Transfer and Redesignation of Certain Regulations Involving State Savings Associations Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, 47652-47833 [2011-18276]
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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 390 and 391
RIN 3064–AD82
Transfer and Redesignation of Certain
Regulations Involving State Savings
Associations Pursuant to the DoddFrank Wall Street Reform and
Consumer Protection Act of 2010
Federal Deposit Insurance
Corporation (FDIC).
ACTION: Interim rule with request for
comments.
AGENCY:
Title III of the Dodd-Frank
Wall Street Reform and Consumer
Protection Act of 2010 (the Dodd-Frank
Act or the Act) provided that the
functions, powers, and duties of the
Office of Thrift Supervision (OTS)
relating to State savings associations
will transfer to the FDIC effective one
year after July 21, 2010, the date that the
Dodd-Frank Act was enacted. The Act
also amended section 3 of the Federal
Deposit Insurance Act (FDI Act) to
designate the FDIC as the ‘‘appropriate
Federal banking agency’’ for State
savings associations. The FDIC is
authorized to issue regulations pursuant
to the FDI Act and other existing laws
as the ‘‘appropriate Federal banking
agency’’ (or under similar statutory
terminology). As a result, pursuant to
those laws, the FDIC, the newlydesignated ‘‘appropriate Federal
banking agency’’ for State savings
associations, is authorized to issue
certain regulations involving State
savings associations.
Consistent with the authority
provided to the FDIC by the Dodd-Frank
Act, the FDI Act, and other statutory
authorities, the FDIC is reissuing and
redesigning certain transferring OTS
regulations. In republishing these rules,
the FDIC is making only technical
changes to existing OTS regulations
(such as nomenclature or address
changes). The FDIC is not republishing
those OTS regulations for which other
appropriate Federal banking agencies
are authorized to act. In the future, the
FDIC may take other actions related to
the transferred rules: Incorporating them
into other FDIC regulations contained in
Title 12, Chapter III, amending them, or
rescinding them, as appropriate.
DATES: The interim rule becomes
effective on July 22, 2011. Comments on
the interim rule must be received by
October 4, 2011.
ADDRESSES: You may submit comments
on the Interim Rule by any of the
following methods:
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SUMMARY:
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• Agency Web Site: https://www.FDIC.
gov/regulations/laws/federal/
notices.html. Follow instructions for
submitting comments on the Agency
Web Site.
E-mail: Comments@FDIC.gov. Include
RIN 3064–AD82 on the subject line of
the message.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments, Federal
Deposit Insurance Corporation, 550 17th
Street, NW., Washington, DC 20429.
• Hand Delivery: Comments may be
hand delivered to the guard station at
the rear of the 550 17th Street Building
(located on F Street) on business days
between 7 a.m. and 5 p.m. (EST).
• Federal eRulemaking Portal: https://
www.regulations.gov.
Instructions: All comments received
will be posted generally without change
to https://www.fdic.gov/regulations/laws/
federal/propose.html, including any
personal information provided. Paper
copies of public comments may be
ordered from the Public Information
Center by telephone at 1–(877) 275–
3342 or 1–(703) 562–2200.
FOR FURTHER INFORMATION CONTACT: A.
Ann Johnson, Counsel, Legal Division,
(202) 898–3573 or aajohnson@fdic.gov;
Rodney D. Ray, Counsel, Legal Division,
(202) 898–3556 or rray@fdic.gov; or
Martin P. Thompson, Senior Review
Examiner, Division of Risk Management
Supervision, (202) 898–6767 or
marthompson@fdic.gov.
SUPPLEMENTARY INFORMATION:
I. General
The Dodd-Frank Act, signed into law
on July 21, 2010, provided for a
substantial reorganization of the
regulation of State and Federal savings
associations and their holding
companies. Beginning July 21, 2011, the
transfer date established by section 311
of the Dodd-Frank Act, the powers,
duties, and functions formerly
performed by the OTS will be divided
among the FDIC, as to State savings
associations, the Office of Comptroller
of the Currency (OCC), as to Federal
savings associations, and the Board of
Governors of the Federal Reserve
System (FRB), as to savings and loan
holding companies. Section 316(b) of
the Dodd-Frank Act provided that all
orders, resolutions, determinations, and
regulations issued, made, prescribed, or
allowed to become effective by the OTS
that were in effect on the day before the
transfer date continue in effect and are
enforceable by the appropriate successor
agency until modified, terminated, set
aside, or superseded in accordance with
applicable law by such successor
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agency, by any court of competent
jurisdiction, or by operation of law.
Section 316(c) of the Dodd-Frank Act
further directed the FDIC and the OCC
to consult with one another and to
publish a list of the OTS regulations
continued which would be enforced by
the FDIC and the OCC, respectively. On
June 14, 2011, the FDIC approved a List
of OTS Regulations to be Enforced by
the OCC and the FDIC Pursuant to the
Dodd-Frank Wall Street Reform and
Consumer Protection Act that was
published in a Joint Notice in the
Federal Register on July 6, 2011.1 (The
FRB is directed by the same section of
the Act to identify and publish a list of
OTS regulations relating to savings and
loan holding companies that the FRB
will enforce.)
Apart from providing for the
continuation and enforcement of
regulations previously issued by the
OTS, section 312 of the Dodd-Frank Act
provided rulemaking authority to the
OCC, with respect to both State and
Federal savings associations, and to the
FRB with respect to savings and loan
holding companies. Although the DoddFrank Act did not provide the FDIC
with specific rulemaking authority over
State savings associations, the FDIC was
named the ‘‘appropriate Federal banking
agency’’ for State savings associations
by section 312(c) of the Act. Nothing in
the Dodd-Frank Act affected the FDIC’s
existing authority to issue regulations
under the FDI Act and other laws as the
‘‘appropriate Federal banking agency’’
(or under similar statutory terminology).
As a result, pursuant to those laws, the
FDIC, the newly-designated
‘‘appropriate Federal banking agency’’
for State savings associations, is
authorized to issue regulations
involving such associations.
The FDIC has independent
rulemaking authority for each of the
transferred OTS rules that are
republished as FDIC rules in this
Interim Rule. The rules republished
here regulate only State savings
associations, consistent with the DoddFrank Act’s allocation to the FDIC of the
duties and functions of the OTS relating
to these associations. Similarly, the OCC
and the FRB will republish former OTS
rules relating to the functions and duties
of the OTS transferred to those agencies,
respectively. Since the Dodd-Frank Act
did not give the FDIC authority over
Federal savings associations or savings
and loan holding companies, the
sections of the OTS rules that
previously regulated those entities are
not republished by the FDIC in this
Interim Rule.
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The FDIC, through this Interim Rule,
is formally transferring certain
regulations applicable to State savings
associations from 12 CFR chapter V to
12 CFR chapter III, as indicated in the
Derivation Table. To expedite
republication of the former OTS rules,
the regulations contained in this Interim
Rule will be transferred to the FDIC
with only minor technical, conforming,
or nomenclature changes. No changes
are being made at this time to the
substantive content of the transferred
regulations. (For example, references in
the former OTS rules to the ‘‘OTS,’’ the
‘‘Director, and the ‘‘Office’’ [of Thrift
Supervision] will be changed to the
‘‘FDIC’’ or the ‘‘Board of Directors’’ [of
the FDIC].) FDIC staff will evaluate the
transferred OTS rules and may later
recommend incorporating the
transferred rules into existing FDIC
rules, amending them, or rescinding
them, as appropriate.
A mass of transferred OTS rules are
being republished in this Interim Rule.
In republishing these rules, it is possible
that some rules have been
unintentionally omitted, that some
nomenclature changes have not been
identified, or that some internal crossreference between transferring rules has
not been changed. If there are such
inadvertent errors they are not intended
by the FDIC to alter the dictates of
section 316(b) of the Dodd-Frank Act.
That is, the former regulations of the
OTS affecting State savings associations
that are in effect the day before the
transfer date continue in effect, and will
be enforced by the FDIC until they are
modified, terminated, set aside, or
superseded in accordance with
applicable law by the FDIC (or other
Federal banking agency), any court of
competent jurisdiction, or by operation
of law.
Since the republished OTS rules
previously were issued by the OTS
pursuant to notice and comment
rulemaking and since the FDIC’s
proposed revisions to those rules
involve only non-substantive, largely
nomenclature changes, the FDIC finds
good cause to make the Interim Rule
effective immediately upon the transfer
date. Public comment will be accepted
for 60 days.
examiners, is being republished as
subpart A of part 390. Revisions to the
rule text have been made to reflect the
abolishment of the OTS and internal
cross-references have been revised to
reflect new FDIC rule citations. Former
§ 507.3(b) has been removed because it
is no longer needed.
II. Description of Parts Effected by the
Interim Rule and Derivation Table
The following general descriptions
discuss changes made to each former
OTS part that the FDIC is republishing:
Part 390, Subpart E
Former part 513 of the OTS
regulations, addressing rules for practice
before the FDIC, is being republished as
subpart E of part 390. Minor revisions
to the rule text have been made to
reflect the FDIC’s internal organization
and internal cross-references have been
revised to reflect new FDIC rule
citations.
Part 390, Subpart A
Former part 507 of the OTS
regulations, addressing restrictions on
post-employment activities of senior
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Part 390, Subpart B
Former part 508 of the OTS
regulations, addressing removals,
suspensions, and prohibitions where a
crime is charged or proven, is being
republished as subpart B of part 390.
Revisions to the rule text have been
made to address the applicability of the
regulation to State savings associations,
reflect the FDIC’s internal organization,
and internal cross-references have been
revised to reflect new FDIC rule
citations.
Part 390, Subpart C
Former subparts A and B of part 509
of the OTS regulations, addressing rules
of practice and procedure for
adjudicatory proceedings, are being
republished as subpart C of part 390.
Revisions to the rule text have been
made to reflect the FDIC’s internal
organization and internal crossreferences have been revised to reflect
new FDIC rule citations. Former
§ 509.100 (b) has been removed because
it relates to activities by certain savings
and loan holding companies or their
non-insured subsidiaries. Former
§ 509.103(b)(2) also has been removed to
allow the FDIC greater flexibility
regarding payments of civil money
penalties in the event of an internal
reorganization.
Part 390, Subpart D
Former part 512 of the OTS
regulations, addressing rules for
investigative proceedings and formal
examination proceedings, is being
republished as subpart D of part 390.
Minor revisions to the rule text have
been made to reflect the FDIC’s internal
organization and internal crossreferences have been revised to reflect
new FDIC rule citations. Citations to the
Savings and Loan Holding Company Act
and the Home Owners’ Loan Act have
also been removed.
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Part 390, Subpart F
Former part 513 of the OTS
regulations, addressing application
processing procedures, is being
republished as subpart F of part 390.
The procedures will be applicable to
applications filed under parts 390 and
391 by State savings associations. Minor
revisions to the rule text have been
made to reflect the FDIC’s internal
organization and responsibilities for
State savings associations and internal
cross-references have been revised to
reflect new FDIC or OCC rule citations.
Former § 516.40 also has been revised to
reflect the states served by the FDIC’s
regional offices and former
§ 516.45(a)(3) has been removed because
the FDIC does not charge filing fees for
applications.
Part 390, Subpart G
Former part 528 of the OTS
regulations, addressing
nondiscrimination requirements, is
being republished as subpart G of part
390. Internal cross-references have been
revised to reflect new FDIC rule
citations and appropriate FDIC office
addresses have been added.
Part 390, Subpart H
Former part 533 of the OTS
regulations, addressing disclosure and
reporting of CRA-related agreements, is
being republished as subpart H of part
390. Internal cross-references have been
revised to reflect new FDIC and OCC
rule citations. Former § 533.1(b)(2) has
been removed because it addresses
savings and loan holding companies
and former § 533.10 has been removed
because it is no longer needed.
Part 390, Subpart I
Former part 536 of the OTS
regulations, addressing consumer
protection in sales of insurance, is being
republished as subpart H of part 390.
Revisions to the rule text have been
made to reflect the FDIC’s
responsibilities for State savings
associations and internal crossreferences have been revised to reflect
new FDIC rule citations and appropriate
FDIC office addresses have been added.
Part 390, Subpart J
Former part 550 of the OTS
regulations, addressing fiduciary powers
of savings associations, focused almost
exclusively on fiduciary powers of
Federal savings associations, which will
be supervised by the OCC after the
Transfer Date. Because the FDIC will be
responsible for supervising State savings
associations after that date, only that
portion of former § 550.1(b) requiring
compliance with State law and for the
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operations to be conducted in a safe and
sound manner is being republished as
subpart J.
Part 390, Subpart K
Former part 551 of the OTS
regulations, addressing recordkeeping
and confirmation requirements for
securities transactions, is being
republished as subpart K of part 390.
Internal cross-references in the rule
have been revised to reflect new FDIC
rule citations.
Part 390, Subpart L
Former subpart B of part 555 of the
OTS regulations, addressing electronic
operations, is being republished as
subpart H of part 390. Internal crossreferences in the rule have been revised
to reflect new FDIC rule citations and
former § 555.310(b) has been removed
because it is no longer needed.
Part 390, Subpart M
Former subpart C of part 557 of the
OTS regulations, addressing deposits, is
being republished as subpart M of part
390. The rule text has been revised to
reflect the FDIC’s supervisory
responsibility for State savings
associations.
Part 390, Subpart N
Former part 558 of the OTS
regulations, addressing possession by
conservators and receivers for Federal
and State savings associations, is being
republished as subpart N of part 390.
The rule text has been revised to reflect
certain responsibilities of the FDIC
when it is appointed as conservator or
receiver for a Federal or State savings
association.
Part 390, Subpart O
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Former §§ 559.1–559.2 and subpart B
of part 559 of the OTS regulations,
addressing subordinate organizations, is
being republished as subpart O of part
390. Minor revisions to the rule text
have been made to reflect the FDIC’s
supervisory responsibilities for State
savings associations and internal crossreferences have been revised to reflect
new FDIC rule citations. References to
‘‘operating subsidiary’’ and ‘‘service
corporation’’ have been removed from
the rule because those terms relate to
Federal savings associations.
Part 390, Subpart P
Portions of part 560 of the OTS
regulations, addressing lending and
investment, are being republished as
subpart P of part 390. The republished
portions are former § 560.1 and all of
subpart B, except for §§ 560.93 and
560.110. The latter two sections will be
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republished by the OCC and will be
applicable to all savings associations.
Otherwise, internal cross-references
have been revised to reflect new FDIC
rule citations.
Part 390, Subpart Q
Former part 561 of the OTS
regulations, addressing definitions for
regulations affecting State savings
associations, is being republished as
subpart Q of part 390. Minor revisions
to the rule text have been made to
reflect the abolishment of the OTS,
address the applicability of the
regulation to State savings associations,
and internal cross-references have been
revised to reflect new FDIC rule
citations. A portion of former § 561.18
(definition of Director) and former
§ 561.34 (definition of Office) have been
removed because they are no longer
needed.
Part 390, Subpart R
Former part 562 of the OTS
regulations, addressing regulatory
reporting standards, is being
republished as subpart R of part 390.
Minor revisions to the rule text have
been made to reflect the abolishment of
the OTS and internal cross-references
have been revised to reflect new FDIC
rule citations.
Part 390, Subpart S
Former part 563 of the OTS
regulations, addressing the operations of
savings associations, is being
republished as subpart S of part 390.
Minor revisions to the rule text have
been made to reflect the abolishment of
the OTS and transfer of some regulatory
authority to the Board of Governors of
the Federal Reserve System and the
Bureau of Consumer Financial
Protection. Internal cross-references
have been revised to reflect new FDIC
rule citations.
Part 390, Subpart T
Former part 563c of the OTS
regulations, addressing accounting
requirements, is being republished as
subpart T of part 390. Minor revisions
to the rule text have been made to
conform to the FDIC’s corporate
structure, and internal cross-references
have been revised to reflect new FDIC
rule citations.
Part 390, Subpart U
Former part 563d of the OTS
regulations, addressing securities of
State savings associations, is being
republished as subpart U of part 390.
Minor revisions to the rule text have
been made to reflect the abolishment of
the OTS, and internal cross-references
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have been revised to reflect new FDIC
rule citations. Former § 536d.2 has been
removed the FDIC will not require
filings required by this subpart to be
made to the appropriate Regional Office,
as had been the OTS’ practice. Rather,
filings related to this subpart will be
required to be filed at the designated
address for the FDIC’s offices in
Washington, DC.
Part 390, Subpart V
Former part 563f of the OTS
regulations, addressing management
official interlocks, is being republished
as subpart V of part 390. Minor
revisions to the rule have been made to
reflect the abolishment of OTS, and
internal cross-references have been
revised to reflect new FDIC rule
citations. The rule text has been
amended to address its applicability
solely to State savings associations.
Part 390, Subpart W
Former part 563g of the OTS
regulations, addressing securities
offerings, is being republished as
subpart W of part 390. Minor revisions
to the rule text have been made to
reflect the abolishment of OTS and
internal cross-references have been
revised to reflect new FDIC rule
citations and corporate structure.
References to the rule’s applicability to
federal savings associations have not
been republished, nor have references to
the enforceability of the rule under
provisions of the Home Owners’ Loan
Act.
Part 390, Subpart X
Former part 564 of the OTS
regulations, addressing appraisals, is
being republished as subpart X of part
390. Minor revisions to the rule text
have been made to reflect the
abolishment of OTS and internal crossreferences have been revised to reflect
new FDIC rule citations.
Part 390, Subpart Y
Former part 565 of the OTS
regulations, addressing prompt
corrective action, is being republished
as subpart Y of part 390. Minor
revisions to the rule text have been
made to reflect the abolishment of the
OTS and internal cross-references have
been revised to reflect new FDIC rule
citations. Former section 565.5(h) will
not be republished to avoid a filing
redundancy.
Part 390, Subpart Z
Former part 567 of the OTS
regulations, addressing capital, is being
republished as subpart Z of part 390.
Minor revisions to the rule text have
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been made to reflect the abolishment of
the OTS and internal cross-references
have been revised to reflect new FDIC
rule citations. The term ‘‘qualified
supervisory goodwill’’ has not been
republished because of the lapse of the
20 year applicability provision provided
for in the former regulation.
Former appendix C to part 567 of the
OTS regulations, addressing risk-based
capital requirements-internal ratings
based and advanced measurement
approaches, is being republished as
appendix A to subpart Z. Minor
revisions to the rule text have been
made to reflect the abolishment of the
OTS, and internal cross-references have
been revised to reflect new FDIC rule
citations. The appendix has been
revised to reflect the FDIC’s internal
corporate structure.
Part 391, Subpart A
Former part 568 of the OTS
regulations, addressing security
procedures, is being republished as
subpart A of part 391. Minor revisions
to the rule text have been made to
reflect the abolishment of the OTS, and
internal cross-references have been
revised to reflect new FDIC rule
citations.
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Part 391, Subpart B
Part 391, Subpart D
Former part 570 of the OTS
regulations, addressing safety and
soundness guidelines and compliance
procedures, is being republished as
subpart B of part 391. Minor revisions
to the rule text have been made to
reflect the abolishment of the OTS, and
internal cross-references have been
revised to reflect new FDIC rule
citations.
Former part 572 of the OTS
regulations, addressing loans in areas
having special flood hazards, is being
republished as subpart D of part 391.
Minor revisions to the rule text have
been made to reflect the abolishment of
the OTS and internal cross-references
have been revised to reflect new FDIC
rule citations.
Part 391, Subpart C
Former part 571 of the OTS
regulations, addressing the Fair Credit
Reporting Act, is being republished in
part as subpart C of part 391. Minor
revisions to the republished rule text
have been made to reflect the
abolishment of the OTS, and internal
cross-references have been revised to
reflect new FDIC rule citations. The
FDIC has not republished sections of the
former OTS rule regulating portions of
the Fair Credit Reporting Act identified
as ‘‘enumerated consumer laws’’ under
Title X of the Dodd-Frank Act for which
the Bureau of Consumer Financial
Protection was given regulatory
authority.
Part 391, Subpart E
Former part 574 of the OTS
regulations, addressing the acquisition
of control savings associations, is being
republished as subpart E of part 391.
Minor revisions to the rule text have
been made to reflect the abolishment of
the OTS, and internal cross-references
have been revised to reflect new FDIC
rule citations. Reference to acquisition
of control by savings and loan holding
companies have been removed because
the Board of Governors of the Federal
Reserve System was given regulatory
authority over such entities by virtue of
Title III of the Dodd-Frank Act.
The following Derivation Table is
provided for reader reference:
OTS REGULATION TRANSFER
Existing section
Existing title
New section
New title
Part 390
Part 507
Restrictions on post-employment activities of
senior examiners
Subpart A
Restrictions on post-employment activities of
senior examiners
507.1
507.2
507.3
What does this part do?
Who is a senior examiner?
What post-employment restrictions apply to senior examiners?
When will OTS waive the post-employment restrictions?
What are the penalties for violating the post-employment restrictions?
390.1
390.2
390.3
What does this subpart do?
Who is a senior examiner?
What post-employment restrictions apply to senior examiners?
When will the FDIC waive the post-employment
restrictions?
What are the penalties for violating the post-employment restrictions?
Part 508
Removals, suspensions, and prohibitions where
a crime is charged or proven
Subpart B
Removals, suspensions, and prohibitions where
a crime is charged or proven
508.1
508.2
508.3
508.4
508.5
508.6
508.7
508.8
508.9
508.10
508.11
508.12
Scope.
Definitions.
Issuance of Notice or Order.
Contents and service of the Notice or Order.
Petition for hearing.
Initiation of hearing.
Conduct of hearings.
Default.
Rules of evidence.
Burden of persuasion.
Relevant considerations.
Proposed findings and conclusions and recommended decision.
Decision of the Office.
Miscellaneous.
390.10
390.11
390.12
390.13
390.14
390.15
390.16
390.17
390.18
390.19
390.20
390.21
Scope.
Definitions.
Issuance of Notice or Order.
Contents and service of the Notice or Order.
Petition for hearing.
Initiation of hearing.
Conduct of hearings.
Default.
Rules of evidence.
Burden of persuasion.
Relevant considerations.
Proposed findings and conclusions and recommended decision.
Decision of the FDIC Board of Directors.
Miscellaneous.
Part 509
Rules of Practice and Procedure in adjudicatory
proceedings
Subpart C
Rules of Practice and Procedure in adjudicatory
proceedings
Subpart A
509.1
Uniform rules of Practice and Procedure
Scope.
390.30
Scope.
507.4
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507.5
508.13
508.14
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390.4
390.5
390.22
390.23
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OTS REGULATION TRANSFER—Continued
Existing section
509.2
509.3
509.4
509.5
509.6
509.7
509.8
509.9
509.10
509.11
509.12
509.13
509.14
509.15
509.16
509.17
509.18
509.19
509.20
509.21
509.22
509.23
509.24
509.25
509.26
509.27
509.28
509.29
509.30
509.31
509.32
509.33
509.34
509.35
509.36
509.37
509.38
509.39
509.40
509.41
Subpart B
509.100
509.101
509.102
509.103
509.104
Existing title
New section
Rules of construction.
Definitions.
Authority of Director.
Authority of the administrative law judge.
Appearance and practice in adjudicatory proceedings.
Good faith certification.
Conflicts of interest.
Ex parte communications.
Filing of papers.
Service of papers.
Construction of time limits.
Change of time limits.
Witness fees and expenses.
Opportunity for informal settlement.
Office’s right to conduct examination.
Collateral attacks on adjudicatory proceeding.
Commencement of proceeding and contents of
notice.
Answer.
Amended pleadings.
Failure to appear.
Consolidation and severance of actions.
Motions.
Scope of document discovery.
Request for document discovery from parties.
Document subpoenas to nonparties.
Deposition of witness unavailable for hearing.
Interlocutory review.
Summary disposition.
Partial summary disposition.
Scheduling and prehearing conferences.
Prehearing submissions.
Public hearings.
Hearing subpoenas.
Conduct of hearings.
Evidence.
Post-hearing filings.
Recommended decision and filing of record.
Exceptions to recommended decision.
Review by the Director.
Stays pending judicial review.
Local Rules
Scope.
Appointment of Office of Financial Institution Adjudication.
Discovery.
Civil money penalties.
Additional procedures.
390.31
390.32
390.33
390.34
390.35
390.36
390.37
390.38
390.39
390.40
390.41
390.42
390.43
390.44
390.45
390.46
390.47
390.48
390.49
390.50
390.51
390.52
390.53
390.54
390.55
390.56
390.57
390.58
390.59
390.60
390.61
390.62
390.63
390.64
390.65
390.66
390.67
390.68
390.69
390.70
390.71
390.72
390.73
390.74
390.75
New title
Rules of construction.
Definitions.
Authority of the Board of Directors.
Authority of the administrative law judge.
Appearance and practice in adjudicatory proceedings.
Good faith certification.
Conflicts of interest.
Ex parte communications.
Filing of papers.
Service of papers.
Construction of time limits.
Change of time limits.
Witness fees and expenses.
Opportunity for informal settlement.
The FDIC’s right to conduct examination.
Collateral attacks on adjudicatory proceeding.
