Suta Final Rule Regulation

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Rules and Regulations

Federal Register
Vol. 77, No. 114
Wednesday, June 13, 2012

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.

DEPARTMENT OF AGRICULTURE
Rural Utilities Service
7 CFR Part 1700
RIN 0572–AC23

Substantially Underserved Trust Areas
(SUTA)
Rural Utilities Service, USDA.
Final rule.

AGENCY:
ACTION:

The Rural Utilities Service
(RUS) is issuing regulations related to
loans and grants to finance the
construction, acquisition, or
improvement of infrastructure projects
in Substantially Underserved Trust
Areas (SUTA). The intent is to
implement Section 306F of the Rural
Electrification Act by providing the
process by which eligible applicants
may apply for funding by the agency.
DATES: Effective: July 13, 2012.
FOR FURTHER INFORMATION CONTACT:
Michele Brooks, Director, Program
Development and Regulatory Analysis,
Rural Utilities Service, Rural
Development, U.S. Department of
Agriculture, 1400 Independence Avenue
SW., STOP 1522, Room 5162–S,
Washington, DC 20250–1522.
Telephone number: (202) 690–1078,
Facsimile: (202) 720–8435.
SUPPLEMENTARY INFORMATION:
SUMMARY:

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Executive Order 12866
This rule has been determined to be
not significant for purposes of Executive
Order 12866 and, therefore, has not
been reviewed by the Office of
Management and Budget.
Executive Order 12988
This rule has been reviewed under
Executive Order 12988, Civil Justice
Reform. Rural Development has
determined that this rule meets the
applicable standards provided in
section 3 of that Executive Order. In

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addition, all State and local laws and
regulations that are in conflict with this
rule will be preempted. No retroactive
effect will be given to the rule and, in
accordance with section 212(e) of the
Department of Agriculture
Reorganization Act of 1994 (7 U.S.C.
6912(e)), administrative appeal
procedures must be exhausted before an
action against the Department or its
agencies may be initiated.
Regulatory Flexibility Act Certification
RUS has determined that this rule
will not have a significant economic
impact on a substantial number of small
entities, as defined in the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.).
RUS provides loans to borrowers at
interest rates and on terms that are more
favorable than those generally available
from the private sector. RUS borrowers,
as a result of obtaining federal
financing, receive economic benefits
that exceed any direct economic costs
associated with complying with RUS
regulations and requirements.
Information Collection and
Recordkeeping Requirements
The information collection and
recordkeeping requirements contained
in this rule are pending approval by
OMB and will be assigned OMB control
number 0572–0147 in accordance with
the Paperwork Reduction Act of 1995
(44 U.S.C. chapter 35).
E-Government Act Compliance
Rural Development is committed to
the E-Government Act, which requires
Government agencies in general to
provide the public the option of
submitting information or transacting
business electronically to the maximum
extent possible.
Catalog of Federal Domestic Assistance
The programs described by this rule
are listed in the Catalog of Federal
Domestic Assistance Programs under
number 10.759, Special Evaluation
Assistance for Rural Communities and
Households Program (SEARCH); 10.760,
Water and Waste Disposal Systems for
Rural Communities; 10.761, Technical
Assistance and Training Grants; 10.762,
Solid Waste Management Grants;
10.763, Emergency Community Water
Assistance Grants; 10.770, Water and
Waste Disposal Loans and Grants
(Section 306C); 10.850; Rural
Electrification Loans and Loan

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Guarantees; 10.851, Rural Telephone
Loans and Loan Guarantees, 10.855,
Distance Learning and Telemedicine
Loans and Grants; 10.857, State Bulk
Fuel Revolving Fund Grants, 10.859,
Assistance to High Energy Cost Rural
Communities; 10.861, Public Television
Station Digital Transition Grant
Program; 10.862, Household Water Well
System Grant Program 10.863,
Community Connect Grant Program;
10.864, Grant Program to Establish a
Fund for Financing Water and
Wastewater Projects; 10.886, Rural
Broadband Access Loans and Loan
Guarantees.
The Catalog is available on the
Internet at http://www.cfda.gov.
Executive Order 12372
Most programs covered by this
rulemaking are excluded from the scope
of Executive Order 12372,
Intergovernmental Consultation, which
may require consultation with State and
local officials. See the final rule related
notice entitled ‘‘Department Programs
and Activities Excluded from Executive
Order 12372,’’ (50 FR 47034). However,
the Water and Waste Disposal Loan
Program, CFDA number 10.770, is
subject to the provisions of Executive
Order 12372 which requires
intergovernmental consultation with
State and local officials.
Unfunded Mandates
This rule contains no Federal
mandates (under the regulatory
provision of Title II of the Unfunded
Mandate Reform Act of 1995) for State,
local, and tribal governments or the
private sector. Thus, this rule is not
subject to the requirements of sections
202 and 205 of the Unfunded Mandate
Reform Act of 1995.
National Environmental Policy Act
Certification
Rural Development has determined
that this rule will not significantly affect
the quality of the human environment
as defined by the National
Environmental Policy Act of 1969 (42
U.S.C. 4321 et seq.). Therefore, this
action does not require an
environmental impact statement or
assessment.
Executive Order 13132, Federalism
The policies contained in this rule do
not have any substantial direct effect on
states, on the relationship between the

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national government and the states, or
on the distribution of power and
responsibilities among the various
levels of government. Nor does this rule
impose substantial direct compliance
costs on state and local governments.
Therefore, consultation with the states
is not required.

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Executive Order 13175
The policies contained in this rule do
not impose substantial unreimbursed
direct compliance costs on Indian tribal,
Alaska native, or native Hawaiian
governments and sovereign institutions
or have tribal implications that preempt
tribal law. Prior to development of this
rulemaking, the agency held Tribal
Consultations at seven (7) USDA
regional consultations, conducted
sixteen (16) SUTA specific
consultations and hosted three (3)
Internet and toll free teleconference
based webinars in order to determine
the impact of this rule on Tribal
governments, communities, and
individuals. Reports from these sessions
for consultation will be made part of the
USDA annual reporting on Tribal
Consultation and Collaboration, the
annual SUTA Report to Congress and
were used extensively throughout the
drafting of this proposed rule.
Background
USDA Rural Development (Rural
Development) is a mission area within
the U.S. Department of Agriculture
comprising the Rural Housing Service,
Rural Business/Cooperative Service and
Rural Utilities Service. Rural
Development’s mission is to increase
economic opportunity and improve the
quality of life for all rural Americans.
Rural Development meets its mission by
providing loans, loan guarantees, grants
and technical assistance through more
than forty programs aimed at creating
and improving housing, businesses and
infrastructure throughout rural America.
Rural Utilities Service (RUS) loan,
loan guarantee and grant programs act
as a catalyst for economic and
community development. By financing
improvements to rural electric, water
and waste, and telecom and broadband
infrastructure, RUS also plays a big role
in improving other measures of quality
of life in rural America, including
public health and safety, environmental
protection, conservation, and cultural
and historic preservation.
The 2008 Farm Bill (Pub. L. 110–246,
codified at 7 U.S.C. 936f) authorized the
Substantially Underserved Trust Area
(SUTA) initiative. The SUTA initiative
gives the Secretary of Agriculture
certain discretionary authorities relating
to financial assistance terms and

