‘‘outstanding’’ or
‘‘good’’ composite ratings from not more
than $200 million to not more than $1
billion if the appropriate Federal
banking agency determines that the
higher amount would be consistent with
the principles of safety and soundness
for IDIs.11
These FAST Act amendments reduce
regulatory burdens on small, well
capitalized, and well managed
institutions and allow the agencies to
better focus their supervisory resources
on those IDIs and U.S. branches and
agencies of foreign banks that may
present capital, managerial, or other
issues of supervisory concern.
II. Discussion of the Final Rules
On February 29, 2016, the agencies
published and requested comment on
interim final rules to implement the
amendments to section 10(d) made by
section 83001 of the FAST Act.12 The
agencies are adopting the interim final
rules as final without change. In
particular, the agencies are adopting as
final the increase, from $500 million to
$1 billion, in the total asset threshold
below which an IDI that meets the
criteria in section 10(d) and the
agencies’ rules may qualify for an 18-
month, full-scope, on-site examination
cycle. In addition, as authorized by
section 83001 of the FAST Act, the
agencies have determined that it is
consistent with principles of safety and
soundness to permit institutions with
total assets of $200 million or greater
and not exceeding $1 billion that
received a composite CAMELS rating of
‘‘1’’ or ‘‘2,’’ and that meet other
qualifying criteria set forth in section
10(d) and the agencies’ rules, to qualify
for an 18-month examination cycle.
Consistent with section 7(c)(1)(C) of the
IBA, the agencies also are adopting as
final conforming changes to the
regulations that govern the on-site
examination cycle of a U.S. branch or
agency of a foreign bank. These changes
permit a U.S. branch or agency of a
foreign bank with total assets of less
than $1 billion to qualify for an 18-
month examination cycle if the U.S.
branch or agency of a foreign bank
received a composite ROCA rating of
‘‘1’’ or ‘‘2’’ at its most recent
examination and meets the other
applicable criteria.
The FDIC analyzed the frequency
with which institutions rated a
composite CAMELS rating of ‘‘1’’ or ‘‘2’’
failed within five years, versus the
frequency with which institutions rated
a composite CAMELS rating of ‘‘3,’’ ‘‘4,’’
or ‘‘5’’ failed within five years. FDIC
analysis indicates that between 1985
and 2011,13 FDIC-insured depository
institutions with assets less than $1
billion and a composite CAMELS rating
of ‘‘1’’ or ‘‘2’’ had a five-year failure rate
that was one-seventh as high as
institutions with a CAMELS rating of
‘‘3,’’ ‘‘4,’’ or ‘‘5.’’ Moreover, the
relationship between failure rates in the
two ratings groups did not meaningfully
change when the analysis was restricted
to institutions with assets between $200
million and $500 million compared to
institutions with assets between $500
million to $1 billion. This analysis
suggests that extending the examination
cycle for well-rated institutions with
$500 million to $1 billion in assets by
an additional six months, combined
with the agencies’ off-site monitoring
activities and ability to examine an
institution more frequently as necessary
or appropriate, is unlikely to negatively
affect the safe and sound operations of
qualifying institutions or the ability of
the agencies to effectively supervise and
protect the safety and soundness of
institutions with total assets of less than
$1 billion.14 Furthermore, the agencies
note that, in order to qualify for an 18-
month examination cycle, any
institution with total assets of less than
$1 billion—including one with a
CAMELS composite rating of ‘‘2’’—must
meet the other capital, managerial, and
supervisory criteria set forth in section
10(d). The agencies estimate that the
changes adopted by the final rules will
increase the number of institutions that
may qualify for an extended 18-month
examination cycle by approximately 611
institutions (372 of which are
supervised by the FDIC, 142 by the
OCC, and 97 by the Board), bringing the
total number of institutions that may
qualify for an extended 18-month
examination cycle to 4,793 IDIs.15
Approximately 89 U.S. branches and
agencies of foreign banks would be
eligible for the extended examination
cycle based on the final rules, an
increase of 30 (one of which is
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