Commencement of proceeding and contents of
notice.
Answer.
Amended pleadings.
Failure to appear.
Consolidation and severance of actions.
Motions.
Scope of document discovery.
Request for document discovery from parties.
Document subpoenas to nonparties.
Deposition of witness unavailable for hearing.
Interlocutory review.
Summary disposition.
Partial summary disposition.
Scheduling and prehearing conferences.
Prehearing submissions.
Public hearings.
Hearing subpoenas.
Conduct of hearings.
Evidence.
Post-hearing filings.
Recommended decision and filing of record.
Exceptions to recommended decision.
Review by the Board of Directors.
Stays pending judicial review.
Scope.
Appointment of Office of Financial Institution Adjudication.
Discovery.
Civil money penalties.
Additional procedures.
Rules for investigative proceedings and formal
examination proceedings
Subpart D
Rules for investigative proceedings and formal
examination proceedings
512.1
512.2
512.3
512.4
512.5
512.6
512.7
Scope of part.
Definitions.
Confidentiality of proceedings.
Transcripts.
Rights of witnesses.
Obstruction of the proceedings.
Subpoenas.
390.80
390.81
390.82
390.83
390.84
390.85
390.86
Scope of subpart.
Definitions.
Confidentiality of proceedings.
Transcripts.
Rights of witnesses.
Obstruction of the proceedings.
Subpoenas.
Part 513
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Part 512
Practice before the office
Subpart E
Practice before the FDIC
513.1
513.2
513.3
513.4
513.5
513.6
Scope of part.
Definitions.
Who may practice.
Suspension and debarment.
Reinstatement.
Duty to file information concerning adverse judicial or administrative action.
Proceeding under this part.
390.90
390.91
390.92
390.93
390.94
390.95
Scope of subpart.
Definitions.
Who may practice.
Suspension and debarment.
Reinstatement.
Duty to file information concerning adverse judicial or administrative action.
Proceeding under this subpart.
513.7
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513.8
Removal, suspension, or debarment of independent public accountants and accounting
firms performing audit services.
390.97
Removal, suspension, or debarment of independent public accountants and accounting
firms performing audit services.
Part 516
Application processing procedures
Subpart F
Application processing procedures
390.100
390.101
What does this subpart do?
Do the same procedures apply to all applications
under this subpart?
How does the FDIC compute time periods under
this subpart?
516.1
516.5
516.10
Subpart A
516.15
516.20
516.25
516.30
516.35
516.40
516.45
516.47
Subpart B
516.50
516.55
516.60
516.70
516.80
Subpart C
516.100
516.110
516.120
516.130
516.140
Subpart D
516.160
516.170
516.180
516.185
516.190
Subpart E
Expedited Treatment
516.200
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516.250
516.260
516.270
516.280
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390.102
390.103
390.104
390.105
390.106
390.107
390.108
390.109
390.110
390.111
Must I meet with the FDIC before I file my application?
What information must I include in my draft business plan?
What type of application must I file?
What information must I provide with my application?
May I keep portions of my application confidential?
Where do I file my application?
What is the filing date of my application?
How do I amend or supplement my application?
390.113
390.114
390.115
Who must publish a public notice of an application?
What information must I include in my public notice?
When must I publish the public notice?
Where must I publish the public notice?
What language must I use in my publication?
390.116
390.117
390.118
390.119
390.120
Comment procedures.
Who may submit a written comment?
What information should a comment include?
Where are comments filed?
How long is the comment period?
390.121
390.122
Meeting procedures.
When will the FDIC conduct a meeting on an application?
What procedures govern the conduct of the
meeting?
Will the FDIC approve or disapprove an application at a meeting?
Will a meeting affect application processing time
frames?
390.112
390.123
390.124
390.125
If I file a notice under expedited treatment, when
may I engage in the proposed activities?
390.126
If I file a notice under expedited treatment, when
may I engage in the proposed activities?
What will OTS do after I file my application?
If OTS requests additional information to complete my application, how will it process my
application?
Will OTS conduct an eligibility examination?
What may OTS require me to do after my application is deemed complete?
Will OTS require me to publish a new public notice?
May OTS suspend processing of my application?
390.127
390.128
How long is the OTS review period?
How will I know if my application has been approved?
Standard Treatment
516.210
516.220
516.230
516.240
Pre-filing and filing procedures
What does this part do?
Do the same procedures apply to all applications
under this part?
How does OTS compute time periods under this
part?
Pre-Filing Procedures
Must I meet with OTS before I file my application?
What information must I include in my draft business plan?
What type of application must I file?
What information must I provide with my application?
May I keep portions of my application confidential?
Where do I file my application?
What is the filing date of my application?
How do I amend or supplement my application?
Publication Requirements
Who must publish a public notice of an application?
What information must I include in my public notice?
When must I publish the public notice?
Where must I publish the public notice?
What language must I use in my publication?
Comment Procedures
What does this subpart do?
Who may submit a written comment?
What information should a comment include?
Where are comments filed?
How long is the comment period?
Meeting Procedures
What does this subpart do?
When will OTS conduct a meeting on an application?
What procedures govern the conduct of the
meeting?
Will OTS approve or disapprove an application
at a meeting?
Will a meeting affect application processing time
frames?
OTS Review
390.133
390.134
What will the FDIC do after I file my application?
If the FDIC requests additional information to
complete my application, how will it process
my application?
Will the FDIC conduct an eligibility examination?
What may the FDIC require me to do after my
application is deemed complete?
Will the FDIC require me to publish a new public
notice?
May the FDIC suspend processing of my application?
How long is the FDIC review period?
How will I know if my application has been approved?
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516.290
What will happen if OTS does not approve or
disapprove my application within two calendar
years after the filing date?
390.135
What will happen if the FDIC does not approve
or disapprove my application within two calendar years after the filing date?
Part 528
Nondiscrimination requirements
Subpart G
Nondiscrimination requirements
528.1
528.1a
528.2
528.2a
528.3
528.4
528.5
528.6
528.7
528.8
528.9
Definitions.
Supplementary guidelines.
Nondiscrimination in lending and other services.
Nondiscriminatory appraisal and underwriting.
Nondiscrimination in applications.
Nondiscriminatory advertising.
Equal Housing Lender Poster.
Loan application register.
Nondiscrimination in employment.
Complaints.
Guidelines relating to nondiscrimination in lending.
390.140
390.141
390.142
390.143
390.144
390.145
390.146
390.147
390.148
390.149
390.150
Definitions.
Supplementary guidelines.
Nondiscrimination in lending and other services.
Nondiscriminatory appraisal and underwriting.
Nondiscrimination in applications.
Nondiscriminatory advertising.
Equal Housing Lender Poster.
Loan application register.
Nondiscrimination in employment.
Complaints.
Guidelines relating to nondiscrimination in lending.
Part 533
Disclosure and reporting of CRA-related agreements
Subpart H
Disclosure and reporting of CRA-related agreements
533.1
533.2
533.3
533.4
533.5
Purpose and scope of this part.
Definition of covered agreement.
CRA communications.
Fulfillment of the CRA
Related agreements considered a single agreement.
Disclosure of covered agreements.
Annual reports.
Release of information under FOIA.
Compliance provisions.
Transition provisions.
Other definitions and rules of construction used
in this part.
390.160
390.161
390.162
390.163
390.164
Purpose and scope of this subpart.
Definition of covered agreement.
CRA communications.
Fulfillment of the CRA.
Related agreements considered a single agreement.
Disclosure of covered agreements.
Annual reports.
Release of information under FOIA.
Compliance provisions.
[Reserved].
Other definitions and rules of construction used
in this subpart.
Part 536
Consumer protection in sales of insurance
Subpart I
Consumer protection in sales of insurance
536.10
536.20
536.30
536.40
536.50
536.60
Purpose and scope.
Definitions.
Prohibited practices.
What you must disclose.
Where insurance activities may take place.
Qualification and licensing requirements for insurance sales personnel.
Appendix A to Part 536—Consumer Grievance
Process
390.180
390.181
390.182
390.183
390.184
390.185
Purpose and scope.
Definitions.
Prohibited practices.
What you must disclose.
Where insurance activities may take place.
Qualification and licensing requirements for insurance sales personnel.
Appendix A to Part 390, Subpart I—Consumer
Grievance Process.
Part 550
Fiduciary powers of Savings Associations
Subpart J
Fiduciary powers of State Savings Associations
550.10
What regulations govern the fiduciary operations
of savings associations?
390.190
What regulations govern the fiduciary operations
of State savings associations?
Part 551
Recordkeeping and confirmation requirements
for securities transactions
Subpart K
Recordkeeping and confirmation requirements
for securities transactions
551.10
551.20
551.30
551.40
Subpart A
551.50
What does this part do?
Must I comply with this part?
What requirements apply to all transactions?
What definitions apply to this part?
Recordkeeping requirements
What records must I maintain for securities
transactions?
How must I maintain my records?
Content and timing of notice
What type of notice must I provide when I effect
a securities transaction for a customer?
How do I provide a registered broker-dealer confirmation?
How do I provide a written notice?
What are the alternate notice requirements?
May I provide a notice electronically?
May I charge a fee for a notice?
390.200
390.201
390.202
390.203
What does this subpart do?
Must I comply with this subpart?
What requirements apply to all transactions?
What definitions apply to this subpart?
390.204
What records must I maintain for securities
transactions?
How must I maintain my records?
533.6
533.7
533.8
533.9
533.10
533.11
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551.60
Subpart B
551.70
551.80
551.90
551.100
551.110
551.120
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390.166
390.167
390.168
390.169
390.170
390.205
390.206
390.207
390.208
390.209
390.210
390.211
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What type of notice must I provide when I effect
a securities transaction for a customer?
How do I provide a registered broker-dealer confirmation?
How do I provide a written notice?
What are the alternate notice requirements?
May I provide a notice electronically?
May I charge a fee for a notice?
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Subpart C
551.130
Subpart D
551.140
551.150
Existing title
New section
Settlement of securities transactions
When must I settle a securities transaction?
Securities trading policies and procedures
What policies and procedures must I maintain
and follow for securities transactions?
How do my officers and employees file reports of
personal securities trading transactions?
New title
390.212
When must I settle a securities transaction?
390.213
390.214
What policies and procedures must I maintain
and follow for securities transactions?
How do my officers and employees file reports of
personal securities trading transactions?
Part 555
Electronic operations
Subpart L
Electronic operations
555.100
Subpart B
390.220
What does this subpart do?
390.221
555.310
What does this part do?
Requirements applicable to all Savings Associations
Must I inform OTS before I use electronic means
or facilities?
How do I notify OTS?
390.222
Must I inform the FDIC before I use electronic
means or facilities?
How do I notify the FDIC?
Part 557
Deposits
Subpart M
Deposits
Subpart A
557.1
Subpart C
557.20
General
What does this part do?
Deposit activities of all Savings Associations
What records should I maintain on deposit activities?
390.230
What does this subpart do?
390.231
What records should I maintain on deposit activities?
Part 558
Possession by conservators and receivers for
Federal and State Savings Associations
Subpart N
Possession by conservators and receivers for
Federal and State Savings Associations
558.1
558.2
Procedure upon taking possession.
Notice of appointment.
390.240
390.241
Procedure upon taking possession.
Notice of appointment.
Part 559
Subordinate organizations
Subpart O
Subordinate organizations
559.1
559.2
Subpart B
What does this part cover?
Definitions.
Regulations applicable to all Savings Associations
How must separate corporate identities be maintained?
What notices are required to establish or acquire
a new subsidiary or engage in new activities
through an existing subsidiary?
How may a subsidiary of a savings association
issue securities?
How may a savings association exercise its salvage power in connection with a service corporation or lower-tier entities?
390.250
390.251
What does this subpart cover?
Definitions.
390.252
How must separate corporate identities be maintained?
What notices are required to establish or acquire
a new subsidiary or engage in new activities
through an existing subsidiary?
How may a subsidiary of a State savings association issue securities?
How may a State savings association exercise
its salvage power in connection with a service
corporation or lower-tier entities?
Part 560
Lending and investment
Subpart P
Lending and investment
560.1
560.2
560.3
Subpart B
General.
Applicability of law.
Definitions.
Lending and investment provisions applicable to
all Savings Associations
Lending limitations.
Real estate lending standards; purpose and
scope.
Real estate lending standards.
Most favored lender usury preemption.
Letters of credit and other independent undertakings to pay against documents.
Investment in State housing corporations.
Prohibition on loan procurement fees.
Asset classification.
Records for lending transactions.
Re-evaluation of real estate owned.
390.260
390.261
390.262
General.
[Reserved].
Definitions.
390.263
390.264
[Reserved].
Real estate lending standards; purpose and
scope.
Real estate lending standards.
[Reserved].
Letters of credit and other independent undertakings to pay against documents.
Investment in State housing corporations.
Prohibition on loan procurement fees.
Asset classification.
Records for lending transactions.
Re-evaluation of real estate owned.
555.300
559.10
559.11
559.12
559.13
560.93
560.100
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560.101
560.110
560.120
560.121
560.130
560.160
560.170
560.172
390.253
390.254
390.255
390.265
390.266
390.267
390.268
390.269
390.270
390.271
390.272
Part 561
Definitions for regulations affecting all Savings
Associations
Subpart Q
Definitions for regulations affecting all State Savings Associations
561.1
561.2
When do the definitions in this part apply?
Account.
390.280
390.281
When do the definitions in this subpart apply?
Account.
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561.3
561.4
561.5
561.6
561.7–561.8
561.9
561.12
561.14
561.15
561.16
561.18
561.19
561.24
561.26
561.27
561.28
561.29
561.30
561.31
561.33
561.34
561.35
561.37
561.38
561.39
561.40
561.41
561.42
561.43
561.44
561.45
561.50
561.51
561.52
561.53
561.54
Existing title
New section
New title
561.55
Accountholder.
Affiliate.
Affiliated person.
Audit period.
[Reserved]
Certificate account.
Consumer credit.
Controlling person.
Corporation.
Demand accounts.
Director.
Financial institution.
Immediate family.
Land loan.
Low-rent housing.
Money Market Deposit Accounts.
Negotiable Order of Withdrawal Accounts.
Nonresidential construction loan.
Nonwithdrawable account.
Note account.
Office.
Officer.
Parent company; subsidiary.
Political subdivision.
Principal office.
Public unit.
[Reserved]
Savings account.
Savings association.
Security.
Service corporation.
State.
Subordinated debt security.
Tax and loan account.
United States Treasury General Account.
United States Treasury Time Deposit Open Account.
With recourse.
Part 562
Regulatory reporting standards
Subpart R
Regulatory reporting standards
562.1
562.2
562.4
Regulatory reporting requirements.
Regulatory reports.
Audit of savings associations and savings association holding companies.
390.320
390.321
390.322
Regulatory reporting requirements.
Regulatory reports.
Audit of State savings associations.
Part 563
Savings Associations—Operations
Subpart S
State Savings Associations—Operations
Subpart A
563.1
563.4
563.5
Subpart B
563.22
Accounts
Chartering documents.
[Reserved]
Securities: Statement of non-insurance.
Operation and structure
Merger, consolidation, purchase or sale of assets, or assumption of liabilities.
Advertising.
Directors, officers, and employees.
Tying restriction exception.
Employment contracts.
Transactions with affiliates.
Loans by savings associations to their executive
officers, directors and principal shareholders.
Pension plans.
Securities and borrowings
Offers and sales of securities at an office of a
savings association.
Inclusion of subordinated debt securities and
mandatorily redeemable preferred stock as
supplementary capital.
Capital distributions
What does this subpart cover?
390.330
Chartering documents.
390.331
Securities: Statement of non-insurance.
390.332
Merger, consolidation, purchase or sale of assets, or assumption of liabilities.
Advertising.
Directors, officers, and employees.
Tying restriction exception.
Employment contracts.
Transactions with affiliates.
Loans by savings associations to their executive
officers, directors and principal shareholders.
Pension plans.
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563.27
563.33
563.36
563.39
563.41
563.43
563.47
Subpart C
563.76
563.81
Subpart E
563.140
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390.283
390.284
390.285
Accountholder.
Affiliate.
Affiliated person.
Audit period.
390.286
390.287
390.288
390.289
390.290
390.291
390.292
390.293
390.294
390.295
390.296
390.297
390.298
390.299
390.300
390.301
390.302
390.303
390.304
390.305
390.306
Certificate account.
Consumer credit.
Controlling person.
Corporation.
Demand accounts.
Director.
Financial institution.
Immediate family.
Land loan.
Low-rent housing.
Money Market Deposit Accounts.
Negotiable Order of Withdrawal Accounts.
Nonresidential construction loan.
Nonwithdrawable account.
Note account.
[Reserved].
Officer.
Parent company; subsidiary.
Political subdivision.
Principal office.
Public unit.
390.307
390.308
390.309
390.310
390.311
390.312
390.313
390.314
390.315
390.316
Savings account.
State savings association.
Security.
Service corporation.
State.
Subordinated debt security.
Tax and loan account.
United States Treasury General Account.
United States Treasury Time Deposit Open Account.
With recourse.
390.333
390.334
390.335
390.336
390.337
390.338
390.339
390.340
390.341
Offers and sales of securities at an office of a
savings association.
Inclusion of subordinated debt securities and
mandatorily redeemable preferred stock as
supplementary capital.
390.342
Capital distributions by State savings associations.
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Existing section
563.141
563.142
563.143
563.144
563.145
Existing title
New section
New title
What is a capital distribution?
What other definitions apply to this subpart?
Must I file with OTS?
How do I file with the OTS?
May I combine my notice or application with
other notices or applications?
Will the OTS permit my capital distribution?
Financial management policies
Management and financial policies.
Examinations and audits; appraisals; establishment and maintenance of records.
Frequency of safety and soundness examination.
Financial derivatives.
Interest-rate-risk-management procedures.
Procedures for monitoring Bank Secrecy Act
(BSA) compliance.
Reporting and bonding
Suspicious Activity Reports and other reports
and statements.
Bonds for directors, officers, employees, and
agents; form of and amount of bonds.
Bonds for agents.
Conflicts of interest.
Corporate opportunity.
Notice of change of Director or Senior Executive
Officer
What does this subpart do?
What definitions apply to this subpart?
Who must give prior notice?
What procedures govern the filing of my notice?
What information must I include in my notice?
What procedures govern OTS review of my notice for completeness?
What standards and procedures will govern OTS
review of the substance of my notice?
When may a proposed director or senior executive officer begin service?
When will the OTS waive the prior notice requirement?
390.343
390.344
390.345
390.346
390.347
Part 563c
Accounting requirements
Subpart T
Accounting requirements
Subpart A
563c.1
563c.2
563c.3
563c.4
Subpart B
Subpart C
563c.101
Form and content of financial statements.
Form and content of financial statements.
Definitions.
Qualification of public accountant.
Condensed financial information [Parent only].
[Reserved]
Financial statement presentation.
Application of this subpart.
390.380
390.381
390.382
390.383
Form and content of financial statements.
Definitions.
Qualification of public accountant.
Condensed financial information [Parent only].
390.384
563c.102
Financial statement presentation.
390.384 appendix
Financial statements for conversions, SEC filings, and offering circulars.
Financial statement presentation appendix to
390.384.
Part 563d
Securities of Savings Associations
Subpart U
Securities of State Savings Associations
Subpart A
563d.1
390.390
563d.210
Subpart B
563d.801
563d.802
Regulations
Requirements under certain sections of the Securities Exchange Act of 1934.
Mailing requirements for securities filings.
Liability for certain statements by savings associations.
Form and content of financial statements.
Interpretations.
Application of this subpart.
Description of business.
390.393
Requirements under certain sections of the Securities Exchange Act of 1934.
[Reserved].
Liability for certain statements by state savings
associations.
Form and content of financial statements.
390.394
390.395
Interpretations related to SEC filings.
Description of business.
Part 563f
Management official interlocks
Subpart V
Management official interlocks
563f.1
563f.2
563f.3
Authority, purpose, and scope.
Definitions.
Prohibitions.
390.400
390.401
390.402
Authority, purpose, and scope.
Definitions.
Prohibitions.
563.146
Subpart F
563.161
563.170
563.171
563.172
563.176
563.177
Subpart G
563.180
563.190
563.191
563.200
563.201
Subpart H
563.550
563.555
563.560
563.565
563.570
563.575
563.580
563.585
563.590
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563d.3b–6
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What is a capital distribution?
Definitions applicable to capital distributions.
Must I file with the FDIC?
How do I file with the FDIC?
May I combine my notice or application with
other notices or applications?
Will the FDIC permit my capital distribution?
390.348
390.349
390.350
Management and financial policies.
Examinations and audits; appraisals; establishment and maintenance of records.
Frequency of safety and soundness examination.
Financial derivatives.
Interest-rate-risk-management procedures.
Procedures for monitoring Bank Secrecy Act
(BSA) compliance.
390.351
390.352
390.353
390.354
390.355
Suspicious Activity Reports and other reports
and statements.
Bonds for directors, officers, employees, and
agents; form of and amount of bonds.
Bonds for agents.
Conflicts of interest.
Corporate opportunity.
390.356
390.357
390.358
390.359
390.360
390.361
390.362
390.363
390.364
390.365
Change of director or senior executive officer.
Applicable definitions.
Who must give prior notice?
What procedures govern the filing of my notice?
What information must I include in my notice?
What procedures govern the FDIC review of my
notice for completeness?
What standards and procedures will govern the
FDIC review of the substance of my notice?
When may a proposed director or senior executive officer begin service?
When will the FDIC waive the prior notice requirement?
390.366
390.367
390.368
390.391
390.392
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OTS REGULATION TRANSFER—Continued
Existing section
Existing title
New section
New title
563f.4
563f.5
563f.6
563f.7
563f.8
563f.9
Interlocking relationships permitted by statute.
Small market share exemption.
General exemption.
Change in circumstances.
Enforcement.
Interlocking relationships permitted pursuant to
Federal Deposit Insurance Act.
390.403
390.404
390.405
390.406
390.407
390.408
Interlocking relationships permitted by statute.
Small market share exemption.
General exemption.
Change in circumstances.
Enforcement.
Interlocking relationships permitted pursuant to
Federal Deposit Insurance Act.
Part 563g
Securities offerings
Subpart W
Securities offerings
563g.1
563g.2
563g.3
563g.4
563g.5
563g.6
563g.7
563g.8
563g.9
563g.10
563g.11
563g.12
563g.13
563g.14
563g.15
563g.16
Definitions.
Offering circular requirement.
Exemptions.
Non-public offering.
Filing and signature requirements.
Effective date.
Form, content, and accounting.
Use of the offering circular.
Escrow requirement.
Unsafe or unsound practices.
Withdrawal or abandonment.
Securities sale report.
Public disclosure and confidential treatment.
Waiver.
Requests for interpretive advice or waiver.
Delayed or continuous offering and sale of securities.
Sales of securities at an office of a savings association.
Current and periodic reports.
Approval of the security.
Form for securities sale report.
Filing of copies of offering circulars in certain exempt offerings.
390.410
390.411
390.412
390.413
390.414
390.415
390.416
390.417
390.418
390.419
390.420
390.421
390.422
390.423
390.424
390.425
Definitions.
Offering circular requirement.
Exemptions.
Non-public offering.
Filing and signature requirements.
Effective date.
Form, content, and accounting.
Use of the offering circular.
Escrow requirement.
Unsafe or unsound practices.
Withdrawal or abandonment.
Securities sale report.
Public disclosure and confidential treatment.
Waiver.
Requests for interpretive advice or waiver.
Delayed or continuous offering and sale of securities.
Sales of securities at an office of a State savings
association.
Current and periodic reports.
Approval of the security.
Form for securities sale report.
Filing of copies of offering circulars in certain exempt offerings.
Part 564
Appraisals
Subpart X
Appraisals
564.1
564.2
564.3
Authority, purpose, and scope.
Definitions.
Appraisals required; transactions requiring a
State certified or licensed appraiser.
Minimum appraisal standards.
Appraiser independence.
Professional association membership; competency.
Enforcement.
Appraisal policies and practices of savings associations and subsidiaries.
390.440
390.441
390.442
Authority, purpose, and scope.
Definitions.
Appraisals required; transactions requiring a
State certified or licensed appraiser.
Minimum appraisal standards.
Appraiser independence.
Professional association membership; competency.
Enforcement.
Appraisal policies and practices of State savings
associations and subsidiaries.
Part 565
Prompt corrective action
Subpart Y
Prompt corrective action
565.1
390.450
565.10
Authority, purpose, scope, other supervisory authority, and disclosure of capital categories.
Definitions.
Notice of capital category.
Capital measures and capital category definitions.
Capital restoration plans.
Mandatory and discretionary supervisory actions
under section 38.
Directives to take prompt corrective action.
Procedures for reclassifying a savings association based on criteria other than capital.
Order to dismiss a director or senior executive
officer.
Enforcement of directives.
390.459
Authority, purpose, scope, other supervisory authority, and disclosure of capital categories.
Definitions.
Notice of capital category.
Capital measures and capital category definitions.
Capital restoration plans.
Mandatory and discretionary supervisory actions
under section 38.