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conditions that can enhance
infrastructure financing options in areas
that are underserved by electric, water
and waste, and telecommunications and
broadband utilities. Given the
challenges, dynamics, and opportunities
in implementing the SUTA initiative,
RUS has aimed to foster a process that
includes the voices of tribal leaders,
tribal community members, Alaska
Native Regional and Village
Corporations, Guam, American Samoa
and the Commonwealth of the Northern
Mariana Islands, and other stakeholders.
Preliminary research by RUS
identified various reports that provided
several insights. In 2007, the United
States Census Bureau Facts for Features
article (dated 10/29/07) reported that
the poverty rate of people who reported
being sole race American Indian and
Alaska Native (AI/AN) was 27 percent.
Additionally, in 2006, the United States
Government Accountability Office
reported that based on the 2000
decennial census, the telephone
subscribership rate for Native American
households on tribal lands was
substantially below the national level of
about 98 percent. Specifically, about 69
percent of Native American households
on tribal lands in the lower 48 states
and about 87 percent in Alaska Native
villages had telephone service.
Additionally, in 2000, the United States
Census Bureau reported that on Native
American lands, 11.7 percent of
residents lack complete plumbing
facilities, compared to 1.2 percent of the
general U.S. population.
There are special considerations and
challenges in implementing an initiative
to communities residing on trust lands.
Many American Indians, Alaska
Natives, Native Hawaiians, and Pacific
Islanders have a deep spiritual, cultural,
and historical relationship with the
land. In certain circumstances, the
objectives of economic and
infrastructure development can be at
odds with spiritual, cultural, historical,
and environmental values. Additionally,
there are special legal considerations
inherent in financing projects in areas
where the land itself cannot be used as
security.
The SUTA initiative identifies the
need to improve utility service and
seeks to improve the availability of RUS
programs to reach communities within
trust areas when communities are
determined by the Secretary of
Agriculture (such authority has been
delegated to the Administrator of RUS)
to be substantially underserved. The
RUS programs that are affected by this
provision include: Rural Electrification
Loans and Guaranteed Loans, and High
Cost Energy Grants; Water and Waste

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Disposal Loans, Guaranteed Loans and
Grants; Telecommunications
Infrastructure Loans and Guaranteed
Loans; Distance Learning and
Telemedicine Loans and Grants; and
Broadband Loans and Guaranteed
Loans.
In addition to its discretionary
authority to implement the SUTA
provisions, RUS is under a continuing
obligation to make annual reports to
Congress on (a) the progress of the
SUTA initiative, and (b)
recommendations for any regulatory or
legislative changes that would be
appropriate to improve services to
communities located in substantially
underserved trust areas. RUS has
submitted three reports to Congress,
dated June 18, 2009, June 21, 2010, and
August 23, 2011.
The USDA Office of Native American
Programs (since renamed the Office of
Tribal Relations, hereinafter OTR) and
RUS began exploring SUTA initiative
implementation in 2008 after passage of
the Farm Bill. RUS in conjunction with
OTR interpreted implementation to
include formal USDA Tribal
Consultations and working with
stakeholders that are federally
recognized tribes. Pursuant to this
determination and in accordance with
President Obama’s November 5, 2009,
Memorandum on Tribal Consultation,
RUS conducted sixteen (16) direct tribal
consultations, seven (7) regional
consultations, one listening session and
three (3) Internet and toll free
teleconference based webinars on
implementation of the SUTA provision
with Indian tribes from across the
country. Additionally, the agency heard
from six Federal agencies at three
separate consultations on how best to
implement the SUTA provision.
Federal agencies that were consulted
include: The Department of the Interior,
as the primary Federal agency with
many direct responsibilities to Native
American and Pacific Islander
stakeholders; the Department of
Veterans Affairs, for its clarification of
the definition of ‘‘trust land’’; the
Environmental Protection Agency,
because it has information regarding
underserved trust areas with
environmental challenges; the
Department of Energy, because it has an
interest in promoting energy
development and conservation in trust
areas; the Department of Commerce and
the Federal Communications
Commission, because each agency has
an interest in telecommunications
service in trust areas; the Department of
Health and Human Services, because it
has a long standing interest in providing
health care services and promoting the

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adoption of health IT in native
communities; and the Office of
Management and Budget.
As a result of categorizing and
analyzing the comments received
through tribal consultations and filed
comments, RUS was able to identify
certain issues that impact both the
underserved communities that seek
better access to RUS programs, and the
federal agencies that have similar yet
sometimes competing interests in trust
areas. This regulation is informed by the
insight gained through consultations
and comments, and is designed to
complement existing loan, grant, and
combination loan and grant programs
with the SUTA provisions that
authorize the Administrator to apply
certain discretionary authorities (2
percent interest and extended
repayment terms; waivers of
nonduplication restrictions, matching
fund requirements, or credit support
requirements; and highest funding
priority) for the benefit of eligible
communities, and the entities that serve
them, in underserved Trust areas.
Discussion of Proposed Rule and
Comments Received
In its Proposed Rule, published in the
Federal Register October 14, 2011, (76
FR 63846), the agency requested
comments regarding implementing the
Substantially Underserved Trust Areas
provision of the 2008 Farm Bill. The
agency received nine comments from
the following organization/individuals:
• Society of American Indian
Government Employees
• Lalamilo Community Association
• NANA Regional Corporation
• Winnebago Tribe of Nebraska
• WAIMEA Hawaiian Homesteaders
Assoc., Inc.
• State of Hawaii, Department of
Hawaiian Home Lands
• Council for Native Hawaiian
Advancement
• National Tribal
Telecommunications Association
• Cheyenne River Sioux Tribe
These comments have been
summarized and are addressed below:

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Society of American Indian Government
Employees
The Society expressed support and
appreciation for the hard work
performed by the RUS staff. The Society
recommended that the agency (1)
affirmatively proclaim that all land
(including all ‘‘fee land’’) within tribal
reservation boundaries to be qualified as
trust lands for the SUTA provision, (2)
designate the data requirements under
§ 1700.107 as burdensome and require
that the burden of proof be on the

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current service providers to demonstrate
that they are actually providing service
at reasonable prices, (3) refrain from
requiring tribal communities to
document significant health risks when
a significant proportion of the
community is unserved, and (4) ensure
that RUS applicant reviewers have some
tribal training on special legal status of
tribes as sovereign nations before
reviewing these types of applications.
The Society also suggested that the
SUTA Farm Bill provisions ensure that
tribes are automatically eligible to
receive waivers from the agency’s nonduplication policies when a tribe
applies to serve their own areas.

application reviewers, the agency has
and will continue to train staff on the
SUTA provision and a wide range of
issues affecting tribal participation in
RUS program including the sovereign
nation status of tribes. RUS has
provided service to numerous tribes as
sovereign nations, and understands the
legal status and collateral challenges to
develop solutions that provide for
program participation and the balance
to protect taxpayer investments.
Regarding amendments to the Farm
Bill, under SUTA the RUS may make
legislative recommendations and will
take our experience with the new
authorities into account.

RUS Response
With regard to trust land status, the
RUS does not have the authority to
adjust the statutory definition of trust
lands. RUS understands the unique
‘‘checker board’’ character of trust and
non-trust lands in tribal communities
The agency, consistent with its current
practice, may consider SUTA related
applications that include non-Trust
territories when the service to or
through those areas are ‘‘necessary and
incidental’’ to improving service to a
covered Trust area. In other cases, the
agency could allocate SUTA benefits to
SUTA eligible territories.
With regard to data requirements
under § 1700.107, the proposed rule
provides that the ‘‘explanation and
documentation of the high need for the
benefits of the eligible program * * *
may’’ include data from the list of
proxies. As such the list is not exclusive
and applicants are welcome to provide
additional information which could
demonstrate to the Administrator that
the high need for the benefits of the
eligible program exists. The agency
understands the burden; however, the
applicant is in the best position to at
least make an initial case that current
services are inadequate. The agency can
then attempt to document the service
delivery by incumbent providers and
the agency will make an independent
determination based on the information
that is available.
With regard to areas unserved by
water utilities, the agency certainly
supports the general proposition that
the absence of clean sources of drinking
water poses serious health risks, but the
specific details of the types of health
risks a community faces due to water
quality and availability in that specific
location both helps the agency meet the
finding of ‘‘substantially underserved’’
and target limited funding to areas
where it is needed the most.
As for training on the special legal
status of tribes as sovereign nations for

Waimea Hawaiian Homesteaders
Association, Council for Native
Hawaiian Advancement, Lalamilo
Community Association and the
Department of Hawaiian Homelands
The agency received comments from
several entities in support of RUS’
historic consultation efforts to
implement the SUTA provisions to
communities residing on trust lands
managed by the Department of
Hawaiian Home lands. The agency has
a long history of providing access to
capital for infrastructure projects to
communities throughout the Hawaiian
home lands. The current statute only
applies the SUTA provisions to RUS
programs. The Rural Development
mission area will likely learn from the
implementation of SUTA by the RUS
and may outline important best
practices in its annual report to
Congress.
In comments submitted by the state of
Hawaii’s Department of Hawaiian
Homelands (DHHL), recommendations
were made requesting the agency to (1)
interpret § 1700.104 to apply feasibility
requirements on the specific project
rather than the applicant and (2)
interpret § 1700.107 to permit USDA to
provide grant assistance of up to 75
percent for communities on Trust lands
in Alaska and Hawaii that have a
median family income of 80 percent.

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RUS Response
Regarding the feasibility
recommendation, the agency points to
its response to the NTTA (below) which
raised similar recommendations. The
RUS is bound under Section 306F(c)(4)
of the Rural Electrification Act (RE Act)
which states that the Secretary ‘‘shall
only make loans or loan guarantees that
are found to be financially feasible’’
under the SUTA amendments to the RE
Act and it does not expand other
discretions. The SUTA discretionary
authorities defined by these provisions
of the RE Act are summarized earlier.

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The RUS will continue its long standing
practice of working collaboratively with
native communities to find solutions
that balance federal loan security
requirements with the unique
circumstances facing native
communities. Therefore, DHHL’s
recommendations regarding loan
security and financial feasibility will be
addressed in the application review
process.
With regard to DHHL’s
recommendation to authorize grant
assistance of up to 75 percent for
communities on Trust lands in Alaska
and Hawaii with a median family
income of 80 percent, the agency points
to its response to NTTA regarding the
level of grant funds dedicated for a
particular provision in the statute. The
amount of loan and grant funds that can
be dedicated for any single purpose are
generally defined by the authorizing
statutes the agency administers and the
annual appropriations laws which
allocate budget authority (BA) to various
programs. The SUTA provisions of the
RE Act do not grant the agency any new
authorities to convert BA among and
between grant, direct loan or loan
guarantee categories. Where it has such
authority, the agency takes into account
the needs of eligible communities.
We also note DHHL’s support for
§ 1700.108 which covers application
requirements that invite SUTA
applicants to provide a variety of data
sets that are already provided to other
federal agencies who work closely with
native communities. With the inclusion
of subsection (H), RUS recognizes the
need for native communities to
articulate their unique circumstances to
federal agencies for purposes of program
eligibility.