Directives to take prompt corrective action.
Procedures for reclassifying a State savings association based on criteria other than capital.
Order to dismiss a director or senior executive
officer.
Enforcement of directives.
Part 567
Capital
Subpart Z
Capital
Subpart A
567.0
Subpart B
567.1
Scope
Scope.
Regulatory capital requirements
Definitions.
390.460
Scope.
390.461
Definitions.
563g.17
563g.18
563g.19
563g.20
563g.21
564.4
564.5
564.6
564.7
564.8
565.2
565.3
565.4
565.5
565.6
565.7
565.8
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390.426
390.427
390.428
390.429
390.430
390.443
390.444
390.445
390.446
390.447
390.451
390.452
390.453
390.454
390.455
390.456
390.457
390.458
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Existing section
567.2
567.3
567.4
567.5
567.6
567.8
567.9
567.10
567.11
567.12
Existing title
New section
Minimum regulatory capital requirement.
Individual minimum capital requirements.
Capital directives.
Components of capital.
Risk-based capital credit risk-weight categories.
Leverage ratio.
Tangible capital requirement.
Consequences of failure to meet capital requirements.
Reservation of authority.
Purchased credit card relationships, servicing assets, intangible assets (other than purchased
credit card relationships and servicing assets),
credit-enhancing interest-only strips, and deferred tax assets.
Appendixes A–B [Reserved]
Appendix C—Risk-Based Capital RequirementsInternal Ratings Based and Advanced Measurement Approaches
390.462
390.463
390.464
390.465
390.466
390.467
390.468
390.469
390.470
390.471
New title
Minimum regulatory capital requirement.
Individual minimum capital requirements.
Capital directives.
Components of capital.
Risk-based capital credit risk-weight categories.
Leverage ratio.
Tangible capital requirement.
Consequences of failure to meet capital requirements.
Reservation of authority.
Purchased credit card relationships, servicing assets, intangible assets (other than purchased
credit card relationships and servicing assets),
credit-enhancing interest-only strips, and deferred tax assets.
Appendix A—Risk-Based Capital RequirementsInternal Ratings Based and Advanced Measurement Approaches
Part 391
Part 568
Security procedures
Subpart A
Security procedures
568.1
568.2
568.3
568.4
568.5
Authority, purpose, and scope.
Designation of security officer.
Security program.
Report.
Protection of customer information.
391.1
391.2
391.3
391.4
391.5
Authority, purpose, and scope.
Designation of security officer.
Security program.
Report.
Protection of customer information.
Part 570
Safety and soundness guidelines and compliance procedures
Subpart B
Safety and soundness guidelines and compliance procedures
570.1
Authority, purpose, scope and preservation of
existing authority.
Determination and notification of failure to meet
safety and soundness standards and request
for compliance plan.
Filing of safety and soundness compliance plan.
Issuance of orders to correct deficiencies and to
take or refrain from taking other actions.
Enforcement of orders.
Appendix A to Part 570—Interagency Guidelines
Establishing Standards for Safety and Soundness
Appendix B to Part 570—Interagency Guidelines
Establishing Information Security Standards
391.10
Authority, purpose, scope and preservation of
existing authority.
Determination and notification of failure to meet
safety and soundness standards and request
for compliance plan.
Filing of safety and soundness compliance plan.
Issuance of orders to correct deficiencies and to
take or refrain from taking other actions.
Enforcement of orders.
Appendix A to Subpart B of Part 391—Interagency Guidelines Establishing Standards for
Safety and Soundness
Appendix B to Subpart B of Part 391—Interagency Guidelines Establishing Information
Security Standards
570.2
570.3
570.4
570.5
Appendix
Appendix
Part 571
Fair credit reporting
Subpart A
571.2
571.83
Subpart J
571.90
General provisions
Examples.
Disposal of consumer information.
Identity theft red flags
Duties regarding the detection, prevention, and
mitigation of identity theft.
Duties of card issuers regarding changes of address.
Appendix J to Part 571—Interagency Guidelines
on Identity Theft Detection, Prevention, and
Mitigation
571.91
Appendix
391.11
391.12
391.13
391.14
Subpart C
Fair credit reporting
391.20
391.21
Examples.
Disposal of consumer information.
391.22
Duties regarding the detection, prevention, and
mitigation of identity theft.
Duties of card issuers regarding changes of address.
Appendix to Section 391.90—Interagency Guidelines on Identity Theft Detection, Prevention,
and Mitigation
391.23
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Part 572
Loans in areas having special flood hazards
Subpart D
Loans in areas having special flood hazards
572.1
572.2
572.3
Authority, purpose, and scope.
Definitions.
Requirement to purchase flood insurance where
available.
Exemptions.
Escrow requirement.
Required use of standard flood hazard determination form.
Forced placement of flood insurance.
391.30
391.31
391.32
Authority, purpose, and scope.
Definitions.
Requirement to purchase flood insurance where
available.
Exemptions.
Escrow requirement.
Required use of standard flood hazard determination form.
Forced placement of flood insurance.
572.4
572.5
572.6
572.7
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391.34
391.35
391.36
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OTS REGULATION TRANSFER—Continued
Existing section
572.8
572.9
Existing title
New section
New title
391.37
391.38
572.10
Appendix
Determination fees.
Notice of special flood hazards and availability of
Federal disaster relief assistance.
Notice of servicer’s identity.
Appendix A to Part 572—Sample Form of Notice
of Special Flood Hazards and Availability of
Federal Disaster Relief Assistance
391.39
Determination fees.
Notice of special flood hazards and availability of
Federal disaster relief assistance.
Notice of servicer’s identity.
Appendix D to Part 391—Sample Form of Notice
of Special Flood Hazards and Availability of
Federal Disaster Relief Assistance
Part 574
Acquisition of control of savings associations.
Subpart E
Acquisition of control of State savings associations.
574.1
574.2
574.3
Scope of part.
Definitions.
Acquisition of control of savings associations.
391.40
391.41
391.42
574.4
574.5
574.6
574.7
574.8
Control.
Certifications of ownership.
Procedural requirements.
Determination by the OTS.
Qualified stock issuances by undercapitalized
savings associations or holding companies.
Rebuttal of control agreement.
391.43
391.44
391.45
391.46
391.47
Scope of subpart.
Definitions.
Acquisition of control of State savings associations.
Control.
Certifications of ownership.
Procedural requirements.
Determination by the FDIC.
Qualified stock issuances by undercapitalized
savings associations or holding companies.
Rebuttal of control agreement.
574.100
III. Regulatory Analysis and Procedure
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A. Administrative Procedure Act
The OTS previously promulgated the
transferred regulations after notice and
opportunity for public comment, when
required. Moreover, the FDIC’s action in
republishing regulations as they appear
in one chapter of the Code of Federal
Regulations in another chapter of the
Code is technical, as opposed to
substantive action. The republication is
consistent with the Dodd-Frank Act.
The republication includes technical,
conforming, or nomenclature changes,
but no substantive change has been
made to the content of the transferring
regulations. Therefore, in accordance
with section 553(b)(B) of the
Administrative Procedure Act (APA),
the FDIC has determined that good
cause exists to waive the general notice
and opportunity for pubic comment
requirements of the APA. Similarly, and
to avoid any possible questions
regarding the continuity of the subject
regulations, the FDIC has determined
that good cause exists to make this
Interim Rule effective as of the transfer
date.
B. Community Development and
Regulatory Improvement Act
The Riegle Community Development
and Regulatory Improvement Act
(RCDRIA) requires that any new rule
prescribed by a Federal banking agency
that imposes additional reporting,
disclosures, or other new requirements
on insured depository institutions take
effect on the first day of a calendar
quarter unless the agency determines,
for good cause published with the rule,
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that the rule should become effective
before such time.2 Because this Interim
Rule merely republishes (with only
technical changes) certain transferring
rules of the OTS, no additional
reporting, disclosure, or other new
requirements have been imposed on an
insured depository institution by the
FDIC. As a result, the FDIC does not
believe that the RCDRIA applies in this
instance. In the event that the RCDRIA
is determined to be applicable to this
Interim Rule, based on the transfer of
the functions from the OTS to the FDIC
effective on the required statutory
transfer date of July 21, 2011, the FDIC
would invoke the RCDRIA’s good cause
exception to make this Interim Rule
effective on the transfer date and not on
the first date of a calendar quarter.
C. Small Business Regulatory
Enforcement Fairness Act
The Office of Management and Budget
has determined that the Interim Rule is
not a ‘‘major rule’’ within the meaning
of the relevant sections of the Small
Business Regulatory Enforcement Act of
1996 (SBREFA), 5 U.S.C. 801 et seq. As
required by SBREFA, the FDIC will
submit the Interim Rule and other
appropriate reports to Congress and the
General Accounting Office for review.
D. Regulatory Flexibility Act
The Regulatory Flexibility Act, 5
U.S.C. 601, et seq., (RFA) applies only
to rules for which an agency publishes
a general notice of proposed rulemaking
pursuant to 5 U.S.C. 553(b). As
discussed above, consistent with section
2 12
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553(b)(B) of the APA, the FDIC has
determined that good cause exists in
this case to waive the general notice and
opportunity for public comment
requirements of the APA; therefore,
pursuant to 5 U.S.C. 601(2), the RFA
does not apply.
E. Paperwork Reduction Act
Through this Interim Rule, the FDIC
is reissuing certain transferring rules of
the OTS. Nineteen (19) of these
transferring and republished rules are
associated with one or more collections
of information for which the OTS had
previously obtained approval from the
Office of Management and Budget
(OMB) under the Paperwork Reduction
Act (44 U.S.C. 3501–3520). The Interim
Rule adopted by the FDIC today does
not introduce any new collections of
information into the former OTS rules,
nor does it amend the former OTS rules
in a way that substantively modifies the
collections of information that OMB has
approved. Therefore, no PRA
submission is being made to OMB at
this time.
The FDIC notes, however, that the
OMB’s previous approval of the
collections of information related to the
transferring OTS rules was based on
burden estimates provided by the OTS
that included the rules’ impact on both
State and Federal savings associations.
Section 312(c) of the Dodd-Frank Act
provided that the FDIC would be the
‘‘appropriate Federal banking agency’’
only with respect to State, and not
Federal savings associations. Of the
approximately 700 savings associations
currently regulated by the OTS, only
about 60 of those are state savings
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associations for whom the FDIC will
assume supervisory responsibility. As a
result, the FDIC will review each of the
relevant information collections, and, as
necessary and appropriate, with OMB
approval, incorporate the paperwork
burden into FDIC’s inventory by either
establishing new FDIC collections of
information or requesting nonmaterial,
non-substantive changes to existing
FDIC collections of information to
include the burden for state savings
associations.
List of Subjects in 12 CFR Parts 390 and
391
Administrative practice and
procedure, Advertising, Aged, Credit,
Civil rights, Conflicts of interest, Crime,
Equal employment opportunity, Ethics,
Fair housing, Governmental employees,
Home mortgage disclosure, Individuals
with disabilities, OTS employees,
Reporting and recordkeeping
requirements, Savings associations.
Accordingly, for the reasons set forth
in the preamble, the Board of Directors
of the Federal Deposit Insurance
Corporation amends title 12 of the Code
of Federal Regulations by adding new
parts 390 and 391 to read as follows:
PART 390—REGULATIONS
TRANSFERRED FROM THE OFFICE OF
THRIFT SUPERVISION
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Subpart A—Restrictions on PostEmployment Activities of Senior Examiners
Sec.
390.1 What does this subpart do?
390.2 Who is a senior examiner?
390.3 What post-employment restrictions
apply to senior examiners?
390.4 When will the FDIC waive the postemployment restrictions?
390.5 What are the penalties for violating
the post-employment restrictions?
Subpart B—Removals, Suspensions, and
Prohibitions Where a Crime Is Charged or
Proven
390.10 Scope.
390.11 Definitions.
390.12 Issuance of Notice or Order.
390.13 Contents and service of the Notice or
Order.
390.14 Petition for hearing.
390.15 Initiation of hearing.
390.16 Conduct of hearings.
390.17 Default.
390.18 Rules of evidence.
390.19 Burden of persuasion.
390.20 Relevant considerations.
390.21 Proposed findings and conclusions
and recommended decision.
390.22 Decision of the FDIC Board of
Directors.
390.23 Miscellaneous.
Subpart C—Rules of Practice and
Procedure in Adjudicatory Proceedings
390.30 Scope.
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390.31 Rules of construction.
390.32 Definitions.
390.33 Authority of the Board of Directors.
390.34 Authority of the administrative law
judge.
390.35 Appearance and practice in
adjudicatory proceedings.
390.36 Good faith certification.
390.37 Conflicts of interest.
390.38 Ex parte communications.
390.39 Filing of papers.
390.40 Service of papers.
390.41 Construction of time limits.
390.42 Change of time limits.
390.43 Witness fees and expenses.
390.44 Opportunity for informal settlement.
390.45 The FDIC’s right to conduct
examination.
390.46 Collateral attacks on adjudicatory
proceeding.
390.47 Commencement of proceeding and
contents of notice.
390.48 Answer.
390.49 Amended pleadings.
390.50 Failure to appear.
390.51 Consolidation and severance of
actions.
390.52 Motions.
390.53 Scope of document discovery.
390.54 Request for document discovery
from parties.
390.55 Document subpoenas to nonparties.
390.56 Deposition of witness unavailable
for hearing.
390.57 Interlocutory review.
390.58 Summary disposition.
390.59 Partial summary disposition.
390.60 Scheduling and prehearing
conferences.
390.61 Prehearing submissions.
390.62 Public hearings.
390.63 Hearing subpoenas.
390.64 Conduct of hearings.
390.65 Evidence.
390.66 Post-hearing filings.
390.67 Recommended decision and filing of
record.
390.68 Exceptions to recommended
decision.
390.69 Review by the Board of Directors.
390.70 Stays pending judicial review.
390.71 Scope.
390.72 Appointment of Office of Financial
Institution Adjudication.
390.73 Discovery.
390.74 Civil money penalties.
390.75 Additional procedures.
Subpart D—Rules for Investigative
Proceedings and Formal Examination
Proceedings
390.80 Scope of subpart.
390.81 Definitions.
390.82 Confidentiality of proceedings.
390.83 Transcripts.
390.84 Rights of witnesses.
390.85 Obstruction of the proceedings.
390.86 Subpoenas.
Subpart E—Practice Before the FDIC
390.90 Scope of subpart.
390.91 Definitions.
390.92 Who may practice.
390.93 Suspension and debarment.
390.94 Reinstatement.
390.95 Duty to file information concerning
adverse judicial or administrative action.
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390.96 Proceeding under this subpart.
390.97 Removal, suspension, or debarment
of independent public accountants and
accounting firms performing audit
services.
Subpart F—Application Processing
Procedures
390.100 What does this subpart do?
390.101 Do the same procedures apply to
all applications under this subpart?
390.102 How does the FDIC compute time
periods under this subpart?
390.103 Must I meet with the FDIC before
I file my application?
390.104 What information must I include in
my draft business plan?
390.105 What type of application must I
file?
390.106 What information must I provide
with my application?
390.107 May I keep portions of my
application confidential?
390.108 Where do I file my application?
390.109 What is the filing date of my
application?
390.110 How do I amend or supplement my
application?
390.111 Who must publish a public notice
of an application?
390.112 What information must I include in
my public notice?
390.113 When must I publish the public
notice?
390.114 Where must I publish the public
notice?
390.115 What language must I use in my
publication?
390.116 Comment procedures.
390.117 Who may submit a written
comment?
390.118 What information should a
comment include?
390.119 Where are comments filed?
390.120 How long is the comment period?
390.121 Meeting procedures.
390.122 When will the FDIC conduct a
meeting on an application?
390.123 What procedures govern the
conduct of the meeting?
390.124 Will the FDIC approve or
disapprove an application at a meeting?
390.125 Will a meeting affect application
processing time frames?
390.126 If I file a notice under expedited
treatment, when may I engage in the
proposed activities?
390.127 What will the FDIC do after I file
my application?
390.128 If the FDIC requests additional
information to complete my application,
how will it process my application?
390.129 Will the FDIC conduct an
eligibility examination?
390.130 What may the FDIC require me to
do after my application is deemed
complete?
390.131 Will the FDIC require me to
publish a new public notice?
390.132 May the FDIC suspend processing
of my application?
390.133 How long is the FDIC review
period?
390.134 How will I know if my application
has been approved?
390.135 What will happen if the FDIC does
not approve or disapprove my
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application within two calendar years
after the filing date?
Subpart G—Nondiscrimination
Requirements
390.140 Definitions.
390.141 Supplementary guidelines.
390.142 Nondiscrimination in lending and
other services.
390.143 Nondiscriminatory appraisal and
underwriting.
390.144 Nondiscrimination in applications.
390.145 Nondiscriminatory advertising.
390.146 Equal Housing Lender Poster.
390.147 Loan application register.
390.148 Nondiscrimination in employment.
390.149 Complaints.
390.150 Guidelines relating to
nondiscrimination in lending.
Subpart H—Disclosure and Reporting of
CRA-Related Agreements
390.160 Purpose and scope of this subpart.
390.161 Definition of covered agreement.
390.162 CRA communications.
390.163 Fulfillment of the CRA.
390.164 Related agreements considered a
single agreement.
390.165 Disclosure of covered agreements.
390.166 Annual reports.
390.167 Release of information under FOIA.
390.168 Compliance provisions.
390.169 [Reserved].
390.170 Other definitions and rules of
construction used in this subpart.
Subpart I—Consumer Protection in Sales of
Insurance
390.180 Purpose and scope.
390.181 Definitions.
390.182 Prohibited practices.
390.183 What you must disclose.
390.184 Where insurance activities may
take place.
390.185 Qualification and licensing
requirements for insurance sales
personnel.
Appendix A to Subpart I of Part 390—
Consumer Grievance Process
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Subpart J—Fiduciary Powers of State
Savings Associations
390.190 What regulations govern the
fiduciary operations of State savings
associations?
Subpart K—Recordkeeping and
Confirmation Requirements for Securities
Transactions
390.200 What does this subpart do?
390.201 Must I comply with this subpart?
390.202 What requirements apply to all
transactions?
390.203 What definitions apply to this
subpart?
390.204 What records must I maintain for
securities transactions?
390.205 How must I maintain my records?
390.206 What type of notice must I provide
when I effect a securities transaction for
a customer?
390.207 How do I provide a registered
broker-dealer confirmation?
390.208 How do I provide a written notice?
390.209 What are the alternate notice
requirements?
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390.210 May I provide a notice
electronically?
390.211 May I charge a fee for a notice?
390.212 When must I settle a securities
transaction?
390.213 What policies and procedures must
I maintain and follow for securities
transactions?
390.214 How do my officers and employees
file reports of personal securities trading
transactions?
Subpart L—Electronic Operations
390.220 What does this subpart do?
390.221 Must I inform the FDIC before I use
electronic means or facilities?
390.222 How do I notify the FDIC?
Subpart M—Deposits
390.230 What does this subpart do?
390.231 What records should I maintain on
deposit activities?
Subpart N—Possession by Conservators
and Receivers for Federal and State
Savings Associations
390.240 Procedure upon taking possession.
390.241 Notice of appointment.
Subpart O—Subordinate Organizations
390.250 What does this subpart cover?
390.251 Definitions.
390.252 How must separate corporate
identities be maintained?
390.253 What notices are required to
establish or acquire a new subsidiary or
engage in new activities through an
existing subsidiary?
390.254 How may a subsidiary of a State
savings association issue securities?
390.255 How may a State savings
association exercise its salvage power in
connection with a service corporation or
lower-tier entities?
Subpart P—Lending and Investment
390.260 General.
390.261 [Reserved].
390.262 Definitions.
390.263 [Reserved].
390.264 Real estate lending standards;
purpose and scope.
390.265 Real estate lending standards.
390.266 [Reserved].
390.267 Letters of credit and other
independent undertakings to pay against
documents.
390.268 Investment in State housing
corporations.
390.269 Prohibition on loan procurement
fees.
390.270 Asset classification.
390.271 Records for lending transactions.
390.272 Re-evaluation of real estate owned.
Subpart Q—Definitions for Regulations
Affecting all State Savings Associations
390.280 When do the definitions in this
subpart apply?
390.281 Account.
390.282 Accountholder.
390.283 Affiliate.
390.284 Affiliated person.
390.285 Audit period.
390.286 Certificate account.
390.287 Consumer credit.
390.288 Controlling person.
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390.289 Corporation.
390.290 Demand accounts.
390.291 Director.
390.292 Financial institution.
390.293 Immediate family.
390.294 Land loan.
390.295 Low-rent housing.
390.296 Money Market Deposit Accounts.
390.297 Negotiable Order of Withdrawal
Accounts.
390.298 Nonresidential construction loan.
390.299 Nonwithdrawable account.
390.300 Note account.
390.301 [Reserved].
390.302 Officer.
390.303 Parent company; subsidiary.
390.304 Political subdivision.
390.305 Principal office.
390.306 Public unit.
390.307 Savings account.
390.308 State savings association.
390.309 Security.
390.310 Service corporation.
390.311 State.
390.312 Subordinated debt security.
390.313 Tax and loan account.
390.314 United States Treasury General
Account.
390.315 United States Treasury Time
Deposit Open Account.
390.316 With recourse.
Subpart R—Regulatory Reporting
Standards
390.320 Regulatory reporting requirements.
390.321 Regulatory reports.
390.322 Audit of State savings associations.
Subpart S—State Savings Associations—
Operations
390.330 Chartering documents.
390.331 Securities: Statement of noninsurance.
390.332 Merger, consolidation, purchase or
sale of assets, or assumption of
liabilities.
390.333 Advertising.
390.334 Directors, officers, and employees.
390.335 Tying restriction exception.
390.336 Employment contracts.
390.337 Transactions with affiliates.
390.338 Loans by savings associations to
their executive officers, directors and
principal shareholders.
390.339 Pension plans.
390.340 Offers and sales of securities at an
office of a State savings association.
390.341 Inclusion of subordinated debt
securities and mandatorily redeemable
preferred stock as supplementary capital.
390.342 Capital distributions by State
savings associations.
390.343 What is a capital distribution?
390.344 Definitions applicable to capital
distributions.
390.345 Must I file with the FDIC?
390.346 How do I file with the FDIC?
390.347 May I combine my notice or
application with other notices or
applications?
390.348 Will the FDIC permit my capital
distribution?
390.349 Management and financial policies.
390.350 Examinations and audits;
appraisals; establishment and
maintenance of records.
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390.351 Frequency of safety and soundness
examination.
390.352 Financial derivatives.
390.353 Interest-rate-risk-management
procedures.
390.354 Procedures for monitoring Bank
Secrecy Act (BSA) compliance.
390.355 Suspicious Activity Reports and
other reports and statements.
390.356 Bonds for directors, officers,
employees, and agents; form of and
amount of bonds.
390.357 Bonds for agents.
390.358 Conflicts of interest.
390.359 Corporate opportunity.
390.360 Change of director or senior
executive officer.
390.361 Applicable definitions.
390.362 Who must give prior notice?
390.363 What procedures govern the filing
of my notice?
390.364 What information must I include in
my notice?
390.365 What procedures govern the FDIC
review of my notice for completeness?
390.366 What standards and procedures
will govern the FDIC review of the
substance of my notice?
390.367 When may a proposed director or
senior executive officer begin service?
390.368 When will the FDIC waive the
prior notice requirement?
Subpart T—Accounting Requirements
390.380 Form and content of financial
statements.
390.381 Definitions.
390.382 Qualification of public accountant.
390.383 Condensed financial information
[Parent only].
390.384 Financial statements for
conversions, SEC filings, and offering
circulars.
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Subpart U—Securities of State Savings
Associations
390.390 Requirements under certain
sections of the Securities Exchange Act
of 1934.
390.391 [Reserved].
390.392 Liability for certain statements by
State savings associations.
390.393 Form and content of financial
statements.
390.394 Interpretations related to SEC
filings.
390.395 Description of business.
Subpart V—Management Official Interlocks
390.400 Authority, purpose, and scope.
390.401 Definitions.
390.402 Prohibitions.
390.403 Interlocking relationships
permitted by statute.
390.404 Small market share exemption.
390.405 General exemption.
390.406 Change in circumstances.
390.407 Enforcement.
390.408 Interlocking relationships
permitted pursuant to Federal Deposit
Insurance Act.
Subpart W—Securities Offerings
390.410 Definitions.
390.411 Offering circular requirement.
390.412 Exemptions.
390.413 Non-public offering.
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390.414 Filing and signature requirements.
390.415 Effective date.
390.416 Form, content, and accounting.
390.417 Use of the offering circular.
390.418 Escrow requirement.
390.419 Unsafe or unsound practices.
390.420 Withdrawal or abandonment.
390.421 Securities sale report.
390.422 Public disclosure and confidential
treatment.
390.423 Waiver.
390.424 Requests for interpretive advice or
waiver.
390.425 Delayed or continuous offering and
sale of securities.
390.426 Sales of securities at an office of a
State savings association.
390.427 Current and periodic reports.
390.428 Approval of the security.
390.429 Form for securities sale report.
390.430 Filing of copies of offering circulars
in certain exempt offerings.
Subpart X—Appraisals
390.440 Authority, purpose, and scope.
390.441 Definitions.
390.442 Appraisals required; transactions
requiring a State certified or licensed
appraiser.
390.443 Minimum appraisal standards.
390.444 Appraiser independence.
390.445 Professional association
membership; competency.
390.446 Enforcement.
390.447 Appraisal policies and practices of
State savings associations and
subsidiaries.
Subpart Y—Prompt Corrective Action
390.450 Authority, purpose, scope, other
supervisory authority, and disclosure of
capital categories.
390.451 Definitions.
390.452 Notice of capital category.
390.453 Capital measures and capital
category definitions.
390.454 Capital restoration plans.
390.455 Mandatory and discretionary
supervisory actions under section 38.
390.456 Directives to take prompt
corrective action.
390.457 Procedures for reclassifying a State
savings association based on criteria
other than capital.
390.458 Order to dismiss a director or
senior executive officer.
390.459 Enforcement of directives.
Subpart Z—Capital
390.460 Scope.
390.461 Definitions.
390.462 Minimum regulatory capital
requirement.
390.463 Individual minimum capital
requirements.
390.464 Capital directives.
390.465 Components of capital.
390.466 Risk-based capital credit riskweight categories.
390.467 Leverage ratio.
390.468 Tangible capital requirement.
390.469 Consequences of failure to meet
capital requirements.
390.470 Reservation of authority.
390.471 Purchased credit card
relationships, servicing assets, intangible
assets (other than purchased credit card
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relationships and servicing assets),
credit-enhancing interest-only strips, and
deferred tax assets.
Appendix A to Subpart Z of Part 390—RiskBased Capital Requirements—InternalRatings-Based and Advanced
Measurement Approaches
Authority: 12 U.S.C. 1819.
Subpart A also issued under 12 U.S.C.
1820.
Subpart B also issued under 12 U.S.C.
1818.
Subpart C also issued under 5 U.S.C. 504;
554–557; 12 U.S.C. 1464; 1467; 1468; 1817;
1818; 1820; 1829; 3349, 4717; 15 U.S.C. 78l;
78o–5; 78u–2; 28 U.S.C. 2461 note; 31 U.S.C.
5321; 42 U.S.C. 4012a.
Subpart D also issued under 12 U.S.C.
1817; 1818; 1820; 15 U.S.C. 78l.
Subpart E also issued under 12 U.S.C.
1813; 1831m; 15 U.S.C. 78.
Subpart F also issued under 5 U.S.C. 552;
559; 12 U.S.C. 2901 et seq.
Subpart G also issued under 12 U.S.C. 2810
et seq., 2901 et seq.; 15 U.S.C. 1691; 42 U.S.C.
1981, 1982, 3601–3619.
Subpart H also issued under 12 U.S.C.
1464; 1831y.
Subpart I also issued under 12 U.S.C.
1831x.
Subpart J also issued under 12 U.S.C.
1831p–1.
Subpart K also issued under 12 U.S.C.
1817; 1818; 15 U.S.C. 78c; 78l.
Subpart L also issued under 12 U.S.C.
1831p–1.
Subpart M also issued under 12 U.S.C.
1818.
Subpart N also issued under 12 U.S.C.
1821.
Subpart O also issued under 12 U.S.C.
1828.
Subpart P also issued under 12 U.S.C.
1470; 1831e; 1831n; 1831p–1; 3339.
Subpart Q also issued under 12 U.S.C.
1462; 1462a; 1463; 1464.
Subpart R also issued under 12 U.S.C.
1463; 1464; 1831m; 1831n; 1831p–1.
Subpart S also issued under 12 U.S.C.
1462; 1462a; 1463; 1464; 1468a; 1817; 1820;
1828; 1831e; 1831o; 1831p–1; 1881–1884;
3207; 3339; 15 U.S.C. 78b; 78l; 78m; 78n;
78p; 78q; 78w; 31 U.S.C. 5318; 42 U.S.C.
4106.
Subpart T also issued under 12 U.S.C.
1462a; 1463; 1464; 15 U.S.C. 78c; 78l; 78m;
78n; 78w.
Subpart U also issued under 12 U.S.C.
1462a; 1463; 1464; 15 U.S.C. 78c; 78l; 78m;
78n; 78p; 78w; 78d–1; 7241; 7242; 7243;
7244; 7261; 7264; 7265.
Subpart V also issued under 12 U.S.C.
3201–3208.
Subpart W also issued under 12 U.S.C.
1462a; 1463; 1464; 15 U.S.C. 78c; 78l; 78m;
78n; 78p; 78w.
Subpart X also issued under 12 U.S.C.
1462; 1462a; 1463; 1464; 1828; 3331 et seq.
Subpart Y also issued under 12
U.S.C.1831o.
Subpart Z also issued under 12 U.S.C.
1462; 1462a; 1463; 1464; 1828 (note).
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Subpart A—Restrictions on PostEmployment Activities of Senior
Examiners
§ 390.1
What does this subpart part do?
This subpart implements section 10(k)
of the Federal Deposit Insurance Act
(FDIA), (12 U.S.C. 1820(k)), which
prohibits senior examiners from
accepting compensation from certain
companies following the termination of
their employment. Except where
otherwise provided, the terms used in
this subpart have the meanings given in
section 3 of the FDIA (12 U.S.C. 1813).
§ 390.2
Who is a senior examiner?
mstockstill on DSK4VPTVN1PROD with RULES2
An individual is a senior examiner for
a particular savings association or
savings and loan holding company if—
(a) The individual was an officer or
employee of the Office of Thrift
Supervision (OTS) (including a special
government employee) who was
authorized by the OTS to conduct
examinations or inspections of savings
associations or savings and loan holding
companies;
(b) The individual was assigned
continuing, broad and lead
responsibility for the examination or
inspection of that savings association or
savings and loan holding company; and
(c) The individual’s responsibilities
for examining, inspecting, or
supervising that savings association or
savings and loan holding company:
(1) Represented a substantial portion
of the individual’s assigned
responsibilities at the OTS; and
(2) Required the individual to interact
on a routine basis with officers and
employees of the savings association,
savings and loan holding company, or
its affiliates.
within one year after the termination
date of his or her employment with
OTS, knowingly accept compensation as
an employee, officer, director, or
consultant from—
(i) The savings and loan holding
company; or
(ii) Any depository institution that is
controlled by the savings and loan
holding company.
(b) [Reserved].
(c) Definitions. For the purposes of
this section—
Consultant. An individual acts as a
consultant for a savings association or
other company only if he or she directly
works on matters for, or on behalf of, the
savings association or company.
Control. Control has the same
meaning given in 12 CFR part 391,
subpart E.
§ 390.4 When will the FDIC waive the postemployment restrictions?
The post-employment restriction in
§ 390.3 will not apply to a senior
examiner if the Chairperson, or his or
her designee, certifies in writing and on
a case-by-case basis that a waiver of the
restriction will not affect the integrity of
the FDIC’s supervisory program.
§ 390.5 What are the penalties for violating
the post-employment restrictions?
(a) Penalties. A senior examiner who
violates § 390.3 shall, in accordance
with 12 U.S.C. 1820(k)(6), be subject to
one or both of the following penalties:
(1) An order—
(i) Removing the person from office or
prohibiting the person from further
participating in the conduct of the
affairs of the relevant depository
institution, savings and loan holding
company, bank holding company or
other company for up to five years, and
§ 390.3 What post-employment restrictions
(ii) Prohibiting the person from
apply to senior examiners?
participating in the affairs of any
(a) Prohibition. (1) Senior examiner of insured depository institution for up to
savings association. An individual who five years.
(2) A civil money penalty not to
served as a senior examiner of a savings
exceed $250,000.
association for two or more of the last
(b) Scope of prohibition orders. Any
12 months of his or her employment
with OTS may not, within one year after senior examiner who is subject to an
order issued under paragraph (a)(1) of
the termination date of his or her
this section shall be subject to 12 U.S.C.
employment with OTS, knowingly
1818(e)(6) and (7) in the same manner
accept compensation as an employee,
and to the same extent as a person
officer, director, or consultant from—
subject to an order issued under 12
(i) The savings association; or
U.S.C. 1818(e).
(ii) A savings and loan holding
(c) Procedures. 12 U.S.C. 1820(k)
company, bank holding company, or
describes the procedures that are
any other company that controls the
applicable to actions under paragraph
savings association.
(a) of this section and the appropriate
(2) Senior examiner of a savings and
Federal banking agency authorized to
loan holding company. An individual
take the action, which may be an agency
who served as a senior examiner of a
other than the FDIC. Where the FDIC is
savings and loan holding company for
two or more of the last 12 months of his the appropriate Federal banking agency,
it will conduct administrative
or her employment with OTS may not,
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proceedings under subpart C of this
part.
(d) Other penalties. The penalties
under this section are not exclusive. A
senior examiner who violates the
restriction in § 390.3 may also be subject
to other administrative, civil, or
criminal remedy or penalty as provided
by law.
Subpart B—Removals, Suspensions,
and Prohibitions Where a Crime Is
Charged or Proven
§ 390.10
Scope.
The rules in this subpart apply to
hearings, which are exempt from the
adjudicative provisions of the
Administrative Procedure Act, afforded
to any officer, director, or other person
participating in the conduct of the
affairs of a State savings association,
where such person has been suspended
or removed from office or prohibited
from further participation in the
conduct of the affairs of the State
savings association by a Notice or Order
served by the Board of Directors upon
the grounds set forth in section 8(g) of
the Federal Deposit Insurance Act
(FDIA), (12 U.S.C. 1818(g)).
§ 390.11
Definitions.
As used in this subpart—
(a) The term Board of Directors means
the Board of Directors of the FDIC or its
designee.
(b) The term Notice means a Notice of
Suspension or Notice of Prohibition
issued by the Board of Directors
pursuant to section 8(g) of the FDIA.
(c) The term Order means an Order of
Removal or Order of Prohibition issued
by the Board of Directors pursuant to
section 8(g) of the FDIA.
(d) The term association means a
State savings association within the
meaning of section 3(b)(3) of the FDIA,
(12 U.S.C. 1813(b)(3)).
(e) The term subject individual means
a person served with a Notice or Order.
(f) The term petitioner means a subject
individual who has filed a petition for
informal hearing under this part.
§ 390.12
Issuance of Notice or Order.
(a) The Board of Directors may issue
and serve a Notice upon an officer,
director, or other person participating in
the conduct of the affairs of an
association, where the individual is
charged in any information, indictment,
or complaint with the commission of or
participation in a crime involving
dishonesty or breach of trust that is
punishable by imprisonment for a term
exceeding one year under State or
Federal law, if the Board of Directors,
upon due deliberation, determines that
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continued service or participation by
the individual may pose a threat to the
interests of the association’s depositors
or may threaten to impair public
confidence in the association. The
Notice shall remain in effect until the
information, indictment, or complaint is
finally disposed of or until terminated
by the Board of Directors.
(b) The Board of Directors may issue
and serve an Order upon a subject
individual against whom a judgment of
conviction, or an agreement to enter a
pretrial diversion or other similar
program has been rendered, where such
judgment is not subject to further
appellate review, and the Board of
Directors, upon the deliberation, has
determined that continued service or
participation by the subject individual
may pose a threat to the interests of the
association’s depositors or may threaten
to impair public confidence in the
association.
§ 390.13 Contents and service of the
Notice or Order.
(a) The Notice or Order shall set forth
the basis and facts in support of the
Board of Directors’ issuance of such
Notice or Order, and shall inform the
subject individual of his right to a
hearing, in accordance with this part,
for the purpose of determining whether
the Notice or Order should be
continued, terminated, or otherwise
modified.
(b) The Executive Secretary shall
serve a copy of the Notice or Order upon
the subject individual and the related
association in the manner set forth in
§ 390.40.
(c) Upon receipt of the Notice or
Order, the subject individual shall
immediately comply with the
requirements thereof.
mstockstill on DSK4VPTVN1PROD with RULES2
§ 390.14
Petition for hearing.
(a) To obtain a hearing, the subject
individual must file two copies of a
petition with the Executive Secretary
within 30 days of being served with the
Notice or Order.
(b) The petition filed under this
section shall admit or deny specifically
each allegation in the Notice or Order,
unless the petitioner is without
knowledge or information, in which
case the petition shall so state and the
statement shall have the effect of a
denial. Any allegation not denied shall
be deemed to be admitted. When a
petitioner intends in good faith to deny
only a part of or to qualify an allegation,
he shall specify so much of it as is true
and shall deny only the remainder.
(c) The petition shall state whether
the petitioner is requesting termination
or modification of the Notice or Order,
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and shall state with particularity how
the petitioner intends to show that his
continued service to or participation in
the conduct of the affairs of the
association would not, or is not likely
to, pose a threat to the interests of the
association’s depositors or to impair
public confidence in the association.
§ 390.15
Initiation of hearing.
(a) Within 10 days of the filing of a
petition for hearing, the Board of
Directors shall notify the petitioner of
the time and place fixed for hearing, and
it shall designate one or more Board of
Directors employees to serve as
presiding officer.
(b) The hearing shall be scheduled to
be held no later than 30 days from the
date the petition was filed, unless the
time is extended at the request of the
petitioner.
(c) A petitioner may appear
personally or through counsel, but if
represented by counsel, said counsel is
required to comply with § 390.35.
(d) A representative(s) of the FDIC
enforcement staff also may attend the
hearing and participate therein as a
party.
§ 390.16
Conduct of hearings.
(a) Hearings provided by this section
are not subject to the adjudicative
provisions of the Administrative
Procedure Act (5 U.S.C. 554–557). The
presiding officer is, however, authorized
to exercise all of the powers enumerated
in § 390.34.
(b) Witnesses may be presented,
within time limits specified by the
presiding officer, provided that at least
10 days prior to the hearing date, the
party presenting the witnesses furnishes
the presiding officer and the opposing
party with a list of such witnesses and
a summary of the proposed testimony.
However, the requirement for furnishing
such a witness list and summary of
testimony shall not apply to the
presentation of rebuttal witnesses. The
presiding officer may ask questions of
any witness, and each party shall have
an opportunity to cross-examine any
witness presented by an opposing party.
(c) Upon the request of either the
petitioner or a representative of the
FDIC enforcement staff, the record shall
remain open for a period of 5 business
days following the hearing, during
which time the parties may make any
additional submissions for the record.
Thereafter, the record shall be closed.
(d) Following the introduction of all
evidence, the petitioner and the
representative of the FDIC enforcement
staff shall have an opportunity for oral
argument; however, the parties may
jointly waive the right to oral argument,
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and, in lieu thereof, elect to submit
written argument.
(e) All oral testimony and oral
argument shall be recorded, and
transcripts made available to the
petitioner upon payment of the cost
thereof. A copy of the transcript shall be
sent directly to the presiding officer,
who shall have authority to correct the
record sua sponte or upon the motion of
any party.
(f) The parties may, in writing, jointly
waive an oral hearing and instead elect
a hearing upon a written record in
which all evidence and argument would
be submitted to the presiding officer in
documentary form and statements of
individuals would be made by affidavit.
§ 390.17
Default.
If the subject individual fails to file a
petition for a hearing, or fails to appear
at a hearing, either in person or by
attorney, or fails to submit a written
argument where oral argument has been
waived pursuant to § 390.16(d) or (f),
the Notice shall remain in effect until
the information, indictment, or
complaint is finally disposed of and the
Order shall remain in effect until
terminated by the Board of Directors.
§ 390.18
Rules of evidence.
(a) Formal rules of evidence shall not
apply to a hearing, but the presiding
officer may limit the introduction of
irrelevant, immaterial, or unduly
repetitious evidence.
(b) All matters officially noticed by
the presiding officer shall appear on the
record.
§ 390.19
Burden of persuasion.
The petitioner has the burden of
showing, by a preponderance of the
evidence, that his or her continued
service to or participation in the
conduct of the affairs of the association
does not, or is not likely to, pose a threat
to the interests of the association’s
depositors or threaten to impair public
confidence in the association.
§ 390.20
Relevant considerations.
(a) In determining whether the
petitioner has shown that his or her
continued service to or participation in
the conduct of the affairs of the
association would not, or is not likely
to, pose a threat to the interests of the
association’s depositors or threaten to
impair public confidence in the
association, in order to decide whether
the Notice or Order should be
continued, terminated, or otherwise
modified, the Board of Directors will
consider:
(1) The nature and extent of the
petitioner’s participation in the affairs of
the association;
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(2) The nature of the offense with
which the petitioner has been charged;
(3) The extent of the publicity
accorded the indictment and trial; and
(4) Such other relevant factors as may
be entered on the record.
(b) When considering a request for the
termination or modification of a Notice,
the Board of Directors will not consider
the ultimate guilt or innocence of the
petitioner with respect to the criminal
charge that is outstanding.
(c) When considering a request for the
termination or modification of an Order
which has been issued following a final
judgment of conviction against a subject
individual, the Board of Directors will
not collaterally review such final
judgment of conviction.
§ 390.21 Proposed findings and
conclusions and recommended decision.
(a) Within 30 days after completion of
oral argument or the submission of
written argument where oral argument
has been waived, the presiding officer
shall file with the Executive Secretary
and certify to the Board of Directors for
decision the entire record of the hearing,
which shall include a recommended
decision, the Notice or Order, and all
other documents filed in connection
with the hearing.
(b) The recommended decision shall
contain:
(1) A statement of the issue(s)
presented,
(2) A statement of findings and
conclusions, and the reasons or basis
therefor, on all material issues of fact,
law, or discretion presented on the
record, and
(3) An appropriate recommendation
as to whether the suspension, removal,
or prohibition should be continued,
modified, or terminated.
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§ 390.22 Decision of the FDIC Board of
Directors.
(a) Within 30 days after the
recommended decision has been
certified to the Board of Directors, the
Board of Directors shall issue a final
decision.
(b) The Board of Director’s final
decision shall contain a statement of the
basis therefor. The Board of Directors
may satisfy this requirement where it
adopts the recommended decision of the
presiding officer upon finding that the
recommended decision satisfies the
requirements of § 390.67.
(c) The Executive Secretary shall
serve upon the petitioner and the
representative of the FDIC enforcement
staff a copy of the Board of Director’s
final decision and the related
recommended decision.
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§ 390.23
Miscellaneous.
The provisions of §§ 390.39–390.41
shall apply to proceedings under this
subpart.
Subpart C—Rules of Practice and
Procedure in Adjudicatory
Proceedings
§ 390.30
Scope.
Sections 390.30–390.70 prescribe
Uniform Rules of practice and
procedure applicable to adjudicatory
proceedings as to which hearings on the
record are provided for by the following
statutory provisions:
(a) Cease-and-desist proceedings
under section 8(b) of the Federal
Deposit Insurance Act (FDIA) (12 U.S.C.
1818(b));
(b) Removal and prohibition
proceedings under section 8(e) of the
FDIA (12 U.S.C. 1818(e));
(c) Change-in-control proceedings
under section 7(j)(4) of the FDIA (12
U.S.C. 1817(j)(4)) to determine whether
the FDIC should issue an order to
approve or disapprove a person’s
proposed acquisition of an institution
and/or institution holding company;
(d) Proceedings under section
15C(c)(2) of the Securities Exchange Act
of 1934 (Exchange Act) (15 U.S.C. 78o–
5), to impose sanctions upon any
government securities broker or dealer
or upon any person associated or
seeking to become associated with a
government securities broker or dealer
for which the FDIC is the appropriate
regulatory agency;
(e) Assessment of civil money
penalties by the FDIC against
institutions, institution-affiliated
parties, and certain other persons for
which it is the appropriate regulatory
agency for any violation of:
(1) Section 5 of the Home Owners’
Loan Act (HOLA) or any regulation or
order issued thereunder, pursuant to 12
U.S.C. 1464(d), (s) and (v);
(2) Section 9 of the HOLA or any
regulation or order issued thereunder,
pursuant to 12 U.S.C. 1467(d);
(3) Section 10 of HOLA, pursuant to
12 U.S.C. 1467a(i) and (r);
(4) Any provisions of the Change in
Bank Control Act, any regulation or
order issued thereunder or certain
unsafe or unsound practices or breaches
of fiduciary duty, pursuant to 12 U.S.C.
1817(j)(16);
(5) Sections 22(h) and 23 of the
Federal Reserve Act, or any regulation
issued thereunder or certain unsafe or
unsound practices or breaches of
fiduciary duty, pursuant to 12 U.S.C.
1468;
(6) Certain provisions of the Exchange
Act, pursuant to section 21B of the
Exchange Act (15 U.S.C. 78u–2);
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(7) Section 1120 of Financial
Institutions Reform, Recovery and
Enforcement Act of 1989 (12 U.S.C.
3349), or any order or regulation issued
thereunder;
(8) The terms of any final or
temporary order issued or enforceable
pursuant to section 8 of the FDIA or of
any written agreement executed by the
FDIC, the terms of any conditions
imposed in writing by the FDIC in
connection with the grant of an
application or request, certain unsafe or
unsound practices or breaches of
fiduciary duty, or any law or regulation
not otherwise provided herein pursuant
to 12 U.S.C. 1818(i)(2);
(9) Any provision of law referenced in
section 102 of the Flood Disaster
Protection Act of 1973 (42 U.S.C.
4012a(f)) or any order or regulation
issued thereunder; and
(10) Any provision of law referenced
in 31 U.S.C. 5321 or any order or
regulation issued thereunder;
(f) Remedial action under section 102
of the Flood Disaster Protection Act of
1973 (42 U.S.C. 4012a(g));
(g) Proceedings under section 10(k) of
the FDIA (12 U.S.C. 1820(k)) to impose
penalties on senior examiners for
violation of post-employment
prohibitions; and
(h) Sections 390.30 through 390.70 of
this part also apply to all other
adjudications required by statute to be
determined on the record after
opportunity for an agency hearing,
unless otherwise specifically provided
for in the Local Rules.
§ 390.31
Rules of construction.
For purposes of §§ 390.30 through
390.70 of this part:
(a) Any term in the singular includes
the plural, and the plural includes the
singular, if such use would be
appropriate;
(b) Any use of a masculine, feminine,
or neuter gender encompasses all three,
if such use would be appropriate;
(c) The term counsel includes a nonattorney representative; and
(d) Unless the context requires
otherwise, a party’s counsel of record, if
any, may, on behalf of that party, take
any action required to be taken by the
party.
§ 390.32
Definitions.
For purposes of §§ 390.30 through
390.70 of this part, unless explicitly
stated to the contrary:
Administrative law judge means one
who presides at an administrative
hearing under authority set forth at 5
U.S.C. 556.
Adjudicatory proceeding means a
proceeding conducted pursuant to these
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rules and leading to the formulation of
a final order other than a regulation.
Board of Directors means the Board of
Directors of the Federal Deposit
Insurance Corporation or its designee.
Decisional employee means any
member of the FDIC’s or administrative
law judge’s staff who has not engaged in
an investigative or prosecutorial role in
a proceeding and who may assist the
Board of Directors or the administrative
law judge, respectively, in preparing
orders, recommended decisions,
decisions, and other documents under
the Uniform Rules.
Enforcement Counsel means any
individual who files a notice of
appearance as counsel on behalf of the
FDIC in an adjudicatory proceeding.
FDIC means the Federal Deposit
Insurance Corporation.
Final order means an order issued by
the FDIC with or without the consent of
the affected institution or the
institution-affiliated party, that has
become final, without regard to the
pendency of any petition for
reconsideration or review.
Institution includes any State savings
association as that term is defined in
section 3(b) of the FDIA, (12 U.S.C.
1813(b)), any savings and loan holding
company or any subsidiary thereof
whether wholly or partly owned (other
than a bank) as those terms are defined
in section 10(a) of the HOLA, (12 U.S.C.
1467(a)).
Institution-affiliated party means any
institution-affiliated party as that term is
defined in section 3(u) of the FDIA, (12
U.S.C. 1813(u)).
Local Rules means those rules found
in §§ 390.71 through 390.75 of this part.
Office of Financial Institution
Adjudication or OFIA means the
executive body charged with overseeing
the administration of administrative
enforcement proceedings for the Office
of the Comptroller of the Currency, the
Board of Governors of the Federal
Reserve Board, the National Credit
Union Administration, and the FDIC.
Party means the FDIC and any person
named as a party in any notice.
Person means an individual, sole
proprietor, partnership, corporation,
unincorporated association, trust, joint
venture, pool, syndicate, agency or other
entity or organization, including an
institution as defined in paragraph (g) of
this section.
Respondent means any party other
than the FDIC.
Uniform Rules means those rules in
§§ 390.30 through 390.70 of this part.
Violation includes any action (alone
or with another or others) for or toward
causing, bringing about, participating in,
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counseling, or aiding or abetting a
violation.
§ 390.33 Authority of the Board of
Directors.
The Board of Directors may, at any
time during the pendency of a
proceeding perform, direct the
performance of, or waive performance
of, any act which could be done or
ordered by the administrative law judge.
§ 390.34 Authority of the administrative
law judge.