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NANA Regional Corporation
The NANA Regional Corporation (an
ANCSA Regional Corporation in Alaska)
filed comments expressing concern over
the current eligibility requirements
contained in the Proposed Rule on
SUTA. NANA argues that the current
requirements may preclude villages in
its region and across Alaska for SUTA
consideration since many Alaska Native
villages are not located on large tracts of
trust land.
RUS Response
The definition of trust areas in the
Proposed Rule is taken directly from the
current statute (7 U.S.C. 306F (B)(2))
added to the RE Act as part of the Food,
Conservation and Energy Act of 2008
(the Farm Bill). This definition includes
land that ‘‘is owned by a Regional
Corporation or a Village Corporation, as
such terms are defined in Section 3(g)

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and 3(j) of the Alaska Native Claims
Settlement Act * * *.’’ The RUS does
not have the authority to adjust the
statutory definition of trust lands. RUS
understands the many unique
infrastructure challenges that rural
communities (both Native and nonNative) face throughout Alaska. The
agency, consistent with current practice,
however, may consider SUTA related
applications that include non-Trust
territories when the service to or
through those areas are ‘‘necessary and
incidental’’ to improving service to a
covered Trust area. In other cases, the
agency could allocate SUTA benefits to
SUTA eligible territories. RUS is also
legislatively mandated to report to
Congress annually on its
implementation of the SUTA legislation.
As part of that report, RUS may suggest
‘‘recommendations for any regulatory or
legislative changes that would be
appropriate to improve services to
substantially underserved trust areas.’’
In this regard, the NANA suggestions on
coverage of non-Trust territories are
very helpful.
Winnebago Tribe of Nebraska
The Winnebago Tribe of Nebraska
expressed support for the SUTA
regulations championing waivers of
matching requirements and giving the
highest priority to SUTA projects to
facilitate expedient construction,
acquisition or improvements of
infrastructure throughout tribal
communities. The Tribe noted the
ongoing need for access to robust
broadband service to be deployed in
order for economic capacity building to
occur throughout the Winnebago
community. Specifically, the Tribe
highlighted the inadequate level of
mobile wireless and broadband coverage
in their region. The tribe’s listed
priorities in health, education, safety
and economic capacity building and
recommend that tribal governments
merit the right to control the planning,
adoption, utilization and sustainability
of any and all services that advance
their goals.
RUS Response
SUTA will give the RUS new tools to
make financial resources more
accessible to entities seeking to bring
modern utility services to tribal areas.
We share the concerns expressed by the
Tribe that unserved native communities
can no longer be ignored and that the
availability of adequate broadband
access remains an important national
priority. USDA has made the
deployment of advanced services on
Tribal lands a central pillar to our rural

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economic development mission which
will be accelerated by this regulation.
National Tribal Telecommunications
Association
The National Tribal
Telecommunications Association
commended USDA for its diligence
implementing the SUTA provisions and
offered specific comment on the
following topics:
Disparity Analysis
The National Tribal
Telecommunications Association
(NTTA) suggested that the USDA adopt
a metric of ‘‘disparity’’ to assess
infrastructure ‘‘underservice’’ and
recommended a comparison of access to
infrastructure in a Trust Area and an
area of community immediately
contiguous to the Trust Area.
RUS Response
In § 1700.108(i) of the proposed rule,
the agency seeks data from the applicant
documenting a lack of service or
inadequate service in the affected
community (§ 1700.108(i)). The relative
level of service between Trust and nonTrust territories as well as the relative
cost between those areas are relevant
factors and could be provided by
applicants in a SUTA request. A
disparity analysis may be very helpful
in demonstrating a lack of service. If
disparity information is provided in a
RUS application, the agency will take
such information into consideration
when reviewing SUTA requests. RUS
believes that codifying a disparity test
may have the unintended consequence
of signaling that SUTA authorities
would be less available where a Trust
Area exists and its surrounding nonTrust areas all suffer from a lack of
service.
Overlapping or Incumbent Service
Provider Areas
The NTTA recommends that the
proposed definition of ‘‘underserved’’ in
section 1700.101 be amended to add the
phrase, ‘‘notwithstanding that a service
provider is an RUS borrower.’’
RUS Response
A change in the definition of
‘‘underserved’’ is not necessary to
address the concern of the commenter
and is addressed elsewhere. Whether an
area is determined to be ‘‘underserved’’
does not depend on the relationship of
the incumbent service provider to the
RUS. However, among the discretionary
powers given to the agency under
section 306F(c)(2) of the RE Act and
under section 1700.106 of the proposed
rule, is the power to waive ‘‘non-

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duplication restrictions.’’ That core
discretionary authority is not limited to
areas served by RUS borrowers or nonborrowers.
Financial Feasibility Considerations
NTTA makes several comments and
recommended changes regarding
financial feasibility, loan security and
risk assessments as well as weighing
financial feasibility against a
community’s lack of essential
infrastructure. Specifically, NTTA
recommends changing proposed section
1700.104 from ‘‘the financial feasibility
of an application will be determined
pursuant to normal underwriting
practices for a particular eligible
program’’ to ‘‘pursuant to normal
underwriting practices, and such
reasonable alternative practices as may
support financial feasibility
determination for a particular eligible
program.’’ NTTA also proposes to add
additional discretionary authorities
related to collateral, security and risk
assessment and Times Interest Earned
Ratio (TIER) calculations.

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RUS Response
The Section 306F(c)(4) of the Rural
Electrification Act states that the
Secretary ‘‘shall only make loans or loan
guarantees that are found to be
financially feasible’’ under the SUTA
amendments to the Rural Electrification
Act and it does not expand other
discretions. The SUTA discretionary
authorities defined by these provisions
of the Rural Electrification Act are
summarized here.
• AUTHORITY OF SECRETARY.—In
carrying out subsection (b), the
Secretary—
Æ May make available from loan or
loan guarantee programs administered
by the Rural Utilities Service to
qualified utilities or applicants
financing with an interest rate as low as
2 percent, and with extended repayment
terms;
Æ May waive nonduplication
restrictions, matching fund
requirements, or credit support
requirements from any loan or grant
program administered by the Rural
Utilities Service to facilitate the
construction, acquisition, or
improvement of infrastructure;
Æ May give the highest funding
priority to designated projects in
substantially underserved trust areas;
and
Æ Shall only make loans or loan
guarantees that are found to be
financially feasible and that provide
eligible program benefits to
substantially underserved trust areas.

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The proposed regulation faithfully
codifies those authorities and the
constraint of financial feasibility is also
aligned with the RUS programs to
assure debt repayment and protect
taxpayer funds. The agency does not
have the administrative ability to exceed
that authority. However, the
commenter’s concerns about finding
creative solutions to feasibility issues
are well taken. The RUS has a long
history of working closely with tribal
communities to address loan security
issues. Since the earliest days of the
Rural Electrification Administration and
now the RUS, the agency has found
ways to reconcile taxpayer’s expectation
of loan security with the sovereign
rights of tribal governments. In this
regard, the agency has adapted its
mortgage documents and its loan
contracts to accommodate unique tribal
needs and circumstances.
The agency intends to continue to
work with tribal organizations to find
creative ways to address tribal needs
while preserving loan security.
Therefore, the final rule will adapt the
language proposed by NTTA for
§ 1700.104 to read, ‘‘pursuant to normal
underwriting practices, and such
reasonable alternatives within the
discretion of RUS that contribute to a
financial feasibility determination for a
particular eligible program or project.’’
Eligible Communities
NTTA proposes that consistent with
its advocacy before the Federal
Communications Commission (FCC),
Tribes be given an option to choose the
service provider serving a Trust
community or providing services for its
own community and that the Trust Area
governments be permitted to engage
service providers on quality of service
standards.
RUS Response
All RUS applicants are required to
demonstrate in their application that
they have secured all regulatory
approvals necessary to construct
infrastructure and deliver services. The
RUS does not have the power to define
the jurisdiction of tribal governments
and is mindful of their sovereignty. The
agency engages with tribes on a
government to government basis. An
applicant must demonstrate that they
have secured all necessary regulatory
approvals on the federal, tribal, state
and local levels. Furthermore,
applicants must demonstrate that their
projects are financially feasible. The
agency notes that an applicant seeking
to finance infrastructure on trust
territory would likely have a difficult
time demonstrating financial feasibility

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if it could not demonstrate tribal
support, at a governmental or
community level.
Grant Authority
The NTTA recommends that RUS
convert loan funds to grant options for
the benefit of ‘‘underserved’’ or
‘‘unserved’’ trust communities.
RUS Response
The availability of loan and grant
funds are generally defined by the
authorizing statutes the agency
administers and the annual
appropriations laws which allocate
budget authority (BA) to various
programs. The SUTA provisions of the
RE Act do not grant the agency any new
authorities to convert BA among and
between loan, grant or loan guarantee
categories. Where it has such authority,
the agency takes into account the needs
of eligible communities.
Flexible Proxies for Infrastructure
Underservice
The NTTA commends the RUS for
providing a list of proxies for
determining ‘‘underservice’’ and
recommends that an additional
provision be added to allow for
additional data to be submitted.
RUS Response
The proposed rule provides that the
‘‘explanation and documentation of the
high need for the benefits of the eligible
program * * * may’’ include data from
the list of proxies. As such the list is not
exclusive and applicants are welcome to
provide additional information which
could demonstrate to the Administrator
that the high need for the benefits of the
eligible program exists.
Technical Assistance
The NTTA recommends that RUS
implement a technical assistance
program. On a related matter, the NTTA
also recommends that the RUS
recommend to entities seeking to serve
Trust Areas that they apply under
SUTA.
RUS Response
‘‘While the RUS has limited formal
technical assistance funding for some of
its programs,’’ the RUS is committed to
expanding outreach to tribal
communities and applicants on all of its
programs. The RUS appreciates the
suggestion and shares the commenter’s
concern about technical assistance. That
is why in the Broadband Initiatives
Program of the American Recovery and
Reinvestment Act of 2009, the RUS
dedicated $3,384,202 of budget
authority to fund 19 technical assistance

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grants. The majority of those awards
were to Native American communities
and organizations.
USDA State Rural Development
Offices, RUS General Field
Representatives, Rural Water Circuit
Riders and RUS headquarters staff all
offer assistance to applicants and are
integral parts of the rural development
program delivery. SUTA is an important
initiative and RUS and RD staff
members have been trained on the
provision and will be trained on the
final rule.
Cheyenne River Sioux Tribe
In comments filed pursuant to the
proposed SUTA regulation, the
Cheyenne River Sioux Tribe requests
that the RUS interpret the statutory
language for SUTA to allow a waiver of
the statutory limitation on provision of
grant in 7 U.S.C. 1926(a)(2) for Water
and Waste Disposal grants.
7 U.S.C. 1926(a)(2)(A)(ii) states that
‘‘the amount of any grant made under
the authority of this subparagraph shall
not exceed 75 per centum of the
development cost of the project to serve
the area which the association
determines can be feasibly served by the
facility and to adequately serve the
reasonably foreseeable growth needs of
the area.’’
The commenter writes that the
authority provided to the Secretary
pursuant to Section 6105(C)(2) of the
2008 Farm Bill, allows the Secretary to
waive the 75 percent grant limitation
when considering financial assistance
pursuant to 7 CFR 1780.
Neither authorizing statute for the
Water and Waste Disposal loan and
grant program, nor the program
regulations, specifically state that a
match is required. By way of contrast,
in 7 U.S.C. 1926(a)(2)(C)(ii)(II), Congress
specifically refers to matching funds
related to Special Evaluation Assistance
for Rural Communities and Households
(SEARCH). In addition, in Section 306C
of the Consolidated Farm and Rural
Development Act (ConAct), Congress
specifically authorized the Secretary to
provide up to 100 percent grants for
water and waste infrastructure to Native
American Tribes to address health and
sanitary issues.
However, the commenter further
suggests that ‘‘a restriction of the total
amount of project cost that would be
funded with grant funds creates a
matching requirement whether the word
‘‘matching’’ is used.
RUS Response
The Agency will consider requests for
waiver of some, or all, of the loan
portion of a loan-grant combination

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under SUTA authority on a case-by-case
basis. The decision to consider a waiver
does not waive the over-arching
requirement for a finding of need or
feasibility pursuant to program
regulations. The final determination of
grant assistance will be made based on
the following factors:
1. Eligibility requirements, including
credit elsewhere certifications pursuant
to 1780.7(d);
2. Underwriting and demonstration of
need for grant, including the use of the
prevailing program interest rate and the
discretionary as low as 2% interest rates
on loans pursuant to SUTA;
3. Availability of funds, including
those funds available pursuant to the
Section 306C grant set-aside for Native
American Tribes or other applicable
congressional set-asides; and
4. Percentage of the project that is
located on SUTA eligible trust lands.
Eligibility Requirements
Eligibility requirements pursuant to 7
CFR 1780, such as credit elsewhere
certifications (§ 1780.7(d)) and
restrictions on the use of grant to reduce
equivalent dwelling unit costs to a level
less than similar systems cost (§ 1780.10
(b)(1)), will apply to applicants seeking
a waiver of the loan component under
SUTA.
Finding of Need and Feasibility
Through Underwriting
To ensure that limited grants funds
are awarded to those projects with the
greatest need, financial analysis and
underwriting will continue to be used to
determine the need for grant, including
grant above the 75 percent level. The
analysis will include the applicant’s
ability to incur debt at the prevailing
program interest rate and the
discretionary as low as 2 percent
interest rates on loans pursuant to
SUTA.
Availability of Funds
The commenter correctly noted that
the Agency has limited grant funding
available in the regular loan and grant
program and a backlog of requests that
exceeds $3 billion. In addition,
reductions in program funds will impact
the ability of the Agency to provide
needed grant funding. To support SUTA
efforts to increase tribal participation in
the program, the Agency will maximize
the use of the Section 306C grant
program, and other appropriate grant
program set-asides to meet the grant
needs of projects seeking waivers of the
75 percent grant limitation under SUTA.
To ensure that grant funds are available
to fund as many projects as possible, the
agency may limit the total amount of