(a) General rule. All proceedings
governed by this part shall be conducted
in accordance with the provisions of
chapter 5 of title 5 of the United States
Code. The administrative law judge
shall have all powers necessary to
conduct a proceeding in a fair and
impartial manner and to avoid
unnecessary delay.
(b) Powers. The administrative law
judge shall have all powers necessary to
conduct the proceeding in accordance
with paragraph (a) of this section,
including the following powers:
(1) To administer oaths and
affirmations;
(2) To issue subpoenas, subpoenas
duces tecum, and protective orders, as
authorized by this part, and to quash or
modify any such subpoenas and orders;
(3) To receive relevant evidence and
to rule upon the admission of evidence
and offers of proof;
(4) To take or cause depositions to be
taken as authorized by this subpart;
(5) To regulate the course of the
hearing and the conduct of the parties
and their counsel;
(6) To hold scheduling and/or prehearing conferences as set forth in
§ 390.60;
(7) To consider and rule upon all
procedural and other motions
appropriate in an adjudicatory
proceeding, provided that only the
Board of Directors shall have the power
to grant any motion to dismiss the
proceeding or to decide any other
motion that results in a final
determination of the merits of the
proceeding;
(8) To prepare and present to the
Board of Directors a recommended
decision as provided herein;
(9) To recuse himself or herself by
motion made by a party or on his or her
own motion;
(10) To establish time, place and
manner limitations on the attendance of
the public and the media for any public
hearing; and
(11) To do all other things necessary
and appropriate to discharge the duties
of a presiding officer.
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§ 390.35 Appearance and practice in
adjudicatory proceedings.
(a) Appearance before an FDIC or an
administrative law judge—(1) By
attorneys. Any member in good standing
of the bar of the highest court of any
state, commonwealth, possession,
territory of the United States, or the
District of Columbia may represent
others before the FDIC if such attorney
is not currently suspended or debarred
from practice before the FDIC.
(2) By non-attorneys. An individual
may appear on his or her own behalf; a
member of a partnership may represent
the partnership; a duly authorized
officer, director, or employee of any
government unit, agency, institution,
corporation or authority may represent
that unit, agency, institution,
corporation or authority if such officer,
director, or employee is not currently
suspended or debarred from practice
before the FDIC.
(3) Notice of appearance. Any
individual acting as counsel on behalf of
a party, including the FDIC, shall file a
notice of appearance with OFIA at or
before the time that individual submits
papers or otherwise appears on behalf of
a party in the adjudicatory proceeding.
The notice of appearance must include
a written declaration that the individual
is currently qualified as provided in
paragraph (a)(1) or (2) of this section
and is authorized to represent the
particular party. By filing a notice of
appearance on behalf of a party in an
adjudicatory proceeding, the counsel
agrees and represents that he or she is
authorized to accept service on behalf of
the represented party and that, in the
event of withdrawal from
representation, he or she will, if
required by the administrative law
judge, continue to accept service until
new counsel has filed a notice of
appearance or until the represented
party indicates that he or she will
proceed on a pro se basis.
(b) Sanctions. Dilatory, obstructionist,
egregious, contemptuous or
contumacious conduct at any phase of
any adjudicatory proceeding may be
grounds for exclusion or suspension of
counsel from the proceeding.
§ 390.36
Good faith certification.
(a) General requirement. Every filing
or submission of record following the
issuance of a notice shall be signed by
at least one counsel of record in his or
her individual name and shall state that
counsel’s address and telephone
number. A party who acts as his or her
own counsel shall sign his or her
individual name and state his or her
address and telephone number on every
filing or submission of record.
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(b) Effect of signature. (1) The
signature of counsel or a party shall
constitute a certification that: the
counsel or party has read the filing or
submission of record; to the best of his
or her knowledge, information, and
belief formed after reasonable inquiry,
the filing or submission of record is
well-grounded in fact and is warranted
by existing law or a good faith argument
for the extension, modification, or
reversal of existing law; and the filing or
submission of record is not made for
any improper purpose, such as to harass
or to cause unnecessary delay or
needless increase in the cost of
litigation.
(2) If a filing or submission of record
is not signed, the administrative law
judge shall strike the filing or
submission of record, unless it is signed
promptly after the omission is called to
the attention of the pleader or movant.
(c) Effect of making oral motion or
argument. The act of making any oral
motion or oral argument by any counsel
or party constitutes a certification that
to the best of his or her knowledge,
information, and belief formed after
reasonable inquiry, his or her statements
are well-grounded in fact and are
warranted by existing law or a good
faith argument for the extension,
modification, or reversal of existing law,
and are not made for any improper
purpose, such as to harass or to cause
unnecessary delay or needless increase
in the cost of litigation.
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§ 390.37
Conflicts of interest.
(a) Conflict of interest in
representation. No person shall appear
as counsel for another person in an
adjudicatory proceeding if it reasonably
appears that such representation may be
materially limited by that counsel’s
responsibilities to a third person or by
the counsel’s own interests. The
administrative law judge may take
corrective measures at any stage of a
proceeding to cure a conflict of interest
in representation, including the
issuance of an order limiting the scope
of representation or disqualifying an
individual from appearing in a
representative capacity for the duration
of the proceeding.
(b) Certification and waiver. If any
person appearing as counsel represents
two or more parties to an adjudicatory
proceeding or also represents a nonparty on a matter relevant to an issue in
the proceeding, counsel must certify in
writing at the time of filing the notice
of appearance required by § 390.35(a):
(1) That the counsel has personally
and fully discussed the possibility of
conflicts of interest with each such
party and non-party; and
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(2) That each such party and nonparty waives any right it might
otherwise have had to assert any known
conflicts of interest or to assert any nonmaterial conflicts of interest during the
course of the proceeding.
§ 390.38
Ex parte communications.
(a) Definition—(1) Ex parte
communication means any material oral
or written communication relevant to
the merits of an adjudicatory proceeding
that was neither on the record nor on
reasonable prior notice to all parties that
takes place between:
(i) An interested person outside the
FDIC (including such person’s counsel);
and
(ii) The administrative law judge
handling that proceeding, the Board of
Directors, or a decisional employee.
(2) Exception. A request for status of
the proceeding does not constitute an ex
parte communication.
(b) Prohibition of ex parte
communications. From the time the
notice is issued by the Board of
Directors until the date that the Board
of Directors issues the final decision
pursuant to § 390.69(c):
(1) No interested person outside the
FDIC shall make or knowingly cause to
be made an ex parte communication to
the Board of Directors, the
administrative law judge, or a decisional
employee; and
(2) The Board of Directors,
administrative law judge, or decisional
employee shall not make or knowingly
cause to be made to any interested
person outside the FDIC any ex parte
communication.
(c) Procedure upon occurrence of ex
parte communication. If an ex parte
communication is received by the
administrative law judge, the Board of
Directors or other person identified in
paragraph (a) of this section, that person
shall cause all such written
communications (or, if the
communication is oral, a memorandum
stating the substance of the
communication) to be placed on the
record of the proceeding and served on
all parties. All other parties to the
proceeding shall have an opportunity,
within ten days of receipt of service of
the ex parte communication to file
responses thereto and to recommend
any sanctions, in accordance with
paragraph (d) of this section, that they
believe to be appropriate under the
circumstances.
(d) Sanctions. Any party or his or her
counsel who makes a prohibited ex
parte communication, or who
encourages or solicits another to make
any such communication, may be
subject to any appropriate sanction or
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sanctions imposed by the Board of
Directors or the administrative law
judge including, but not limited to,
exclusion from the proceedings and an
adverse ruling on the issue which is the
subject of the prohibited
communication.
(e) Separation-of-functions. Except to
the extent required for the disposition of
ex parte matters as authorized by law,
the administrative law judge may not
consult a person or party on any matter
relevant to the merits of the
adjudication, unless on notice and
opportunity for all parties to participate.
An employee or agent engaged in the
performance of investigative or
prosecuting functions for the FDIC in a
case may not, in that or a factually
related case, participate or advise in the
decision, recommended decision, or
agency review of the recommended
decision under § 390.69, except as
witness or counsel in public
proceedings.
§ 390.39
Filing of papers.
(a) Filing. Any papers required to be
filed, excluding documents produced in
response to a discovery request
pursuant to §§ 390.54 and 390.55, shall
be filed with the OFIA, except as
otherwise provided.
(b) Manner of filing. Unless otherwise
specified by the Board of Directors or
the administrative law judge, filing may
be accomplished by:
(1) Personal service;
(2) Delivering the papers to a reliable
commercial courier service, overnight
delivery service, or to the U.S. Post
Office for Express Mail delivery;
(3) Mailing the papers by first class,
registered, or certified mail; or
(4) Transmission by electronic media,
only if expressly authorized, and upon
any conditions specified, by the Board
of Directors or the administrative law
judge. All papers filed by electronic
media shall also concurrently be filed in
accordance with paragraph (c) of this
section as to form.
(c) Formal requirements as to papers
filed— (1) Form. All papers filed must
set forth the name, address, and
telephone number of the counsel or
party making the filing and must be
accompanied by a certification setting
forth when and how service has been
made on all other parties. All papers
filed must be double-spaced and printed
or typewritten on 81⁄2 x 11 inch paper,
and must be clear and legible.
(2) Signature. All papers must be
dated and signed as provided in
§ 390.36.
(3) Caption. All papers filed must
include at the head thereof, or on a title
page, the name of the FDIC and of the
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filing party, the title and docket number
of the proceeding, and the subject of the
particular paper.
(4) Number of copies. Unless
otherwise specified by the Board of
Directors, or the administrative law
judge, an original and one copy of all
documents and papers shall be filed,
except that only one copy of transcripts
of testimony and exhibits shall be filed.
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§ 390.40
Service of papers.
(a) By the parties. Except as otherwise
provided, a party filing papers shall
serve a copy upon the counsel of record
for all other parties to the proceeding so
represented, and upon any party not so
represented.
(b) Method of service. Except as
provided in paragraphs (c)(2) and (d) of
this section, a serving party shall use
one or more of the following methods of
service:
(1) Personal service;
(2) Delivering the papers to a reliable
commercial courier service, overnight
delivery service, or to the U.S. Post
Office for Express Mail delivery;
(3) Mailing the papers by first class,
registered, or certified mail; or
(4) Transmission by electronic media,
only if the parties mutually agree. Any
papers served by electronic media shall
also concurrently be served in
accordance with the requirements of
§ 390.39(c) as to form.
(c) By the Board of Directors or the
administrative law judge. (1) All papers
required to be served by the Board of
Directors or the administrative law
judge upon a party who has appeared in
the proceeding through a counsel of
record, shall be served by any means
specified in paragraph (b) of this
section.
(2) If a party has not appeared in the
proceeding in accordance with § 390.35,
the Board of Directors or the
administrative law judge shall make
service by any of the following methods:
(i) By personal service;
(ii) If the person to be served is an
individual, by delivery to a person of
suitable age and discretion at the
physical location where the individual
resides or works;
(iii) If the person to be served is a
corporation or other association, by
delivery to an officer, managing or
general agent, or to any other agent
authorized by appointment or by law to
receive service and, if the agent is one
authorized by statute to receive service
and the statute so requires, by also
mailing a copy to the party;
(iv) By registered or certified mail
addressed to the person’s last known
address; or
(v) By any other method reasonably
calculated to give actual notice.
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(d) Subpoenas. Service of a subpoena
may be made:
(1) By personal service;
(2) If the person to be served is an
individual, by delivery to a person of
suitable age and discretion at the
physical location where the individual
resides or works;
(3) By delivery to an agent, which in
the case of a corporation or other
association, is delivery to an officer,
managing or general agent, or to any
other agent authorized by appointment
or by law to receive service and, if the
agent is one authorized by statute to
receive service and the statute so
requires, by also mailing a copy to the
party;
(4) By registered or certified mail
addressed to the person’s last known
address; or
(5) By any other method reasonably
calculated to give actual notice.
(e) Area of service. Service in any
state, territory, possession of the United
States, or the District of Columbia, on
any person or company doing business
in any state, territory, possession of the
United States, or the District of
Columbia, or on any person as
otherwise provided by law, is effective
without regard to the place where the
hearing is held, provided that if service
is made on a foreign bank in connection
with an action or proceeding involving
one or more of its branches or agencies
located in any state, territory,
possession of the United States, or the
District of Columbia, service shall be
made on at least one branch or agency
so involved.
§ 390.41
Construction of time limits.
(a) General rule. In computing any
period of time prescribed by this
subpart, the date of the act or event that
commences the designated period of
time is not included. The last day so
computed is included unless it is a
Saturday, Sunday, or Federal holiday.
When the last day is a Saturday,
Sunday, or Federal holiday, the period
runs until the end of the next day that
is not a Saturday, Sunday, or Federal
holiday. Intermediate Saturdays,
Sundays, and Federal holidays are
included in the computation of time.
However, when the time period within
which an act is to be performed is ten
days or less, not including any
additional time allowed for in paragraph
(c) of this section, intermediate
Saturdays, Sundays, and Federal
holidays are not included.
(b) When papers are deemed to be
filed or served. (1) Filing and service are
deemed to be effective:
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(i) In the case of personal service or
same day commercial courier delivery,
upon actual service;
(ii) In the case of overnight
commercial delivery service, U.S.
Express mail delivery, or first class,
registered, or certified mail, upon
deposit in or delivery to an appropriate
point of collection; or
(iii) In the case of transmission by
electronic media, as specified by the
authority receiving the filing, in the case
of filing, and as agreed among the
parties, in the case of service.
(2) The effective filing and service
dates specified in paragraph (b)(1) of
this section may be modified by the
Board of Directors or administrative law
judge in the case of filing or by
agreement of the parties in the case of
service.
(c) Calculation of time for service and
filing of responsive papers. Whenever a
time limit is measured by a prescribed
period from the service of any notice or
paper, the applicable time limits are
calculated as follows:
(1) If service is made by first class,
registered, or certified mail, add three
calendar days to the prescribed period;
(2) If service is made by express mail
or overnight delivery service, add one
calendar day to the prescribed period; or
(3) If service is made by electronic
media transmission, add one calendar
day to the prescribed period, unless
otherwise determined by the Board of
Directors or the administrative law
judge in the case of filing, or by
agreement among the parties in the case
of service.
§ 390.42
Change of time limits.
Except as otherwise provided by law,
the administrative law judge may, for
good cause shown, extend the time
limits prescribed by the Uniform Rules
or any notice or order issued in the
proceedings. After the referral of the
case to the Board of Directors pursuant
to § 390.67, the Board of Directors may
grant extensions of the time limits for
good cause shown. Extensions may be
granted at the motion of a party or on
the Board of Director’s or the
administrative law judge’s own motion
after notice and opportunity to respond
is afforded all non-moving parties.
§ 390.43
Witness fees and expenses.
Witnesses subpoenaed for testimony
or deposition shall be paid the same fees
for attendance and mileage as are paid
in the United States district courts in
proceedings in which the United States
is a party, provided that, in the case of
a discovery subpoena addressed to a
party, no witness fees or mileage need
be paid. Fees for witnesses shall be
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tendered in advance by the party
requesting the subpoena, except that
fees and mileage need not be tendered
in advance where the FDIC is the party
requesting the subpoena. The FDIC shall
not be required to pay any fees to, or
expenses of, any witness not
subpoenaed by the FDIC.
§ 390.44 Opportunity for informal
settlement.
Any respondent may, at any time in
the proceeding, unilaterally submit to
Enforcement Counsel written offers or
proposals for settlement of a proceeding,
without prejudice to the rights of any of
the parties. No such offer or proposal
shall be made to any FDIC
representative other than Enforcement
Counsel. Submission of a written
settlement offer does not provide a basis
for adjourning or otherwise delaying all
or any portion of a proceeding under
this part. No settlement offer or
proposal, or any subsequent negotiation
or resolution, is admissible as evidence
in any proceeding.
§ 390.45 The FDIC’s right to conduct
examination.
Nothing contained in this subpart
limits in any manner the right of the
FDIC to conduct any examination,
inspection, or visitation of any
institution or institution-affiliated party,
or the right of the FDIC to conduct or
continue any form of investigation
authorized by law.
§ 390.46 Collateral attacks on adjudicatory
proceeding.
If an interlocutory appeal or collateral
attack is brought in any court
concerning all or any part of an
adjudicatory proceeding, the challenged
adjudicatory proceeding shall continue
without regard to the pendency of that
court proceeding. No default or other
failure to act as directed in the
adjudicatory proceeding within the
times prescribed in this subpart shall be
excused based on the pendency before
any court of any interlocutory appeal or
collateral attack.
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§ 390.47 Commencement of proceeding
and contents of notice.
(a) Commencement of proceeding.
(1)(i) Except for change-in-control
proceedings under section 7(j)(4) of the
FDIA (12 U.S.C. 1817(j)(4)), a
proceeding governed by this subpart is
commenced by issuance of a notice by
the FDIC.
(ii) The notice must be served by the
Executive Secretary upon the
respondent and given to any other
appropriate financial institution
supervisory authority where required by
law.
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(iii) The notice must be filed with the
OFIA.
(2) Change-in control proceedings
under section 7(j)(4) of the FDIA (12
U.S.C. 1817(j)(4)) commence with the
issuance of an order by the Board of
Directors.
(b) Contents of notice. The notice
must set forth:
(1) The legal authority for the
proceeding and for the FDIC’s
jurisdiction over the proceeding;
(2) A statement of the matters of fact
or law showing that the FDIC is entitled
to relief;
(3) A proposed order or prayer for an
order granting the requested relief;
(4) The time, place, and nature of the
hearing as required by law or regulation;
(5) The time within which to file an
answer as required by law or regulation;
(6) The time within which to request
a hearing as required by law or
regulation; and
(7) The answer and/or request for a
hearing shall be filed with OFIA.
§ 390.48
Answer.
(a) When. Within 20 days of service of
the notice, respondent shall file an
answer as designated in the notice. In a
civil money penalty proceeding,
respondent shall also file a request for
a hearing within 20 days of service of
the notice.
(b) Content of answer. An answer
must specifically respond to each
paragraph or allegation of fact contained
in the notice and must admit, deny, or
state that the party lacks sufficient
information to admit or deny each
allegation of fact. A statement of lack of
information has the effect of a denial.
Denials must fairly meet the substance
of each allegation of fact denied; general
denials are not permitted. When a
respondent denies part of an allegation,
that part must be denied and the
remainder specifically admitted. Any
allegation of fact in the notice which is
not denied in the answer must be
deemed admitted for purposes of the
proceeding. A respondent is not
required to respond to the portion of a
notice that constitutes the prayer for
relief or proposed order. The answer
must set forth affirmative defenses, if
any, asserted by the respondent.
(c) Default—(1) Effect of failure to
answer. Failure of a respondent to file
an answer required by this section
within the time provided constitutes a
waiver of his or her right to appear and
contest the allegations in the notice. If
no timely answer is filed, Enforcement
Counsel may file a motion for entry of
an order of default. Upon a finding that
no good cause has been shown for the
failure to file a timely answer, the
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administrative law judge shall file with
the Board of Directors a recommended
decision containing the findings and the
relief sought in the notice. Any final
order issued by the Board of Directors
based upon a respondent’s failure to
answer is deemed to be an order issued
upon consent.
(2) Effect of failure to request a
hearing in civil money penalty
proceedings. If respondent fails to
request a hearing as required by law
within the time provided, the notice of
assessment constitutes a final and
unappealable order.
§ 390.49
Amended pleadings.
(a) Amendments. The notice or
answer may be amended or
supplemented at any stage of the
proceeding. The respondent must
answer an amended notice within the
time remaining for the respondent’s
answer to the original notice, or within
ten days after service of the amended
notice, whichever period is longer,
unless the Board of Directors or
administrative law judge orders
otherwise for good cause.
(b) Amendments to conform to the
evidence. When issues not raised in the
notice or answer are tried at the hearing
by express or implied consent of the
parties, they will be treated in all
respects as if they had been raised in the
notice or answer, and no formal
amendments are required. If evidence is
objected to at the hearing on the ground
that it is not within the issues raised by
the notice or answer, the administrative
law judge may admit the evidence when
admission is likely to assist in
adjudicating the merits of the action and
the objecting party fails to satisfy the
administrative law judge that the
admission of such evidence would
unfairly prejudice that party’s action or
defense upon the merits. The
administrative law judge may grant a
continuance to enable the objecting
party to meet such evidence.
§ 390.50
Failure to appear.
Failure of a respondent to appear in
person at the hearing or by a duly
authorized counsel constitutes a waiver
of respondent’s right to a hearing and is
deemed an admission of the facts as
alleged and consent to the relief sought
in the notice. Without further
proceedings or notice to the respondent,
the administrative law judge shall file
with the Board of Directors a
recommended decision containing the
findings and the relief sought in the
notice.
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§ 390.51 Consolidation and severance of
actions.
(a) Consolidation. (1) On the motion
of any party, or on the administrative
law judge’s own motion, the
administrative law judge may
consolidate, for some or all purposes,
any two or more proceedings, if each
such proceeding involves or arises out
of the same transaction, occurrence or
series of transactions or occurrences, or
involves at least one common
respondent or a material common
question of law or fact, unless such
consolidation would cause
unreasonable delay or injustice.
(2) In the event of consolidation under
paragraph (a)(1) of this section,
appropriate adjustment to the
prehearing schedule must be made to
avoid unnecessary expense,
inconvenience, or delay.
(b) Severance. The administrative law
judge may, upon the motion of any
party, sever the proceeding for separate
resolution of the matter as to any
respondent only if the administrative
law judge finds that:
(1) Undue prejudice or injustice to the
moving party would result from not
severing the proceeding; and
(2) Such undue prejudice or injustice
would outweigh the interests of judicial
economy and expedition in the
complete and final resolution of the
proceeding.
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§ 390.52
Motions.
(a) In writing. (1) Except as otherwise
provided herein, an application or
request for an order or ruling must be
made by written motion.
(2) All written motions must state
with particularity the relief sought and
must be accompanied by a proposed
order.
(3) No oral argument may be held on
written motions except as otherwise
directed by the administrative law
judge. Written memoranda, briefs,
affidavits or other relevant material or
documents may be filed in support of or
in opposition to a motion.
(b) Oral motions. A motion may be
made orally on the record unless the
administrative law judge directs that
such motion be reduced to writing.
(c) Filing of motions. Motions must be
filed with the administrative law judge,
but upon the filing of the recommended
decision, motions must be filed with the
Executive Secretary for disposition by
the Board of Directors.
(d) Responses. (1) Except as otherwise
provided herein, within ten days after
service of any written motion, or within
such other period of time as may be
established by the administrative law
judge or the Executive Secretary, any
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party may file a written response to a
motion. The administrative law judge
shall not rule on any oral or written
motion before each party has had an
opportunity to file a response.
(2) The failure of a party to oppose a
written motion or an oral motion made
on the record is deemed a consent by
that party to the entry of an order
substantially in the form of the order
accompanying the motion.
(e) Dilatory motions. Frivolous,
dilatory or repetitive motions are
prohibited. The filing of such motions
may form the basis for sanctions.
(f) Dispositive motions. Dispositive
motions are governed by §§ 390.58 and
390.59.
government’s or government agency’s
deliberative-process privilege, and any
other privileges the Constitution, any
applicable act of Congress, or the
principles of common law provide.
(d) Time limits. All discovery,
including all responses to discovery
requests, shall be completed at least 20
days prior to the date scheduled for the
commencement of the hearing, except as
provided in the Local Rules. No
exceptions to this time limit shall be
permitted, unless the administrative law
judge finds on the record that good
cause exists for waiving the
requirements of this paragraph (d).
§ 390.53
(a) General rule. Any party may serve
on any other party a request to produce
for inspection any discoverable
documents that are in the possession,
custody, or control of the party upon
whom the request is served. The request
must identify the documents to be
produced either by individual item or
by category, and must describe each
item and category with reasonable
particularity. Documents must be
produced as they are kept in the usual
course of business or must be organized
to correspond with the categories in the
request.
(b) Production or copying. The request
must specify a reasonable time, place,
and manner for production and
performing any related acts. In lieu of
inspecting the documents, the
requesting party may specify that all or
some of the responsive documents be
copied and the copies delivered to the
requesting party. If copying of fewer
than 250 pages is requested, the party to
whom the request is addressed shall
bear the cost of copying and shipping
charges. If a party requests 250 pages or
more of copying, the requesting party
shall pay for the copying and shipping
charges. Copying charges are the current
per-page copying rate imposed under
part 309 for requests under the Freedom
of Information Act (5 U.S.C. 552). The
party to whom the request is addressed
may require payment in advance before
producing the documents.
(c) Obligation to update responses. A
party who has responded to a discovery
request with a response that was
complete when made is not required to
supplement the response to include
documents thereafter acquired, unless
the responding party learns that:
(1) The response was materially
incorrect when made; or
(2) The response, though correct when
made, is no longer true and a failure to
amend the response is, in substance, a
knowing concealment.
Scope of document discovery.
(a) Limits on discovery. (1) Subject to
the limitations set out in paragraphs (b),
(c), and (d) of this section, a party to a
proceeding under this subpart may
obtain document discovery by serving a
written request to produce documents.
For purposes of a request to produce
documents, the term ‘‘documents’’ may
be defined to include drawings, graphs,
charts, photographs, recordings, data
stored in electronic form, and other data
compilations from which information
can be obtained, or translated, if
necessary, by the parties through
detection devices into reasonably usable
form, as well as written material of all
kinds.
(2) Discovery by use of deposition is
governed by § 390.73.
(3) Discovery by use of interrogatories
is not permitted.
(b) Relevance. A party may obtain
document discovery regarding any
matter, not privileged, that has material
relevance to the merits of the pending
action. Any request to produce
documents that calls for irrelevant
material, that is unreasonable,
oppressive, excessive in scope, unduly
burdensome, or repetitive of previous
requests, or that seeks to obtain
privileged documents will be denied or
modified. A request is unreasonable,
oppressive, excessive in scope or
unduly burdensome if, among other
things, it fails to include justifiable
limitations on the time period covered
and the geographic locations to be
searched, the time provided to respond
in the request is inadequate, or the
request calls for copies of documents to
be delivered to the requesting party and
fails to include the requestor’s written
agreement to pay in advance for the
copying, in accordance with § 390.54.
(c) Privileged matter. Privileged
documents are not discoverable.
Privileges include the attorney-client
privilege, work-product privilege, any
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§ 390.54 Request for document discovery
from parties.
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(d) Motions to limit discovery. (1) Any
party that objects to a discovery request
may, within ten days of being served
with such request, file a motion in
accordance with the provisions of
§ 390.52 to revoke or otherwise limit the
request. If an objection is made to only
a portion of an item or category in a
request, the portion objected to shall be
specified. Any objections not made in
accordance with this paragraph and
§ 390.52 are waived.
(2) The party who served the request
that is the subject of a motion to revoke
or limit may file a written response
within five days of service of the
motion. No other party may file a
response.
(e) Privilege. At the time other
documents are produced, the producing
party must reasonably identify all
documents withheld on the grounds of
privilege and must produce a statement
of the basis for the assertion of privilege.
When similar documents that are
protected by deliberative process,
attorney-work-product, or attorneyclient privilege are voluminous, these
documents may be identified by
category instead of by individual
document. The administrative law judge
retains discretion to determine when the
identification by category is insufficient.
(f) Motions to compel production. (1)
If a party withholds any documents as
privileged or fails to comply fully with
a discovery request, the requesting party
may, within ten days of the assertion of
privilege or of the time the failure to
comply becomes known to the
requesting party, file a motion in
accordance with the provisions of
§ 390.52 for the issuance of a subpoena
compelling production.
(2) The party who asserted the
privilege or failed to comply with the
request may file a written response to a
motion to compel within five days of
service of the motion. No other party
may file a response.
(g) Ruling on motions. After the time
for filing responses pursuant to this
section has expired, the administrative
law judge shall rule promptly on all
motions filed pursuant to this section. If
the administrative law judge determines
that a discovery request, or any of its
terms, calls for irrelevant material, is
unreasonable, oppressive, excessive in
scope, unduly burdensome, or repetitive
of previous requests, or seeks to obtain
privileged documents, he or she may
deny or modify the request, and may
issue appropriate protective orders,
upon such conditions as justice may
require. The pendency of a motion to
strike or limit discovery or to compel
production is not a basis for staying or
continuing the proceeding, unless
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otherwise ordered by the administrative
law judge. Notwithstanding any other
provision in this subpart, the
administrative law judge may not
release, or order a party to produce,
documents withheld on grounds of
privilege if the party has stated to the
administrative law judge its intention to
file a timely motion for interlocutory
review of the administrative law judge’s
order to produce the documents, and
until the motion for interlocutory
review has been decided.
(h) Enforcing discovery subpoenas. If
the administrative law judge issues a
subpoena compelling production of
documents by a party, the subpoenaing
party may, in the event of
noncompliance and to the extent
authorized by applicable law, apply to
any appropriate United States district
court for an order requiring compliance
with the subpoena. A party’s right to
seek court enforcement of a subpoena
shall not in any manner limit the
sanctions that may be imposed by the
administrative law judge against a party
who fails to produce subpoenaed
documents.
§ 390.55 Document subpoenas to
nonparties.
(a) General rules. (1) Any party may
apply to the administrative law judge
for the issuance of a document
discovery subpoena addressed to any
person who is not a party to the
proceeding. The application must
contain a proposed document subpoena
and a brief statement showing the
general relevance and reasonableness of
the scope of documents sought. The
subpoenaing party shall specify a
reasonable time, place, and manner for
making production in response to the
document subpoena.
(2) A party shall only apply for a
document subpoena under this section
within the time period during which
such party could serve a discovery
request under § 390.53(d). The party
obtaining the document subpoena is
responsible for serving it on the
subpoenaed person and for serving
copies on all parties. Document
subpoenas may be served in any state,
territory, or possession of the United
States, the District of Columbia, or as
otherwise provided by law.
(3) The administrative law judge shall
promptly issue any document subpoena
requested pursuant to this section. If the
administrative law judge determines
that the application does not set forth a
valid basis for the issuance of the
subpoena, or that any of its terms are
unreasonable, oppressive, excessive in
scope, or unduly burdensome, he or she
may refuse to issue the subpoena or may
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issue it in a modified form upon such
conditions as may be consistent with
the Uniform Rules.
(b) Motion to quash or modify. (1)
Any person to whom a document
subpoena is directed may file a motion
to quash or modify such subpoena,
accompanied by a statement of the basis
for quashing or modifying the subpoena.
The movant shall serve the motion on
all parties, and any party may respond
to such motion within ten days of
service of the motion.
(2) Any motion to quash or modify a
document subpoena must be filed on
the same basis, including the assertion
of privilege, upon which a party could
object to a discovery request under
§ 390.54(d), and during the same time
limits during which such an objection
could be filed.
(c) Enforcing document subpoenas. If
a subpoenaed person fails to comply
with any subpoena issued pursuant to
this section or any order of the
administrative law judge which directs
compliance with all or any portion of a
document subpoena, the subpoenaing
party or any other aggrieved party may,
to the extent authorized by applicable
law, apply to an appropriate United
States district court for an order
requiring compliance with so much of
the document subpoena as the
administrative law judge has not
quashed or modified. A party’s right to
seek court enforcement of a document
subpoena shall in no way limit the
sanctions that may be imposed by the
administrative law judge on a party who
induces a failure to comply with
subpoenas issued under this section.
§ 390.56 Deposition of witness unavailable
for hearing.
(a) General rules. (1) If a witness will
not be available for the hearing, a party
may apply in accordance with the
procedures set forth in paragraph (a)(2)
of this section, to the administrative law
judge for the issuance of a subpoena,
including a subpoena duces tecum,
requiring the attendance of the witness
at a deposition. The administrative law
judge may issue a deposition subpoena
under this section upon showing that:
(i) The witness will be unable to
attend or may be prevented from
attending the hearing because of age,
sickness or infirmity, or will otherwise
be unavailable;
(ii) The witness’ unavailability was
not procured or caused by the
subpoenaing party;
(iii) The testimony is reasonably
expected to be material; and
(iv) Taking the deposition will not
result in any undue burden to any other
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party and will not cause undue delay of
the proceeding.
(2) The application must contain a
proposed deposition subpoena and a
brief statement of the reasons for the
issuance of the subpoena. The subpoena
must name the witness whose
deposition is to be taken and specify the
time and place for taking the deposition.
A deposition subpoena may require the
witness to be deposed at any place
within the country in which that
witness resides or has a regular place of
employment or such other convenient
place as the administrative law judge
shall fix.
(3) Any requested subpoena that sets
forth a valid basis for its issuance must
be promptly issued, unless the
administrative law judge on his or her
own motion, requires a written response
or requires attendance at a conference
concerning whether the requested
subpoena should be issued.
(4) The party obtaining a deposition
subpoena is responsible for serving it on
the witness and for serving copies on all
parties. Unless the administrative law
judge orders otherwise, no deposition
under this section shall be taken on
fewer than ten days’ notice to the
witness and all parties. Deposition
subpoenas may be served in any state,
territory, possession of the United
States, or the District of Columbia, on
any person or company doing business
in any state, territory, possession of the
United States, or the District of
Columbia, or as otherwise permitted by
law.
(b) Objections to deposition
subpoenas. (1) The witness and any
party who has not had an opportunity
to oppose a deposition subpoena issued
under this section may file a motion
with the administrative law judge to
quash or modify the subpoena prior to
the time for compliance specified in the
subpoena, but not more than ten days
after service of the subpoena.
(2) A statement of the basis for the
motion to quash or modify a subpoena
issued under this section must
accompany the motion. The motion
must be served on all parties.
(c) Procedure upon deposition. (1)
Each witness testifying pursuant to a
deposition subpoena must be duly
sworn, and each party shall have the
right to examine the witness. Objections
to questions or documents must be in
short form, stating the grounds for the
objection. Failure to object to questions
or documents is not deemed a waiver
except where the ground for the
objection might have been avoided if the
objection had been timely presented. All
questions, answers, and objections must
be recorded.
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(2) Any party may move before the
administrative law judge for an order
compelling the witness to answer any
questions the witness has refused to
answer or submit any evidence the
witness has refused to submit during the
deposition.
(3) The deposition must be subscribed
by the witness, unless the parties and
the witness, by stipulation, have waived
the signing, or the witness is ill, cannot
be found, or has refused to sign. If the
deposition is not subscribed by the
witness, the court reporter taking the
deposition shall certify that the
transcript is a true and complete
transcript of the deposition.
(d) Enforcing subpoenas. If a
subpoenaed person fails to comply with
any order of the administrative law
judge which directs compliance with all
or any portion of a deposition subpoena
under paragraph (b) or (c)(2) of this
section, the subpoenaing party or other
aggrieved party may, to the extent
authorized by applicable law, apply to
an appropriate United States district
court for an order requiring compliance
with the portions of the subpoena that
the administrative law judge has
ordered enforced. A party’s right to seek
court enforcement of a deposition
subpoena in no way limits the sanctions
that may be imposed by the
administrative law judge on a party who
fails to comply with or procures a
failure to comply with, a subpoena
issued under this section.
§ 390.57
Interlocutory review.
(a) General rule. The Board of
Directors may review a ruling of the
administrative law judge prior to the
certification of the record to the Board
of Directors only in accordance with the
procedures set forth in this section and
§ 390.52.
(b) Scope of review. The Board of
Directors may exercise interlocutory
review of a ruling of the administrative
law judge if the Board of Directors finds
that:
(1) The ruling involves a controlling
question of law or policy as to which
substantial grounds exist for a difference
of opinion;
(2) Immediate review of the ruling
may materially advance the ultimate
termination of the proceeding;
(3) Subsequent modification of the
ruling at the conclusion of the
proceeding would be an inadequate
remedy; or
(4) Subsequent modification of the
ruling would cause unusual delay or
expense.
(c) Procedure. Any request for
interlocutory review shall be filed by a
party with the administrative law judge
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within ten days of his or her ruling and
shall otherwise comply with § 390.52.
Any party may file a response to a
request for interlocutory review in
accordance with § 390.52(d). Upon the
expiration of the time for filing all
responses, the administrative law judge
shall refer the matter to the Board of
Directors for final disposition.
(d) Suspension of proceeding. Neither
a request for interlocutory review nor
any disposition of such a request by the
Board of Directors under this section
suspends or stays the proceeding unless
otherwise ordered by the administrative
law judge or the Board of Directors.
§ 390.58
Summary disposition.
(a) In general. The administrative law
judge shall recommend that the Board of
Directors issue a final order granting a
motion for summary disposition if the
undisputed pleaded facts, admissions,
affidavits, stipulations, documentary
evidence, matters as to which official
notice may be taken, and any other
evidentiary materials properly
submitted in connection with a motion
for summary disposition show that:
(1) There is no genuine issue as to any
material fact; and
(2) The moving party is entitled to a
decision in its favor as a matter of law.
(b) Filing of motions and responses.
(1) Any party who believes that there is
no genuine issue of material fact to be
determined and that he or she is entitled
to a decision as a matter of law may
move at any time for summary
disposition in its favor of all or any part
of the proceeding. Any party, within 20
days after service of such a motion, or
within such time period as allowed by
the administrative law judge, may file a
response to such motion.
(2) A motion for summary disposition
must be accompanied by a statement of
the material facts as to which the
moving party contends there is no
genuine issue. Such motion must be
supported by documentary evidence,
which may take the form of admissions
in pleadings, stipulations, depositions,
investigatory depositions, transcripts,
affidavits and any other evidentiary
materials that the moving party
contends support his or her position.
The motion must also be accompanied
by a brief containing the points and
authorities in support of the contention
of the moving party. Any party opposing
a motion for summary disposition must
file a statement setting forth those
material facts as to which he or she
contends a genuine dispute exists. Such
opposition must be supported by
evidence of the same type as that
submitted with the motion for summary
disposition and a brief containing the
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points and authorities in support of the
contention that summary disposition
would be inappropriate.
(c) Hearing on motion. At the request
of any party or on his or her own
motion, the administrative law judge
may hear oral argument on the motion
for summary disposition.
(d) Decision on motion. Following
receipt of a motion for summary
disposition and all responses thereto,
the administrative law judge shall
determine whether the moving party is
entitled to summary disposition. If the
administrative law judge determines
that summary disposition is warranted,
the administrative law judge shall
submit a recommended decision to that
effect to the Board of Directors. If the
administrative law judge finds that no
party is entitled to summary
disposition, he or she shall make a
ruling denying the motion.
§ 390.59
Partial summary disposition.
If the administrative law judge
determines that a party is entitled to
summary disposition as to certain
claims only, he or she shall defer
submitting a recommended decision as
to those claims. A hearing on the
remaining issues must be ordered.
Those claims for which the
administrative law judge has
determined that summary disposition is
warranted will be addressed in the
recommended decision filed at the
conclusion of the hearing.
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§ 390.60 Scheduling and prehearing
conferences.
§ 390.61
(a) Scheduling conference. Within 30
days of service of the notice or order
commencing a proceeding or such other
time as parties may agree, the
administrative law judge shall direct
counsel for all parties to meet with him
or her in person at a specified time and
place prior to the hearing or to confer
by telephone for the purpose of
scheduling the course and conduct of
the proceeding. This meeting or
telephone conference is called a
‘‘scheduling conference.’’ The
identification of potential witnesses, the
time for and manner of discovery, and
the exchange of any prehearing
materials including witness lists,
statements of issues, stipulations,
exhibits and any other materials may
also be determined at the scheduling
conference.
(b) Prehearing conferences. The
administrative law judge may, in
addition to the scheduling conference,
on his or her own motion or at the
request of any party, direct counsel for
the parties to meet with him or her (in
person or by telephone) at a prehearing
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conference to address any or all of the
following:
(1) Simplification and clarification of
the issues;
(2) Stipulations, admissions of fact,
and the contents, authenticity and
admissibility into evidence of
documents;
(3) Matters of which official notice
may be taken;
(4) Limitation of the number of
witnesses;
(5) Summary disposition of any or all
issues;
(6) Resolution of discovery issues or
disputes;
(7) Amendments to pleadings; and
(8) Such other matters as may aid in
the orderly disposition of the
proceeding.
(c) Transcript. The administrative law
judge, in his or her discretion, may
require that a scheduling or prehearing
conference be recorded by a court
reporter. A transcript of the conference
and any materials filed, including
orders, becomes part of the record of the
proceeding. A party may obtain a copy
of the transcript at its expense.
(d) Scheduling or prehearing orders.
At or within a reasonable time following
the conclusion of the scheduling
conference or any prehearing
conference, the administrative law judge
shall serve on each party an order
setting forth any agreements reached
and any procedural determinations
made.
Prehearing submissions.
(a) Within the time set by the
administrative law judge, but in no case
later than 14 days before the start of the
hearing, each party shall serve on every
other party, his or her:
(1) Prehearing statement;
(2) Final list of witnesses to be called
to testify at the hearing, including name
and address of each witness and a short
summary of the expected testimony of
each witness;
(3) List of the exhibits to be
introduced at the hearing along with a
copy of each exhibit; and
(4) Stipulations of fact, if any.
(b) Effect of failure to comply. No
witness may testify and no exhibits may
be introduced at the hearing if such
witness or exhibit is not listed in the
prehearing submissions pursuant to
paragraph (a) of this section, except for
good cause shown.
§ 390.62
Public hearings.
(a) General rule. All hearings shall be
open to the public, unless the FDIC, in
its discretion, determines that holding
an open hearing would be contrary to
the public interest. Within 20 days of
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service of the notice or, in the case of
change-in-control proceedings under
section 7(j)(4) of the FDIA (12 U.S.C.
1817(j)(4)), within 20 days from service
of the hearing order, any respondent
may file with the Executive Secretary a
request for a private hearing, and any
party may file a reply to such a request.
A party must serve on the
administrative law judge a copy of any
request or reply the party files with the
Executive Secretary. The form of, and
procedure for, these requests and replies
are governed by § 390.52. A party’s
failure to file a request or a reply
constitutes a waiver of any objections
regarding whether the hearing will be
public or private.
(b) Filing document under seal.
Enforcement Counsel, in his or her
discretion, may file any document or
part of a document under seal if
disclosure of the document would be
contrary to the public interest. The
administrative law judge shall take all
appropriate steps to preserve the
confidentiality of such documents or
parts thereof, including closing portions
of the hearing to the public.
§ 390.63
Hearing subpoenas.
(a) Issuance. (1) Upon application of
a party showing general relevance and
reasonableness of scope of the testimony
or other evidence sought, the
administrative law judge may issue a
subpoena or a subpoena duces tecum
requiring the attendance of a witness at
the hearing or the production of
documentary or physical evidence at the
hearing. The application for a hearing
subpoena must also contain a proposed
subpoena specifying the attendance of a
witness or the production of evidence
from any state, territory, or possession
of the United States, the District of
Columbia, or as otherwise provided by
law at any designated place where the
hearing is being conducted. The party
making the application shall serve a
copy of the application and the
proposed subpoena on every other
party.
(2) A party may apply for a hearing
subpoena at any time before the
commencement of a hearing. During a
hearing, a party may make an
application for a subpoena orally on the
record before the administrative law
judge.
(3) The administrative law judge shall
promptly issue any hearing subpoena
requested pursuant to this section. If the
administrative law judge determines
that the application does not set forth a
valid basis for the issuance of the
subpoena, or that any of its terms are
unreasonable, oppressive, excessive in
scope, or unduly burdensome, he or she
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may refuse to issue the subpoena or may
issue it in a modified form upon any
conditions consistent with this subpart.
Upon issuance by the administrative
law judge, the party making the
application shall serve the subpoena on
the person named in the subpoena and
on each party.
(b) Motion to quash or modify. (1)
Any person to whom a hearing
subpoena is directed or any party may
file a motion to quash or modify the
subpoena, accompanied by a statement
of the basis for quashing or modifying
the subpoena. The movant must serve
the motion on each party and on the
person named in the subpoena. Any
party may respond to the motion within
ten days of service of the motion.
(2) Any motion to quash or modify a
hearing subpoena must be filed prior to
the time specified in the subpoena for
compliance, but not more than ten days
after the date of service of the subpoena
upon the movant.
(c) Enforcing subpoenas. If a
subpoenaed person fails to comply with
any subpoena issued pursuant to this
section or any order of the
administrative law judge which directs
compliance with all or any portion of a
document subpoena, the subpoenaing
party or any other aggrieved party may
seek enforcement of the subpoena
pursuant to section § 390.55(c).
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§ 390.64
Conduct of hearings.
(a) General rules. (1) Hearings shall be
conducted so as to provide a fair and
expeditious presentation of the relevant
disputed issues. Each party has the right
to present its case or defense by oral and
documentary evidence and to conduct
such cross examination as may be
required for full disclosure of the facts.
(2) Order of hearing. Enforcement
Counsel shall present its case-in-chief
first, unless otherwise ordered by the
administrative law judge, or unless
otherwise expressly specified by law or
regulation. Enforcement Counsel shall
be the first party to present an opening
statement and a closing statement, and
may make a rebuttal statement after the
respondent’s closing statement. If there
are multiple respondents, respondents
may agree among themselves as to their
order of presentation of their cases, but
if they do not agree the administrative
law judge shall fix the order.
(3) Examination of witnesses. Only
one counsel for each party may conduct
an examination of a witness, except that
in the case of extensive direct
examination, the administrative law
judge may permit more than one
counsel for the party presenting the
witness to conduct the examination. A
party may have one counsel conduct the
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direct examination and another counsel
conduct re-direct examination of a
witness, or may have one counsel
conduct the cross examination of a
witness and another counsel conduct
the re-cross examination of a witness.
(4) Stipulations. Unless the
administrative law judge directs
otherwise, all stipulations of fact and
law previously agreed upon by the
parties, and all documents, the
admissibility of which have been
previously stipulated, will be admitted
into evidence upon commencement of
the hearing.
(b) Transcript. The hearing must be
recorded and transcribed. The reporter
will make the transcript available to any
party upon payment by that party to the
reporter of the cost of the transcript. The
administrative law judge may order the
record corrected, either upon motion to
correct, upon stipulation of the parties,
or following notice to the parties upon
the administrative law judge’s own
motion.
§ 390.65
Evidence.
(a) Admissibility. (1) Except as is
otherwise set forth in this section,
relevant, material, and reliable evidence
that is not unduly repetitive is
admissible to the fullest extent
authorized by the Administrative
Procedure Act and other applicable law.
(2) Evidence that would be admissible
under the Federal Rules of Evidence is
admissible in a proceeding conducted
pursuant to this subpart.
(3) Evidence that would be
inadmissible under the Federal Rules of
Evidence may not deemed or ruled to be
inadmissible in a proceeding conducted
pursuant to this subpart if such
evidence is relevant, material, reliable
and not unduly repetitive.
(b) Official notice. (1) Official notice
may be taken of any material fact which
may be judicially noticed by a United
States district court and any material
information in the official public
records of any Federal or state
government agency.
(2) All matters officially noticed by
the administrative law judge or Board of
Directors shall appear on the record.
(3) If official notice is requested or
taken of any material fact, the parties,
upon timely request, shall be afforded
an opportunity to object.
(c) Documents. (1) A duplicate copy
of a document is admissible to the same
extent as the original, unless a genuine
issue is raised as to whether the copy is
in some material respect not a true and
legible copy of the original.
(2) Subject to the requirements of
paragraph (a) of this section, any
document, including a report of
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examination, supervisory activity,
inspection or visitation, prepared by the
appropriate Federal financial institution
regulatory agency or state regulatory
agency, is admissible either with or
without a sponsoring witness.
(3) Witnesses may use existing or
newly created charts, exhibits,
calendars, calculations, outlines or other
graphic material to summarize,
illustrate, or simplify the presentation of
testimony. Such materials may, subject
to the administrative law judge’s
discretion, be used with or without
being admitted into evidence.
(d) Objections. (1) Objections to the
admissibility of evidence must be timely
made and rulings on all objections must
appear on the record.
(2) When an objection to a question or
line of questioning propounded to a
witness is sustained, the examining
counsel may make a specific proffer on
the record of what he or she expected
to prove by the expected testimony of
the witness, either by representation of
counsel or by direct interrogation of the
witness.
(3) The administrative law judge shall
retain rejected exhibits, adequately
marked for identification, for the record,
and transmit such exhibits to the Board
of Directors.
(4) Failure to object to admission of
evidence or to any ruling constitutes a
waiver of the objection.
(e) Stipulations. The parties may
stipulate as to any relevant matters of
fact or the authentication of any relevant
documents. Such stipulations must be
received in evidence at a hearing, and
are binding on the parties with respect
to the matters therein stipulated.
(f) Depositions of unavailable
witnesses. (1) If a witness is unavailable
to testify at a hearing, and that witness
has testified in a deposition to which all
parties in a proceeding had notice and
an opportunity to participate, a party
may offer as evidence all or any part of
the transcript of the deposition,
including deposition exhibits, if any.
(2) Such deposition transcript is
admissible to the same extent that
testimony would have been admissible
had that person testified at the hearing,
provided that if a witness refused to
answer proper questions during the
depositions, the administrative law
judge may, on that basis, limit the
admissibility of the deposition in any
manner that justice requires.
(3) Only those portions of a
deposition received in evidence at the
hearing constitute a part of the record.
§ 390.66
Post-hearing filings.
(a) Proposed findings and conclusions
and supporting briefs. (1) Using the
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same method of service for each party,
the administrative law judge shall serve
notice upon each party, that the
certified transcript, together with all
hearing exhibits and exhibits introduced
but not admitted into evidence at the
hearing, has been filed. Any party may
file with the administrative law judge
proposed findings of fact, proposed
conclusions of law, and a proposed
order within 30 days following service
of this notice by the administrative law
judge or within such longer period as
may be ordered by the administrative
law judge.