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grant funding to be used to address
requests for additional grants pursuant
to SUTA, as well as total Agency grant
investment in the project.
Percentage of Project on SUTA-Defined
Trust Lands
Grant determinations will factor in
the percentage of the proposed project
that is located on substantially
underserved trust lands as defined
under SUTA.
List of Subjects in 7 CFR Part 1700
Authority delegations (Government
agencies), Electric power, Freedom of
information, Loan programs—
communications, Loan programsenergy, Organization and functions
(Government agencies), Rural areas,
Telecommunications, Broadband loan
and grant programs, water and waste
loan and grant program, and the
Distance Learning and Telemedicine
program.
For reasons set out in the preamble,
the agency amends chapter XVII of title
7 of the Code of Federal Regulations by
amending part 1700 to read as follows:
PART 1700—GENERAL INFORMATION
1. The authority citation continues to
read as follows:

■

Authority: 5 U.S.C. 301, 552; 7 U.S.C. 901
et seq., 1921 et. seq., 6941 et seq.; 7 CFR 2.7,
2.17 and 2.47.
§§ 1700.59 through 1700.99

[Reserved]

2. Add reserved §§ 1700.59 through
1700.99 to Subpart C of part 1700.
■ 3. Add subpart D, consisting of
§§ 1700.100 to 1700.150, to read as
follows:
■

Subpart D—Substantially Underserved
Trust Areas
Sec.
1700.100 Purpose.
1700.101 Definitions.
1700.102 Eligible programs.
1700.103 Eligible communities.
1700.104 Financial feasibility.
1700.105 Determining whether land meets
the statutory definition of ‘‘trust land.’’
1700.106 Discretionary provisions.
1700.107 Considerations relevant to the
exercise of SUTA discretionary
provisions.
1700.108 Application requirements.
1700.109 RUS review.
1700.110—1700.149 [Reserved]
1700.150 OMB Control Number.

Subpart D—Substantially Underserved
Trust Areas
§ 1700.100

Purpose.

This subpart establishes policies and
procedures for the Rural Utilities
Service (RUS) implementation of the

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Substantially Underserved Trust Areas
(SUTA) initiative under section 306F of
the Rural Electrification Act of 1936, as
amended (7 U.S.C. 906f). The purpose of
this rule is to identify and improve the
availability of eligible programs in
communities in substantially
underserved trust areas.

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§ 1700.101

Definitions.

Administrator means the
Administrator of the Rural Utilities
Service, or designee or successor.
Applicant means an entity that is
eligible for an eligible program under
that program’s eligibility criteria.
Borrower means any organization that
has an outstanding loan or loan
guarantee made by RUS for a program
purpose.
Completed application means an
application that includes the elements
specified by the rules for the applicable
eligible program in form and substance
satisfactory to RUS.
ConAct means the Consolidated Farm
and Rural Development Act, as
amended (7 USC 1921 et seq.).
Credit support means equity, cash
requirements, letters of credit, and other
financial commitments provided in
support of a loan or loan guarantee.
Eligible community means a
community as defined by 7 CFR
1700.103.
Eligible program means a program as
defined by 7 CFR 1700.102.
Financial assistance means a grant,
combination loan and grant, loan
guarantee or loan.
Financial feasibility means the ability
of a project or enterprise to meet
operating expenses, financial
performance metrics, such as debt
service coverage requirements and
return on investment, and the general
ability to repay debt and sustain
continued operations at least through
the life of the RUS loan or loan
guarantee.
Matching fund requirements means
the applicant’s financial or other
required contribution to the project for
approved purposes.
Nonduplication generally means a
restriction on financing projects for
services in a geographic area where
reasonably adequate service already
exists as defined by the applicable
program.
Project means the activity for which
financial assistance has been provided.
RE Act means the Rural Electrification
Act of 1936, as amended (7 U.S.C. 901
et seq.).
RUS means the Rural Utilities
Service, an agency of the United States
Department of Agriculture, successor to
the Rural Electrification Administration.

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An eligible community is a
community that:
(a) Is located on Trust land;
(b) May be served by an RUS
administered program; and
(c) Is determined by the Administrator
as having a high need for benefits of an
eligible program.

(b) Title Status Reports issued by the
U. S. Department of the Interior, Bureau
of Indian Affairs showing that title to
such land is held in trust or is subject
to restrictions imposed by the United
States;
(c) Trust Asset and Accounting
Management System data, maintained
by the Department of the Interior,
Bureau of Indian Affairs;
(d) Official maps of the Department of
Hawaiian Homelands of the State of
Hawaii identifying land that has been
given the status of Hawaiian home lands
under the provisions of section 204 of
the Hawaiian Homes Commission Act,
1920;
(e) Official records of the U.S.
Department of the Interior, the State of
Alaska, or such other documentation of
ownership as the Administrator may
determine to be satisfactory, showing
that title is owned by a Regional
Corporation or a Village Corporation as
such terms are defined in the Alaska
Native Claims Settlement Act (43 U.S.C.
1601 et seq);
(f) Evidence that the land is located
on Guam, American Samoa or the
Commonwealth of the Northern Mariana
Islands, and is eligible for use in the
Veteran’s Administration direct loan
program for veterans purchasing or
constructing homes on communallyowned land; and
(g) Any other evidence satisfactory to
the Administrator to establish that the
land is ‘‘trust land’’ within the meaning
of 38 U.S.C. 3765(1).

§ 1700.104

§ 1700.106

Substantially underserved trust area
means a community in trust land with
respect to which the Administrator
determines has a high need for the
benefits of an eligible program.
Trust land means ‘‘trust land’’ as
defined in section 3765 of title 38,
United States Code as determined by the
Administrator under 7 CFR 1700.104.
Underserved means an area or
community lacking an adequate level or
quality of service in an eligible program,
including areas of duplication of service
provided by an existing provider where
such provider has not provided or will
not provide adequate level or quality of
service.
§ 1700.102

Eligible programs.