(2) Proposed findings and conclusions
must be supported by citation to any
relevant authorities and by page
references to any relevant portions of
the record. A post-hearing brief may be
filed in support of proposed findings
and conclusions, either as part of the
same document or in a separate
document. Any party who fails to file
timely with the administrative law
judge any proposed finding or
conclusion is deemed to have waived
the right to raise in any subsequent
filing or submission any issue not
addressed in such party’s proposed
finding or conclusion.
(b) Reply briefs. Reply briefs may be
filed within 15 days after the date on
which the parties’ proposed findings,
conclusions, and order are due. Reply
briefs must be strictly limited to
responding to new matters, issues, or
arguments raised in another party’s
papers. A party who has not filed
proposed findings of fact and
conclusions of law or a post-hearing
brief may not file a reply brief.
(c) Simultaneous filing required. The
administrative law judge shall not order
the filing by any party of any brief or
reply brief in advance of the other
party’s filing of its brief.
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§ 390.67 Recommended decision and filing
of record.
(a) Filing of recommended decision
and record. Within 45 days after
expiration of the time allowed for filing
reply briefs under § 390.66(b), the
administrative law judge shall file with
and certify to the Executive Secretary,
for decision, the record of the
proceeding. The record must include
the administrative law judge’s
recommended decision, recommended
findings of fact, recommended
conclusions of law, and proposed order;
all prehearing and hearing transcripts,
exhibits, and rulings; and the motions,
briefs, memoranda, and other
supporting papers filed in connection
with the hearing. The administrative
law judge shall serve upon each party
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the recommended decision, findings,
conclusions, and proposed order.
(b) Filing of index. At the same time
the administrative law judge files with
and certifies to the Board of Directors
for final determination the record of the
proceeding, the administrative law
judge shall furnish to the Executive
Secretary a certified index of the entire
record of the proceeding. The certified
index shall include, at a minimum, an
entry for each paper, document or
motion filed with the administrative law
judge in the proceeding, the date of the
filing, and the identity of the filer. The
certified index shall also include an
exhibit index containing, at a minimum,
an entry consisting of exhibit number
and title or description for: Each exhibit
introduced and admitted into evidence
at the hearing; each exhibit introduced
but not admitted into evidence at the
hearing; each exhibit introduced and
admitted into evidence after the
completion of the hearing; and each
exhibit introduced but not admitted into
evidence after the completion of the
hearing.
§ 390.68 Exceptions to recommended
decision.
(a) Filing exceptions. Within 30 days
after service of the recommended
decision, findings, conclusions, and
proposed order under § 390.67, a party
may file with the Executive Secretary
written exceptions to the administrative
law judge’s recommended decision,
findings, conclusions or proposed order,
to the admission or exclusion of
evidence, or to the failure of the
administrative law judge to make a
ruling proposed by a party. A
supporting brief may be filed at the time
the exceptions are filed, either as part of
the same document or in a separate
document.
(b) Effect of failure to file or raise
exceptions. (1) Failure of a party to file
exceptions to those matters specified in
paragraph (a) of this section within the
time prescribed is deemed a waiver of
objection thereto.
(2) No exception need be considered
by the Board of Directors if the party
taking exception had an opportunity to
raise the same objection, issue, or
argument before the administrative law
judge and failed to do so.
(c) Contents. (1) All exceptions and
briefs in support of such exceptions
must be confined to the particular
matters in, or omissions from, the
administrative law judge’s
recommendations to which that party
takes exception.
(2) All exceptions and briefs in
support of exceptions must set forth
page or paragraph references to the
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specific parts of the administrative law
judge’s recommendations to which
exception is taken, the page or
paragraph references to those portions
of the record relied upon to support
each exception, and the legal authority
relied upon to support each exception.
§ 390.69
Review by the Board of Directors.
(a) Notice of submission to the Board
of Directors. When the Executive
Secretary determines that the record in
the proceeding is complete, the Board of
Directors shall serve notice upon the
parties that the proceeding has been
submitted to the Board of Directors for
final decision.
(b) Oral argument before the Board of
Directors. Upon the initiative of the
Board of Directors or on the written
request of any party filed with the
Executive Secretary within the time for
filing exceptions, the Board of Directors
may order and hear oral argument on
the recommended findings, conclusions,
decision, and order of the
administrative law judge. A written
request by a party must show good
cause for oral argument and state
reasons why arguments cannot be
presented adequately in writing. A
denial of a request for oral argument
may be set forth in the Board of
Director’s final decision. Oral argument
before the Board of Directors must be on
the record.
(c) Board of Director’s final decision.
(1) Decisional employees may advise
and assist the Board of Directors in the
consideration and disposition of the
case. The final decision of the Board of
Directors will be based upon review of
the entire record of the proceeding,
except that the director may limit the
issues to be reviewed to those findings
and conclusions to which opposing
arguments or exceptions have been filed
by the parties.
(2) The Board of Directors shall render
a final decision within 90 days after
notification of the parties that the case
has been submitted for final decision, or
90 days after oral argument, whichever
is later, unless the Board of Directors
orders that the action or any aspect
thereof be remanded to the
administrative law judge for further
proceedings. Copies of the final decision
and order of the Board of Directors shall
be served upon each party to the
proceeding, upon other persons
required by statute, and, if directed by
the Board of Directors or required by
statute, upon any appropriate state or
Federal supervisory authority.
§ 390.70
Stays pending judicial review.
The commencement of proceedings
for judicial review of a final decision
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and order of the FDIC may not, unless
specifically ordered by the Board of
Directors or a reviewing court, operate
as a stay of any order issued by the
Board of Directors. The Board of
Directors may, in its discretion, and on
such terms as it finds just, stay the
effectiveness of all or any part of its
order pending a final decision on a
petition for review of the order.
§ 390.71
Scope.
The rules and procedures in §§ 390.71
through 390.75 shall apply to those
proceedings covered by §§ 390.30
through 390.70. In addition, §§ 390.30
through 390.75 shall apply to
adjudicatory proceedings for which
hearings on the record are provided for
by the following statutory provisions:
(a) Proceedings under section
10(a)(2)(D) of the HOLA (12 U.S.C.
1467a(a)(2)(D)) to determine whether
any person directly or indirectly
exercises a controlling influence over
the management or policies of a State
savings association or any other
company;
(b) [Reserved]; and
(c) Proceedings under section 15(c)(4)
of the Securities and Exchange Act of
1934 (15 U.S.C. 78o(c)(4)) (Exchange
Act) to determine whether any
association or person subject to the
jurisdiction of the FDIC pursuant to
section 12(i) of the Exchange Act (15
U.S.C. 78l(i)) has failed to comply with
the provisions of sections 12, 13, 14(a),
14(c), 14(d) or 14(f) of the Exchange Act.
§ 390.72 Appointment of Office of
Financial Institution Adjudication.
Unless otherwise directed by the
FDIC, all hearings under sections
390.30–390.75 shall be conducted by
administrative law judges under the
direction of the Office of Financial
Institution Adjudication, 1700 G Street,
NW., Washington, DC 20552.
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§ 390.73
Discovery.
(a) In general. A party may take the
deposition of an expert, or of a person,
including another party, who has direct
knowledge of matters that are nonprivileged, relevant and material to the
proceeding and where there is a need
for the deposition. The deposition of
experts shall be limited to those experts
who are expected to testify at the
hearing.
(b) Notice. A party desiring to take a
deposition shall give reasonable notice
in writing to the deponent and to every
other party to the proceeding. The
notice must state the time and place for
taking the deposition and the name and
address of the person to be deposed.
(c) Time limits. A party may take
depositions at any time after the
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commencement of the proceeding, but
no later than ten days before the
scheduled hearing date, except with
permission of the administrative law
judge for good cause shown.
(d) Conduct of the deposition. The
witness must be duly sworn, and each
party shall have the right to examine the
witness with respect to all nonprivileged, relevant and material matters
of which the witness has factual, direct
and personal knowledge. Objections to
questions or exhibits shall be in short
form, stating the grounds for objection.
Failure to object to questions or exhibits
is not a waiver except where the
grounds for the objection might have
been avoided if the objection had been
timely presented. The court reporter
shall transcribe or otherwise record the
witness’s testimony, as agreed among
the parties.
(e) Protective orders. At any time after
notice of a deposition has been given, a
party may file a motion for the issuance
of a protective order. Such protective
order may prohibit, terminate, or limit
the scope or manner of the taking of a
deposition. The administrative law
judge shall grant such protective order
upon a showing of sufficient grounds,
including that the deposition:
(1) Is unreasonable, oppressive,
excessive in scope, or unduly
burdensome;
(2) Involves privileged, investigative,
trial preparation, irrelevant or
immaterial matters; or
(3) Is being conducted in bad faith or
in such manner as to unreasonably
annoy, embarrass, or oppress the
deponent.
(f) Fees. Deposition witnesses,
including expert witnesses, shall be
paid the same expenses in the same
manner as are paid witnesses in the
district courts of the United States in
proceedings in which the United States
Government is a party. Expenses in
accordance with this paragraph shall be
paid by the party seeking to take the
deposition.
(g) Deposition subpoenas. (1)
Issuance. At the request of a party, the
administrative law judge shall issue a
subpoena requiring the attendance of a
witness at a deposition. The attendance
of a witness may be required from any
place in any state or territory that is
subject to the jurisdiction of the United
States or as otherwise permitted by law.
(2) Service. The party requesting the
subpoena must serve it on the person
named therein or upon that person’s
counsel, by any of the methods
identified in § 390.40(d). The party
serving the subpoena must file proof of
service with the administrative law
judge.
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(3) Motion to quash. A person named
in the subpoena or a party may file a
motion to quash or modify the
subpoena. A statement of the reasons for
the motion must accompany it and a
copy of the motion must be served on
the party that requested the subpoena.
The motion must be made prior to the
time for compliance specified in the
subpoena and not more than ten days
after the date of service of the subpoena,
or if the subpoena is served within 15
days of the hearing, within five days
after the date of service.
(4) Enforcement of deposition
subpoena. Enforcement of a deposition
subpoena shall be in accordance with
the procedures of § 390.56(d).
§ 390.74
Civil money penalties.
(a) Assessment. In the event of
consent, or if upon the record developed
at the hearing the Board of Directors
finds that any of the grounds specified
in the notice issued pursuant to § 390.47
have been established, the Executive
Secretary may serve an order of
assessment of civil money penalty upon
the party concerned. The assessment
order shall be effective immediately
upon service or upon such other date as
may be specified therein and shall
remain effective and enforceable until it
is stayed, modified, terminated, or set
aside by the Board of Directors or by a
reviewing court.
(b) Payment. (1) Civil penalties
assessed pursuant to §§ 390.30 through
390.75 are payable and to be collected
within 60 days after the issuance of the
notice of assessment, unless the Board
of Directors fixes a different time for
payment where it determines that the
purpose of the civil money penalty
would be better served thereby;
however, if a party has made a timely
request for a hearing to challenge the
assessment of the penalty, the party may
not be required to pay such penalty
until the Board of Directors has issued
a final order of assessment following the
hearing. In such instances, the penalty
shall be paid within 60 days of service
of such order unless the Board of
Directors fixes a different time for
payment. Notwithstanding the
foregoing, the FDIC may seek to attach
the party’s assets or to have a receiver
appointed to secure payment of the
potential civil money penalty or other
obligation in advance of the hearing in
accordance with section 8(i)(4) of the
FDIA (12 U.S.C. 1818(i)(4)).
(2) [Reserved].
(c) Inflation adjustment. Under the
Federal Civil Monetary Penalties
Inflation Adjustment Act of 1990 (28
U.S.C. 2461 note), FDIC must adjust for
inflation the civil money penalties in
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statutes that it administers. The
following chart displays the adjusted
civil money penalties. The amounts in
this chart apply to violations that occur
after October 27, 2008:
U.S. Code citation
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
42
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
U.S.C.
1 Per
2 Per
1464(v)(4) ................................................
1464(v)(5) ................................................
1464(v)(6) ................................................
1467(d) ....................................................
1467a(i)(2) ...............................................
1467a(i)(3) ...............................................
1467a(r)(1) ...............................................
1467a(r)(2) ...............................................
1467a(r)(3) ...............................................
1817(j)(16)(A) ..........................................
1817(j)(16)(B) ..........................................
1817(j)(16)(C) ..........................................
1818(i)(2)(A) ............................................
1818(i)(2)(B) ............................................
1818(i)(2)(C) ............................................
1820(k)(6)(A)(ii) .......................................
1884 .........................................................
3349(b) ....................................................
3349(b) ....................................................
3349(b) ....................................................
4012a(f) ...................................................
Reports of Condition—1st Tier .......................................................................
Reports of Condition—2nd Tier ......................................................................
Reports of Condition—3rd Tier .......................................................................
Refusal to Cooperate in Exam .......................................................................
Holding Company Act Violation ......................................................................
Holding Company Act Violation ......................................................................
Late/Inaccurate Reports—1st Tier ..................................................................
Late/Inaccurate Reports—2nd Tier ................................................................
Late/Inaccurate Reports—3rd Tier .................................................................
Change in Control—1st Tier ...........................................................................
Change in Control—2nd Tier ..........................................................................
Change in Control—3rd Tier ..........................................................................
Violation of Law or Unsafe or Unsound Practice—1st Tier ...........................
Violation of Law or Unsafe or Unsound Practice—2nd Tier ..........................
Violation of Law or Unsafe or Unsound Practice—3rd Tier ...........................
Violation of Post Employment Restrictions ....................................................
Violation of Security Rules .............................................................................
Appraisals Violation—1st Tier ........................................................................
Appraisals Violation—2nd Tier .......................................................................
Appraisals Violation—3rd Tier ........................................................................
Flood Insurance ..............................................................................................
$2,200
32,500
1,375,000
7,500
32,500
32,500
2,200
32,500
1,375,000
7,500
37,500
1,375,000
7,500
37,500
1,375,000
275,000
110
7,500
37,500
1,375,000
1 385
2 135,000
day.
year.
§ 390.75
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New maximum amount
CMP description
Additional procedures.
(a) Replies to exceptions. Replies to
written exceptions to the administrative
law judge’s recommended decision,
findings, conclusions or proposed order
pursuant to § 390.68 shall be filed
within 10 days of the date such written
exceptions were required to be filed.
(b) Motions. All motions shall be filed
with the administrative law judge and
an additional copy shall be filed with
the Executive Secretary, who receives
adjudicatory filings; provided, however,
that once the administrative law judge
has certified the record to the Executive
Secretary pursuant to § 390.67, all
motions must be filed with the Board of
Directors, to the attention of the
Executive Secretary, within the 10-day
period following the filing of exceptions
allowed for the filing of replies to
exceptions. Responses to such motions
filed in a timely manner with the Board
of Directors, other than motions for oral
argument before the Board of Directors,
shall be allowed pursuant to the
procedures at § 390.52(d). No response
is required for the Board of Directors to
make a determination on a motion for
oral argument.
(c) Authority of administrative law
judge. In addition to the powers listed
in § 390.34, the administrative law judge
shall have the authority to deny any
dispositive motion and shall follow the
procedures set forth for motions for
summary disposition at § 390.58 and
partial summary disposition at § 390.59
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in making determinations on such
motions.
(d) Notification of submission of
proceeding to the Board of Directors.
Upon the expiration of the time for
filing any exceptions, any replies to
such exceptions or any motions and any
ruling thereon, and after receipt of
certified record, the Executive Secretary
shall notify the parties within ten days
of the submission of the proceeding to
the Board of Directors for final
determination.
(e) Extensions of time for final
determination. The Board of Directors
may, sua sponte, extend the time for
final determination by signing an order
of extension of time within the 90 day
time period and notifying the parties of
such extension thereafter.
(f) Service upon the FDIC. Service of
any document upon the FDIC shall be
made by filing with the Executive
Secretary, in addition to the individuals
and/or offices designated by the FDIC in
its Notice issued pursuant to § 390.47,
or such other means reasonably suited
to provide notice of the person and/or
office designated to receive filings.
(g) Filings with the Board of Directors.
An additional copy of all materials
required or permitted to be filed with or
referred to the administrative law judge
pursuant to this subpart shall be filed
with the Executive Secretary. This rule
shall not apply to the transcript of
testimony and exhibits adduced at the
hearing or to proposed exhibits
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submitted in advance of the hearing
pursuant to an order of the
administrative law judge under
§ 390.61. Materials required or
permitted to be filed with or referred to
the Board of Directors pursuant to this
part shall be filed with the Executive
Secretary, to the attention of the Board
of Directors.
(h) Presence of cameras and other
recording devices. The use of cameras
and other recording devices, other than
those used by the court reporter, shall
be prohibited and excluded from the
proceedings.
Subpart D—Rules for Investigative
Proceedings and Formal Examination
Proceedings
§ 390.80
Scope of subpart.
This subpart prescribes rules of
practice and procedure applicable to the
conduct of investigative proceedings
under section 7(j)(15) of the Federal
Deposit Insurance Act, as amended, 12
U.S.C. 1817(j)(15) (‘‘FDIA’’), section 8(n)
of the FDIA, 12 U.S.C. 1818(n), or
section 10(c) of the FDIA, 12 U.S.C.
1820(c). This subpart does not apply to
adjudicatory proceedings as to which
hearings are required by statute, the
rules for which are contained in subpart
C.
§ 390.81
Definitions.
As used in this subpart:
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Board of Directors means the Board of
Directors of the Federal Deposit
Insurance Corporation or its designee;
Designated representative means the
person or persons empowered by the
Board of Directors to conduct an
investigative proceeding or a formal
examination proceeding;
FDIC means the Federal Deposit
Insurance Corporation;
Formal examination proceeding
means the administration of oaths and
affirmations, taking and preserving of
testimony, requiring the production of
books, papers, correspondence,
memoranda, and all other records, the
issuance of subpoenas, and all related
activities in connection with
examination of State savings
associations and their affiliates
conducted pursuant to section 7(j)(15) of
the FDIA, section 8(n) of the FDIA or
section 10(c) of the FDIA;
General Counsel means the General
Counsel of the Federal Deposit
Insurance Corporation; and
Investigative proceeding means an
investigation conducted under section
10(c) of the FDIA.
§ 390.82
Confidentiality of proceedings.
All formal examination proceedings
shall be private and, unless otherwise
ordered by the FDIC, all investigative
proceedings shall also be private. Unless
otherwise ordered or permitted by the
FDIC, or required by law, and except as
provided in §§ 390.83 and 390.84, the
entire record of any investigative
proceeding or formal examination
proceeding, including the order
initiating the proceeding, the transcript
of such proceeding, and all documents
and information obtained by the
designated representative(s) during the
course of said proceedings shall be
confidential.
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§ 390.83
Transcripts.
Transcripts or other recordings, if any,
of investigative proceedings or formal
examination proceedings shall be
prepared solely by an official reporter or
by any other person or means
authorized by the designated
representative. A person who has
submitted documentary evidence or
given testimony in an investigative
proceeding or formal examination
proceeding may procure a copy of his
own documentary evidence or transcript
of his own testimony upon payment of
the cost thereof; provided, that a person
seeking a transcript of his own
testimony must file a written request
with the designated representative
stating the reason he desires to procure
such transcript, and said persons may
for good cause deny such request. In any
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event, any witness (or his counsel) shall
have the right to inspect the transcript
of the witness’ own testimony.
§ 390.84
Rights of witnesses.
(a) Any person who is compelled or
requested to furnish documentary
evidence or give testimony at an
investigative proceeding or formal
examination proceeding shall have the
right to examine, upon request, the
order authorizing such proceeding.
Copies of such resolution shall be
furnished, for their retention, to such
persons only with the written approval
of the designated representative.
(b) Any witness at an investigative
proceeding or formal examination
proceeding may be accompanied and
advised by an attorney personally
representing that witness.
(1) Such attorney shall be a member
in good standing of the bar of the
highest court of any state,
Commonwealth, possession, territory, or
the District of Columbia, who has not
been suspended or debarred from
practice by the bar of any such political
entity or before the FDIC in accordance
with the provisions of subpart E and has
not been excluded from the particular
investigative proceeding or formal
examination proceeding in accordance
with paragraph (b)(3) of this section.
(2) Such attorney may advise the
witness before, during, and after the
taking of his testimony and may briefly
question the witness, on the record, at
the conclusion of his testimony, for the
sole purpose of clarifying any of the
answers the witness has given. During
the taking of the testimony of a witness,
such attorney may make summary notes
solely for his use in representing his
client. All witnesses shall be
sequestered, and, unless permitted in
the discretion of the designated
representative, no witness or
accompanying attorney may be
permitted to be present during the
taking of testimony of any other witness
called in such proceeding. Neither
attorney(s) for the association(s) that are
the subjects of the investigative
proceedings or formal examination
proceedings, nor attorneys for any other
interested persons, shall have any right
to be present during the testimony of
any witness not personally being
represented by such attorney.
(3) The Board of Directors, for good
cause, may exclude a particular attorney
from further participation in any
investigation in which the Board of
Directors has found the attorney to have
engaged in dilatory, obstructionist,
egregious, contemptuous or
contumacious conduct. The person
conducting an investigation may report
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to the Board of Directors instances of
apparently dilatory, obstructionist,
egregious, contemptuous or
contumacious conduct on the part of an
attorney. After due notice to the
attorney, the FDIC may take such action
as the circumstances warrant based
upon a written record evidencing the
conduct of the attorney in that
investigation or such other or additional
written or oral presentation as the Board
of Directors may permit or direct.
§ 390.85
Obstruction of the proceedings.
The designated representative shall
report to the Board of Directors any
instances where any witness or counsel
has engaged in dilatory, obstructionist,
or contumacious conduct or has
otherwise violated any provision of this
part during the course of an
investigative proceeding or formal
examination proceeding; and the Board
of Directors may take such action as the
circumstances warrant, including the
exclusion of counsel from further
participation in such proceeding.
§ 390.86
Subpoenas.
(a) Service. Service of a subpoena in
connection with any investigative
proceeding or formal examination
proceeding shall be effected in the
following manner:
(1) Service upon a natural person.
Service of a subpoena upon a natural
person may be effected by handing it to
such person; by leaving it at his office
with the person in charge thereof, or, if
there is no one in charge, by leaving it
in a conspicuous place therein; by
leaving it at his dwelling place or usual
place of abode with some person of
suitable age and discretion then residing
therein; by mailing it to him by
registered or certified mail or by an
express delivery service at his last
known address; or by any method
whereby actual notice is given to him.
(2) Service upon other persons. When
the person to be served is not a natural
person, service of the subpoena may be
effected by handing the subpoena to a
registered agent for service, or to any
officer, director, or agent in charge of
any office of such person; by mailing it
to any such representative by registered
or certified mail or by an express
delivery service at his last known
address; or by any method whereby
actual notice is given to such person.
(b) Motions to quash. Any person to
whom a subpoena is directed may, prior
to the time specified therein for
compliance, but in no event more than
10 days after the date of service of such
subpoena, apply to the General Counsel
or his designee to quash or modify such
subpoena, accompanying such
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application with a statement of the
reasons therefor. The General Counsel
or his designee, as appropriate, may:
(1) Deny the application;
(2) Quash or revoke the subpoena;
(3) Modify the subpoena; or
(4) Condition the granting of the
application on such terms as the
General Counsel or his designee
determines to be just, reasonable, and
proper.
(c) Attendance of witnesses.
Subpoenas issued in connection with an
investigative proceeding or formal
examination proceeding may require the
attendance and/or testimony of
witnesses from any State or territory of
the United States and the production by
such witnesses of documentary or other
tangible evidence at any designated
place where the proceeding is being (or
is to be) conducted. Foreign nationals
are subject to such subpoenas if such
service is made upon a duly authorized
agent located in the United States.
(d) Witness fees and mileage.
Witnesses summoned in any proceeding
under this part shall be paid the same
fees and mileage that are paid witnesses
in the district courts of the United
States. Such fees and mileage need not
be tendered when the subpoena is
issued on behalf of the FDIC by any of
its designated representatives.
Subpart E—Practice Before the FDIC
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§ 390.90
Scope of subpart.
This subpart prescribes rules with
regard to general practice before the
FDIC on one’s own behalf or in a
representative capacity and prescribes
rules describing the circumstances
under which attorneys, accountants,
appraisers, or other persons may be
suspended or debarred, either
temporarily or permanently, from
practicing before the FDIC. In
connection with any particular matter,
reference also should be made to any
special requirements of procedure and
practice that may be contained in the
particular statute involved or the rules
and forms adopted by the FDIC
thereunder, which special requirements
are controlling. In addition to any
suspension hereunder, a person may be
excluded from further participation
under parts 390 and 391 from an
adjudicatory proceeding in accordance
with § 390.35(a)(1), from a removal
hearing in accordance with § 390.12, or
from an investigatory proceeding in
accordance with § 390.84(b)(2).
Furthermore, no person who has been
suspended or debarred from practice
before the FDIC in accordance with the
provisions of this subpart may submit to
the FDIC, either directly or on behalf of
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an interested party, any written
documents or petitions otherwise
permitted under the Administrative
Procedure Act.
§ 390.91
Definitions.