SUTA does not apply to all RUS
programs. SUTA only applies to eligible
programs. An eligible program means a
program administered by RUS and
authorized in paragraph (a) of the RE
Act, or paragraphs (b)(1), (2), (14), (22),
or (24) of section 306(a) (7 U.S.C.
1926(a)(1), (2), (14), (22), (24)), or
sections 306A, 306C, 306D, or 306E of
the Con Act (7 U.S.C. 1926a, 1926c,
1926d, 1926e).
§ 1700.103

Eligible communities.

Financial feasibility.

Pursuant to normal underwriting
practices, and such reasonable
alternatives within the discretion of
RUS that contribute to a financial
feasibility determination for a particular
eligible program or project, the
Administrator will only make grants,
loans and loan guarantees that RUS
finds to be financially feasible and that
provide eligible program benefits to
substantially underserved trust areas.
All income and assets available to and
under the control of the Applicant will
be considered as part of the Applicant’s
financial profile.
§ 1700.105 Determining whether land
meets the statutory definition of ‘‘trust
land.’’

The Administrator will use one or
more of the following resources in
determining whether a particular
community is located in Trust land:
(a) Official maps of Federal Indian
Reservations based on information
compiled by the U. S. Department of the
Interior, Bureau of Indian Affairs and
made available to the public;

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Discretionary provisions.

(a) To improve the availability of
eligible programs in eligible
communities determined to have a high
need for the benefits of an eligible
program, the Administrator retains the
discretion, on a case-by-case basis, to
use any of the following SUTA
authorities individually or in
combination to:
(1) Make available to qualified
applicants financing with an interest
rate as low as 2 percent;
(2) Extend repayment terms;
(3) Waive (individually or in
combination) non-duplication
restrictions, matching fund
requirements, and credit support
requirements from any loan or grant
program administered by RUS; and
(4) Give the highest funding priority
to designated projects in substantially
underserved trust areas.
(b) Requests for waivers of
nonduplication restrictions, matching
fund requirements, and credit support
requirements, and requests for highest
funding priority will be reviewed on a
case-by-case basis upon written request

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of the applicant filed pursuant to 7 CFR
1700.108.
(c) Notwithstanding the requirements
in paragraph (b) of this section, the
Administrator reserves the right to
evaluate any application for an eligible
program for use of the discretionary
provisions of this subpart without a
formal, written request from the
applicant.

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§ 1700.107 Considerations relevant to the
exercise of SUTA discretionary provisions.

(a) In considering requests to make
available financing with an interest rate
as low as 2 percent, and extended
repayment terms, the Administrator will
evaluate the effect of and need for such
terms on the finding of financial
feasibility.
(b) In considering a request for a nonduplication waiver, the Administrator
will consider the offerings of all existing
service providers to determine whether
or not granting the non-duplication
waiver is warranted. A waiver of nonduplication restrictions will not be
given if the Administrator determines as
a matter of financial feasibility that,
taking into account all existing service
providers, an applicant or RUS borrower
would not be able to repay a loan or
successfully implement a grant
agreement. Requests for waivers of nonduplication restrictions will be
reviewed by taking the following factors
into consideration:
(1) The size, extent and demographics
of the duplicative area;
(2) The cost of service from existing
service providers;
(3) The quality of available service;
and
(4) The ability of the existing service
provider to serve the eligible service
area.
(c) Requests for waivers of matching
fund requirements will be evaluated by
taking the following factors into
consideration:
(1) Whether waivers or reductions in
matching or equity requirements would
make an otherwise financially infeasible
project financially feasible;
(2) Whether permitting a matching
requirement to be met with sources not
otherwise permitted in an affected
program due to regulatory prohibition
may be allowed under a separate
statutory authority; and
(3) Whether the application could be
ranked and scored as if the matching
requirements were fully met.
(d) Requests for waivers of credit
support requirements will be evaluated
taking the following factors into
consideration:
(1) The cost and availability of credit
support relative to the loan security
derived from such support;

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(2) The extent to which the
requirement is shown to be a barrier to
the applicant’s participation in the
program; and
(3) The alternatives to waiving the
requirements.
(e) The Administrator may adapt the
manner of assigning highest funding
priority to align with the selection
methods used for particular programs or
funding opportunities.
(1) Eligible programs which use
priority point scoring may, in a notice
of funds availability or similar notice,
assign extra points for SUTA eligible
applicants as a means to exercise a
discretionary authority under this
subpart.
(2) The Administrator may announce
a competitive grant opportunity focused
exclusively or primarily on trust lands
which incorporates one or more
discretionary authorities under this
subpart into the rules or scoring for the
competition.
§ 1700.108

Application requirements.

(a) To receive consideration under
this subpart, the applicant must submit
to RUS a completed application that
includes all of the information required
for an application in accordance with
the regulations relating to the program
for which financial assistance is being
sought. In addition, the applicant must
notify the RUS contact for the
applicable program in writing that it
seeks consideration under this subpart
and identify the discretionary
authorities of this subpart it seeks to
have applied to its application. The
required written request memorandum
or letter must include the following
items:
(1) A description of the applicant,
documenting eligibility.
(2) A description of the community to
be served, documenting eligibility in
accordance with 7 CFR 1700.103.
(3) An explanation and
documentation of the high need for the
benefits of the eligible program, which
may include:
(i) Data documenting a lack of service
(i.e. no service or unserved areas) or
inadequate service in the affected
community;
(ii) Data documenting significant
health risks due to the fact that a
significant proportion of the
community’s residents do not have
access to, or are not served by, adequate,
affordable service.
(iii) Data documenting economic need
in the community, which may include:
(A) Per capita income of the residents
in the community, as documented by
the U.S. Department of Commerce,
Bureau of Economic Analysis;

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(B) Local area unemployment and notemployed statistics in the community,
as documented by the U.S. Department
of Labor, Bureau of Labor Statistics and/
or the U.S. Department of the Interior,
Bureau of Indian Affairs;
(C) Supplemental Nutrition
Assistance Program participation and
benefit levels in the community, as
documented by the U.S. Department of
Agriculture, Economic Research
Service;
(D) National School Lunch Program
participation and benefit levels in the
community, as documented by the U.S.
Department of Agriculture, Food and
Nutrition Service;
(E) Temporary Assistance for Needy
Families Program participation and
benefit levels in the community, as
documented by the U.S. Department of
Health and Human Services,
Administration for Children and
Families;
(F) Lifeline Assistance and Link-Up
America Program participation and
benefit levels in the community, as
documented by the Federal
Communications Commission and the
Universal Service Administrative
Company;
(G) Examples of economic
opportunities which have been or may
be lost without improved service.
(H) Data maintained and supplied by
Indian tribes or other tribal or
jurisdictional entities on ‘‘trust land’’ to
the Department of Interior, the
Department of Health and Human
Services and the Department of Housing
and Urban Development that illustrates
a high need for the benefits of an
eligible program.
(4) The impact of the specific
authorities sought under this subpart.
(b) The applicant must provide any
additional information RUS may
consider relevant to the application
which is necessary to adequately
evaluate the application under this
subpart.
(c) RUS may also request
modifications or changes, including
changes in the amount of funds
requested, in any proposal described in
an application submitted under this
subpart.
(d) The applicant must submit a
completed application within the
application window and guidelines for
an eligible program.
§ 1700.109

RUS review.

(a) RUS will review the application to
determine whether the applicant is
eligible to receive consideration under
this subpart and whether the
application is timely, complete, and

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responsive to the requirements set forth
in 7 CFR 1700.107.
(b) If the Administrator determines
that the application is eligible to receive
consideration under this subpart and
one or more SUTA requests are granted,
the applicant will be so notified.
(c) If RUS determines that the
application is not eligible to receive
further consideration under this
subpart, RUS will so notify the
applicant. The applicant may withdraw
its application or request that RUS treat
its application as an ordinary
application for review, feasibility
analysis and service area verification by
RUS consistent with the regulations and
guidelines normally applicable to the
relevant program.
§§ 1700.110–1700.149
§ 1700.150

[Reserved]

OMB Control Number.

The reporting and recordkeeping
requirements contained in this part have
been approved by the Office of
Management and Budget and have been
assigned OMB control number 0572–
0147.
Dated: May 23, 2012.
Jonathan Adelstein,
Administrator, Rural Utilities Service.
[FR Doc. 2012–14255 Filed 6–12–12; 8:45 am]
BILLING CODE P

DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Parts 1, 5, 16, 28, and 160
[Docket ID OCC–2012–0005]
RIN 1557–AD36

Alternatives to the Use of External
Credit Ratings in the Regulations of
the OCC
Office of the Comptroller of the
Currency, Treasury (OCC).
ACTION: Final rule.
AGENCY:

Section 939A of the DoddFrank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act)
contains two directives to Federal
agencies including the OCC. First,
section 939A directs all Federal
agencies to review, no later than one
year after enactment, any regulation that
requires the use of an assessment of
creditworthiness of a security or money
market instrument and any references
to, or requirements in, such regulations
regarding credit ratings. Second, the
agencies are required to remove any
references to, or requirements of

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SUMMARY:

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reliance on, credit ratings and substitute
such standard of creditworthiness as
each agency determines is appropriate.
The statute further provides that the
agencies shall seek to establish, to the
extent feasible, uniform standards of
creditworthiness, taking into account
the entities the agencies regulate and the
purposes for which those entities would
rely on such standards.
On November 29, 2011, the OCC
issued a notice of proposed rulemaking
(NPRM), seeking comment on a
proposal to revise its regulations
pertaining to investment securities,
securities offerings, and foreign bank
capital equivalency deposits to replace
references to credit ratings with
alternative standards of
creditworthiness.
The OCC also proposed to amend its
regulations pertaining to financial
subsidiaries of national banks to better
reflect the language of the underlying
statute, as amended by section 939(d) of
the Dodd-Frank Act.
Today, the OCC is finalizing those
rules as proposed.
DATES: The final rule amending 12 CFR
part 5 is effective on July 21, 2012. The
final rules amending 12 CFR parts 1, 16,
28, and 160 are effective on January 1,
2013.
FOR FURTHER INFORMATION CONTACT:
Kerri Corn, Director for Market Risk,
Credit and Market Risk Division, (202)
874–4660; Michael Drennan, Senior
Advisor, Credit and Market Risk
Division, (202) 874–4660; Carl
Kaminski, Senior Attorney, or Kevin
Korzeniewski, Attorney, Legislative and
Regulatory Activities Division, (202)
874–5090; or Eugene H. Cantor,
Counsel, Securities and Corporate
Practices Division, (202) 874–5210,
Office of the Comptroller of the
Currency, 250 E Street SW.,
Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
I. Background
Section 939A of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act 1 (the Dodd-Frank Act) contains two
directives to Federal agencies including
the OCC. First, section 939A directs all
Federal agencies to review, no later than
one year after enactment, any regulation
that requires the use of an assessment of
creditworthiness of a security or money
market instrument and any references to
or requirements in such regulations
regarding credit ratings. Second, the
agencies are required to remove
references to, or requirements of
1 Public Law 111–203, Section 939A, 124 Stat.
1376, 1887 (July 21, 2010).

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reliance on, credit ratings and substitute
such standard of creditworthiness as
each agency determines is appropriate.
The statute further provides that the
agencies shall seek to establish, to the
extent feasible, uniform standards of
creditworthiness, taking into account
the entities the agencies regulate and the
purposes for which those entities would
rely on those standards.
On November 29, 2011, the OCC
issued a notice of proposed rulemaking
(NPRM), seeking comment on a
proposal to revise its regulations
pertaining to investment securities,
securities offerings, and foreign bank
capital equivalency deposits to replace
references to credit ratings with
alternative standards of
creditworthiness. The OCC also
proposed to amend its regulations
pertaining to financial subsidiaries of
national banks to better reflect the
language of the underlying statute, as
amended by section 939(d) of the DoddFrank Act.
The proposal generally pertained to
rules that require national banks and
Federal savings associations to
determine whether a particular security
or issuance qualifies, or does not
qualify, for a specific treatment. For
example, except for U.S. government
securities and certain municipal
securities, the OCC’s investment
securities regulations generally require a
national bank or Federal savings
association to determine whether or not
a security is ‘‘investment grade’’ in
order to determine whether purchasing
the security is permissible.
The OCC received 11 comments on
the proposed rules from banks, bank
trade groups, individuals, and bank
service providers. The majority of the
commenters generally supported the
proposed rules and stated that they
presented a workable alternative to the
use of credit ratings. A few commenters
raised specific issues, which are
addressed in more detail below.
After considering the comments and
the issues raised, the OCC has decided
to finalize the rules as proposed. In
order to assist national banks and
Federal savings associations in making
these ‘‘investment grade’’
determinations, the OCC also is
publishing a final guidance document
today in this issue of the Federal
Register.
II. Description of the Final Rules
For the purposes of its regulations at
12 CFR parts 1, 16, 28, and 160, the OCC
is amending the definition of
‘‘investment grade’’ to remove
references to credit ratings and
nationally recognized statistical rating

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