As used in this subpart:
Attorney means any person who is a
member in good standing of the bar of
the highest court of any State,
possession, territory, Commonwealth or
the District of Columbia;
Executive Secretary means the
Executive Secretary of the FDIC;
FDIC means the Federal Deposit
Insurance Corporation;
OTS means the Office of Thrift
Supervision;
Practice means transacting any
business with the FDIC, including:
(1) The representation of another
person at any adjudicatory,
investigatory, removal or rulemaking
proceeding conducted before the FDIC,
a presiding officer or the FDIC’s staff,
including those proceedings covered in
subparts B, C, and D;
(2) The preparation of any statement,
opinion, financial statement, appraisal
report, audit report, or other document
or report by any attorney, accountant,
appraiser or other licensed expert which
is filed with or submitted to the FDIC,
with such expert’s consent or
knowledge in connection with any
application or other filing with the
FDIC;
(3) A presentation to the FDIC, a
presiding officer or the FDIC’s staff at a
conference or meeting relating to an
association’s or other person’s rights,
privileges or liabilities under the laws
administered by the FDIC and rules and
regulations promulgated thereunder;
(4) Any business correspondence or
communication with the FDIC, a
presiding officer or the FDIC’s staff;
(5) The transaction of any other
formal business with the FDIC on behalf
of another, in the capacity of an
attorney, accountant, appraiser or other
licensed expert; and
Presiding officer includes the Board of
Directors or an administrative law judge
appointed under section 3105 or
detailed pursuant to section 3344 of title
5 of the U.S. Code and, as used in this
subpart, the term shall be construed to
refer to whichever of the aboveidentified individuals presides at a
hearing or other proceeding, except as
otherwise specified in the text.
§ 390.92
Who may practice.
(a) By non-attorneys. (1) An
individual may appear on his own
behalf (pro se); a member of a
partnership may represent the
partnership; a bona fide and duly
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authorized officer of a corporation, trust
or association may represent the
corporation, trust or association; and an
officer or employee of a commission,
department or political subdivision may
represent that commission, department
or political subdivision before the FDIC.
(2) Any accountant, appraiser or other
licensed expert may practice before the
FDIC in a professional capacity.
(b) By attorneys. Any association or
other person may be represented in any
proceeding or other matter before the
FDIC by an attorney.
(c) Authority to act as representative.
Any licensed expert or professional
transacting business with the FDIC in a
representative capacity may be required
to show his authority to act in such
capacity.
§ 390.93
Suspension and debarment.
(a) The FDIC may censure any person
practicing before it or may deny,
temporarily or permanently, the
privilege of any person to practice
before it if such person is found by the
FDIC, after notice of and opportunity for
hearing in the matter,
(1) Not to possess the requisite
qualifications to represent others,
(2) To be lacking in character or
professional integrity,
(3) To have engaged in any dilatory,
obstructionist, egregious, contemptuous,
contumacious or other unethical or
improper professional conduct before
the OTS or FDIC, or
(4) To have willfully violated, or
willfully aided and abetted the violation
of, any provision of the laws
administered by the OTS or FDIC or the
rules and regulations promulgated
thereunder.
(b) Automatic suspension. (1) Any
person who, after being licensed as a
professional or expert by any competent
authority, has been convicted of a
felony, or of a misdemeanor involving
moral turpitude, personal dishonesty or
breach of trust, shall be suspended
forthwith from practicing before the
FDIC.
(2) Any accountant, appraiser or other
licensed expert whose license to
practice has been revoked in any State,
possession, territory, Commonwealth or
the District of Columbia, shall be
suspended forthwith from practice
before the FDIC.
(3) Any attorney who has been
suspended or disbarred by a court of the
United States or in any State,
possession, territory, Commonwealth or
the District of Columbia, shall be
suspended forthwith from practicing
before the FDIC.
(4) A conviction (including a
judgment or order on a plea of nolo
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contendere), revocation, suspension or
disbarment under paragraphs (b)(1),
(b)(2) and (b)(3) of this section shall be
deemed to have occurred when the
convicting, revoking, suspending or
disbarring agency or tribunal enters its
judgment or order, regardless of whether
an appeal is pending or could be taken.
(5) For purposes of this part, it shall
be irrelevant that any attorney,
accountant, appraiser or other licensed
expert who has been suspended,
disbarred or otherwise disqualified from
practice before a court or in a
jurisdiction continues in professional
good standing before other courts or in
other jurisdictions.
(c) Temporary suspension. (1) The
FDIC, with due regard to the public
interest and without preliminary
hearing, by order, may temporarily
suspend any person from appearing or
practicing before it who, by name, has
been:
(i) Permanently enjoined (whether by
consent, default or summary judgment
or after trial) by any court of competent
jurisdiction or by the OTS or FDIC itself
in a final administrative order, by
reason of his misconduct in any action
brought by the OTS or FDIC based upon
violations of, or aiding and abetting the
violation of, the Home Owners’ Loan
Act of 1933, as amended, 12 U.S.C. 1461
et seq., the Federal Deposit Insurance
Act, as amended, 12 U.S.C. 1811 et seq.
or any provision of the Securities
Exchange Act of 1934, as amended, 15
U.S.C. 78a, et seq., which is
administered by the FDIC, or of any rule
or regulation promulgated thereunder;
or
(ii) Found by any court of competent
jurisdiction (whether by consent,
default, or summary judgment, or after
trial) in any action brought by the OTS
or FDIC to which he is a party or found
by the OTS or FDIC (whether by
consent, default, upon summary
judgment or after hearing) in any
administrative proceeding in which the
OTS or FDIC is a complainant and he is
a party, to have willfully committed,
caused or aided or abetted a violation of
any provision of the Home Owners’
Loan Act of 1933, as amended, 12 U.S.C.
1461 et seq., the Federal Deposit
Insurance Act, as amended, 12 U.S.C.
1811 et seq. or any provision of the
Securities Exchange Act of 1934, as
amended, 15 U.S.C. 78a, et seq., which
is administered by the OTS or FDIC, or
of any rule or regulation promulgated
thereunder.
(2) An order of temporary suspension
shall become effective when served by
certified or registered mail directed to
the last known business or residential
address of the person involved. No
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order of temporary suspension shall be
entered by the FDIC pursuant to
paragraph (c)(1) of this section more
than three months after the final
judgment or order entered in a judicial
or administrative proceeding described
in paragraphs (c)(1)(i) or (ii) of this
section has become effective and all
review or appeal procedures have been
completed or are no longer available.
(3) Any person temporarily
suspended from appearing and
practicing before the OTS or FDIC in
accordance with paragraph (c)(1) of this
section may, within 30 days after
service upon him of the order of
temporary suspension, petition the FDIC
to lift such suspension. If no petition is
received by the FDIC within those 30
days, the suspension shall become
permanent.
(4) Within 30 days after the filing of
a petition in accordance with paragraph
(c)(3) of this section, the FDIC shall
either lift the temporary suspension or
set the matter down for hearing at a time
and place to be designated by the FDIC,
or both. After opportunity for hearing,
the FDIC may censure the petitioner or
may suspend the petitioner from
appearing or practicing before the FDIC
temporarily or permanently. In every
case in which the temporary suspension
has not been lifted, the hearing and any
other action taken pursuant to this
paragraph (c)(4) shall be expedited by
the FDIC in order to ensure the
petitioner’s right to address the
allegations against him.
(5) In any hearing held on a petition
filed in accordance with paragraph
(c)(3) of this section, a showing that the
petitioner has been enjoined or has been
found to have committed, caused or
aided or abetted violations as described
in paragraph (c)(1) of this section,
without more, may be a basis for
suspension or debarment; that showing
having been made, the burden shall
then be on the petitioner to show why
he should not be censured or be
temporarily or permanently suspended
or debarred. A petitioner will not be
permitted to contest any findings
against him or any admissions made by
him in the judicial or administrative
proceedings upon which the proposed
censure, suspension or debarment is
based. A petitioner who has consented
to the entry of a permanent injunction
or order as described in paragraph
(c)(1)(i) of this section, without
admitting the facts set forth in the
complaint, shall nevertheless be
presumed for all purposes under this
section to have been enjoined or ordered
by reason of the misconduct alleged in
the complaint.
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§ 390.94
47685
Reinstatement.
(a) Any person who is suspended
from practicing before the OTS or FDIC
under § 390.93(a) or (c) of may file an
application for reinstatement at any
time. Denial of the privilege of
practicing before the FDIC shall
continue unless and until the applicant
has been reinstated by order of the FDIC
for good cause shown.
(b) Any person suspended under
paragraph § 390.93(b) shall be reinstated
by the FDIC, upon appropriate
application, if all of the grounds for
application of the provisions of
§ 390.93(b) subsequently are removed by
a reversal of the conviction or
termination of the suspension,
disbarment or revocation. An
application for reinstatement on any
other grounds by any person suspended
under § 390.93(b) may be filed at any
time. Such application shall state with
particularity the relief desired and the
grounds therefor and shall include
supporting evidence, when available.
The applicant shall be accorded an
opportunity for an informal hearing in
the matter, unless the applicant has
waived a hearing in the application and,
instead, has elected to have the matter
determined on the basis of written
submissions. Such hearing shall utilize
the procedures established in §§ 390.12
and 390.16(a). However, such
suspension shall continue unless and
until the applicant has been reinstated
by order of the FDIC for good cause
shown.
§ 390.95 Duty to file information
concerning adverse judicial or
administrative action.
Any person appearing or practicing
before the FDIC who has been or is the
subject of a conviction, suspension,
debarment, license revocation,
injunction or other finding of the kind
described in § 390.93(b) or (c) in an
action not instituted by the OTS or FDIC
shall promptly file a copy of the
relevant order, judgment or decree with
the Executive Secretary together with
any related opinion or statement of the
agency or tribunal involved. Any person
who fails to so file a copy of the order,
judgment or decree within 30 days after
the entry of the order, judgment or
decree, or the date such person initiates
practice before the FDIC, for that reason
alone may be disqualified from
practicing before the FDIC until such
time as the appropriate filing shall be
made, but neither the filing of these
documents nor the failure of a person to
file them shall in any way impair the
operation of any other provision of this
subpart.
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§ 390.96
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Proceeding under this subpart.
(a) All hearings required or permitted
to be held under § 390.93(a) and (c) of
this subpart shall be held before a
presiding officer utilizing the
procedures established in the rules of
practice and procedure in adjudicatory
proceedings under subpart C of this
part.
(b) All hearings held under this
subpart shall be closed to the public
unless the FDIC on its own motion or
upon the request of a party otherwise
directs.
(c) Any proceeding brought under any
section of this subpart shall not
preclude a proceeding under any other
section of this subpart or any other part
of the FDIC’s regulations.
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§ 390.97 Removal, suspension, or
debarment of independent public
accountants and accounting firms
performing audit services.
(a) Scope. This subpart, which
implements section 36(g)(4) of the
Federal Deposit Insurance Act (FDIA),
(12 U.S.C. 1831m(g)(4)), provides rules
and procedures for the removal,
suspension, or debarment of
independent public accountants and
their accounting firms from performing
independent audit and attestation
services required by section 36 of the
FDIA for insured State savings
associations.
(b) Definitions. As used in this
section, the following terms have the
meaning given below unless the context
requires otherwise:
Accounting firm. The term accounting
firm means a corporation,
proprietorship, partnership, or other
business firm providing audit services.
Audit services. The term audit
services means any service required to
be performed by an independent public
accountant by section 36 of the FDIA
and part 363, including attestation
services. Audit services include any
service performed with respect to a
savings and loan holding company of a
State savings association that is used to
satisfy requirements imposed by section
36 of the FDIA or part 363 on that State
savings association.
Independent public accountant. The
term independent public accountant
means any individual who performs or
participates in providing audit services.
(c) Removal, suspension, or
debarment of independent public
accountants. The FDIC may remove,
suspend, or debar an independent
public accountant from performing
audit services for State savings
associations that are subject to section
36 of the FDIA if, after service of a
notice of intention and opportunity for
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hearing in the matter, the FDIC finds
that the independent public accountant:
(1) Lacks the requisite qualifications
to perform audit services;
(2) Has knowingly or recklessly
engaged in conduct that results in a
violation of applicable professional
standards, including those standards
and conflicts of interest provisions
applicable to independent public
accountants through the Sarbanes-Oxley
Act of 2002, Public Law 107–204, 116
Stat. 745 (2002) (Sarbanes-Oxley Act),
and developed by the Public Company
Accounting Oversight Board and the
Securities and Exchange Commission;
(3) Has engaged in negligent conduct
in the form of:
(i) A single instance of highly
unreasonable conduct that results in a
violation of applicable professional
standards in circumstances in which an
independent public accountant knows,
or should know, that heightened
scrutiny is warranted; or
(ii) Repeated instances of
unreasonable conduct, each resulting in
a violation of applicable professional
standards, that indicate a lack of
competence to perform audit services;
(4) Has knowingly or recklessly given
false or misleading information or
knowingly or recklessly participated in
any way in the giving of false or
misleading information to the FDIC or
any officer or employee of the FDIC;
(5) Has engaged in, or aided and
abetted, a material and knowing or
reckless violation of any provision of
the Federal banking or securities laws or
the rules and regulations thereunder, or
any other law;
(6) Has been removed, suspended, or
debarred from practice before any
federal or state agency regulating the
banking, insurance, or securities
industries, other than by action listed in
paragraph (j) of this section, on grounds
relevant to the provision of audit
services; or
(7) Is suspended or debarred for cause
from practice as an accountant by any
duly constituted licensing authority of
any state, possession, commonwealth,
or the District of Columbia.
(d) Removal, suspension or
debarment of an accounting firm. If the
FDIC determines that there is good
cause for the removal, suspension, or
debarment of a member or employee of
an accounting firm under paragraph (c)
of this section, the FDIC also may
remove, suspend, or debar such firm or
one or more offices of such firm. In
considering whether to remove,
suspend, or debar an accounting firm or
office thereof, and the term of any
sanction against an accounting firm
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under this section, the FDIC may
consider, for example:
(1) The gravity, scope, or repetition of
the act or failure to act that constitutes
good cause for the removal, suspension,
or debarment;
(2) The adequacy of, and adherence
to, applicable policies, practices, or
procedures for the accounting firm’s
conduct of its business and the
performance of audit services;
(3) The selection, training,
supervision, and conduct of members or
employees of the accounting firm
involved in the performance of audit
services;
(4) The extent to which managing
partners or senior officers of the
accounting firm have participated,
directly or indirectly through oversight
or review, in the act or failure to act;
and
(5) The extent to which the
accounting firm has, since the
occurrence of the act or failure to act,
implemented corrective internal
controls to prevent its recurrence.
(e) Remedies. The remedies provided
in this section are in addition to any
other remedies the FDIC may have
under any other applicable provisions of
law, rule, or regulation.
(f) Proceedings to remove, suspend, or
debar. (1) The FDIC may initiate a
proceeding to remove, suspend, or debar
an independent public accountant or
accounting firm from performing audit
services by issuing a written notice of
intention to take such action that names
the individual or firm as a respondent
and describes the nature of the conduct
that constitutes good cause for such
action.
(2) An independent public accountant
or accounting firm named as a
respondent in the notice issued under
paragraph (f)(1) of this section may
request a hearing on the allegations in
the notice. Hearings conducted under
this paragraph shall be conducted in the
same manner as other hearings under
the Uniform Rules of Practice and
Procedure contained in subpart C.
(g) Immediate suspension from
performing audit services. (1) If the
FDIC serves written notice of intention
to remove, suspend, or debar an
independent public accountant or
accounting firm from performing audit
services, the FDIC may, with due regard
for the public interest and without
preliminary hearing, immediately
suspend an independent public
accountant or accounting firm from
performing audit services for savings
associations, if the FDIC:
(i) Has a reasonable basis to believe
that the independent public accountant
or accounting firm engaged in conduct
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(specified in the notice served upon the
independent public accountant or
accounting firm under paragraph (f) of
this section) that would constitute
grounds for removal, suspension, or
debarment under paragraph (c) or (d) of
this section;
(ii) Determines that immediate
suspension is necessary to avoid
immediate harm to an insured
depository institution or its depositors
or to the depository system as a whole;
and
(iii) Serves such independent public
accountant or accounting firm with
written notice of the immediate
suspension.
(2) An immediate suspension notice
issued under this paragraph will
become effective upon service. Such
suspension will remain in effect until
the date the FDIC dismisses the charges
contained in the notice of intention, or
the effective date of a final order of
removal, suspension, or debarment
issued by the FDIC to the independent
public accountant or accounting firm.
(h) Petition to stay. (1) Any
independent public accountant or
accounting firm immediately suspended
from performing audit services in
accordance with paragraph (g) of this
section may, within 10 calendar days
after service of the notice of immediate
suspension, file a petition with the FDIC
for a stay of such suspension. If no
petition is filed within 10 calendar days,
the immediate suspension shall remain
in effect.
(2) Upon receipt of a stay petition, the
FDIC will designate a presiding officer
who shall fix a place and time (not more
than 10 calendar days after receipt of
such petition, unless extended at the
request of the petitioner), at which the
immediately suspended party may
appear, personally or through counsel,
to submit written materials and oral
argument. Any FDIC employee engaged
in investigative or prosecuting functions
for the FDIC in a case may not, in that
or a factually related case, serve as a
presiding officer or participate or advise
in the decision of the presiding officer
or of the FDIC, except as witness or
counsel in the proceeding. In the sole
discretion of the presiding officer, upon
a specific showing of compelling need,
oral testimony of witnesses may also be
presented. In hearings held pursuant to
this paragraph, there will be no
discovery and the provisions of
§§ 390.35 through 390.41, 390.45, and
390.50 of the Uniform Rules will apply.
(3) Within 30 calendar days after the
hearing, the presiding officer shall issue
a decision. The presiding officer will
grant a stay upon a demonstration that
a substantial likelihood exists of the
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respondent’s success on the issues
raised by the notice of intention and
that, absent such relief, the respondent
will suffer immediate and irreparable
injury, loss, or damage. In the absence
of such a demonstration, the presiding
officer will notify the parties that the
immediate suspension will be
continued pending the completion of
the administrative proceedings pursuant
to the notice.
(4) The parties may seek review of the
presiding officer’s decision by filing a
petition for review with the presiding
officer within 10 calendar days after
service of the decision. Replies must be
filed within 10 calendar days after the
petition filing date. Upon receipt of a
petition for review and any reply, the
presiding officer must promptly certify
the entire record to the Board of
Directors. Within 60 calendar days of
the presiding officer’s certification, the
Board of Directors shall issue an order
notifying the affected party whether or
not the immediate suspension should be
continued or reinstated. The order shall
state the basis of the Board of Director’s
decision.
(i) Scope of any order of removal,
suspension, or debarment. (1) Except as
provided in paragraph (i)(2) of this
section, any independent public
accountant or accounting firm that has
been removed, suspended (including an
immediate suspension), or debarred
from performing audit services by the
FDIC may not, while such order is in
effect, perform audit services for any
State savings association.
(2) An order of removal, suspension
(including an immediate suspension), or
debarment may, at the discretion of the
FDIC, be made applicable to a limited
number of State savings associations.
(limited scope order).
(j) Automatic removal, suspension,
and debarment. (1) An independent
public accountant or accounting firm
may not perform audit services for a
State savings association if the
independent public accountant or
accounting firm:
(i) Is subject to a final order of
removal, suspension, or debarment
(other than a limited scope order) issued
by the Board of Governors of the Federal
Reserve System, the Comptroller of the
Currency, or the FDIC under section 36
of the FDIA;
(ii) Is subject to a temporary
suspension or permanent revocation of
registration or a temporary or permanent
suspension or bar from further
association with any registered public
accounting firm issued by the Public
Company Accounting Oversight Board
or the Securities and Exchange
Commission under sections 105(c)(4)(A)
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47687
or (B) of the Sarbanes-Oxley Act (15
U.S.C. 7215(c)(4)(A) or (B)); or
(iii) Is subject to an order of
suspension or denial of the privilege of
appearing or practicing before the
Securities and Exchange Commission.
(2) Upon written request, the FDIC,
for good cause shown, may grant written
permission to an independent public
accountant or accounting firm to
perform audit services for State savings
associations. The request must contain a
concise statement of action requested.
The FDIC may require the applicant to
submit additional information.
(k) Notice of removal, suspension, or
debarment. (1) Upon issuance of a final
order for removal, suspension, or
debarment of an independent public
accountant or accounting firm from
providing audit services, the FDIC shall
make the order publicly available and
provide notice of the order to the other
Federal banking agencies.
(2) An independent public accountant
or accounting firm that provides audit
services to a State savings association
must provide the FDIC with written
notice of:
(i) Any currently effective order or
other action described in paragraphs
(c)(6) through (c)(7) or paragraphs
(j)(1)(ii) through (iii) of this section; and
(ii) Any currently effective action by
the Public Company Accounting
Oversight Board under sections
105(c)(4)(C) or (G) of the Sarbanes-Oxley
Act (15 U.S.C. 7215(c)(4)(C) or (G)).
(3) Written notice required by this
paragraph shall be given no later than
15 calendar days following the effective
date of an order or action or 15 calendar
days before an independent public
accountant or accounting firm accepts
an engagement to provide audit
services, whichever date is earlier.
(l) Application for reinstatement. (1)
Unless otherwise ordered by the FDIC,
an independent public accountant,
accounting firm, or office of a firm that
was removed, suspended or debarred
under this section may apply for
reinstatement in writing at any time.
The request shall contain a concise
statement of action requested. The FDIC
may require the applicant to submit
additional information.
(2) An applicant for reinstatement
under paragraph (l)(1) of this section
may, in the FDIC’s sole discretion, be
afforded a hearing. The independent
public accountant or accounting firm
shall bear the burden of going forward
with an application and the burden of
proving the grounds supporting the
application. The FDIC may, in its sole
discretion, direct that any reinstatement
proceeding be limited to written
submissions. The removal, suspension,
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or debarment shall continue until the
FDIC, for good cause shown, has
reinstated the applicant or until, in the
case of a suspension, the suspension
period has expired. The filing of a
petition for reinstatement shall not stay
the effectiveness of the removal,
suspension, or debarment of an
independent public accountant or
accounting firm.
Subpart F—Application Processing
Procedures
§ 390.100
What does this subpart do?
(a) This subpart explains the FDIC’s
procedures for processing applications,
notices, or filings (applications) under
parts 390 and 391 for State savings
associations. Except as provided in
paragraph (b) of this section, §§ 390.103
through 390.110 and §§ 390.126 through
390.135 apply whenever an FDIC
regulation requires any person (you) to
file an application with the FDIC.
Sections 390.111 through 390.125,
however, only apply when a FDIC
regulation incorporates the procedures
in those sections or where otherwise
required by the FDIC.
(b) This subpart does not apply to any
of the following:
(1) An application related to a
transaction under section 13(c) or (k) of
the Federal Deposit Insurance Act, 12
U.S.C. 1823(c) or (k).
(2) A request for reconsideration,
modification, or appeal of a final FDIC
action.
(3) A request related to litigation, an
enforcement proceeding, a supervisory
directive or supervisory agreement.
Such requests include a request seeking
approval under, modification of, or
termination of an order issued under
subparts C or D, a supervisory
agreement, a supervisory directive, a
consent merger agreement or a
document negotiated in settlement of an
enforcement matter or other litigation,
unless an applicable FDIC regulation
specifically requires an application
under this subpart.
(4) An application filed under a FDIC
regulation that prescribes other
application processing procedures and
time frames for the approval of
applications.
(c) If a FDIC regulation for a specific
type of application prescribes some
application processing procedures, or
time frames, the FDIC will apply this
subpart to the extent necessary to
process the application. For example, if
a FDIC regulation for a specific type of
application does not identify time
periods for the processing of an
application, the time periods in this
subpart apply.
§ 390.101 Do the same procedures apply
to all applications under this subpart?
The FDIC processes applications for
State savings associations under this
subpart using two procedures,
expedited treatment and standard
treatment. To determine which
treatment applies, you may use the
following chart:
Then the FDIC will
process your application under . . .
If . . .
(a) The applicable regulation does not specifically state that expedited treatment is available ............................................
(b) You are not a State savings association ...........................................................................................................................
(c) Your composite rating is 3, 4, or 5. The composite rating is the composite numeric rating that the FDIC or the other
federal banking regulator assigned to you under the Uniform Financial Institutions Rating System or under a comparable rating system. The composite rating refers to the rating assigned and provided to you, in writing, as a result of
the most recent examination.
(d) Your Community Reinvestment Act (CRA) rating is Needs to Improve or Substantial Noncompliance. The CRA rating
is the Community Reinvestment Act performance rating that the FDIC or the other federal banking regulator assigned
and provided to you, in writing, as a result of the most recent compliance examination. See, for example, 12 CFR
195.28.
(e) Your compliance rating is 3, 4, or 5. The compliance rating is the numeric rating that the FDIC or the other federal
banking regulator assigned to you under the FDIC compliance rating system, or a comparable rating system used by
the other federal banking regulator. The compliance rating refers to the rating assigned and provided to you, in writing, as a result of the most recent compliance examination.
(f) You fail any one of your capital requirements under subpart Z .........................................................................................
(g) The FDIC has notified you that you are an association in troubled condition ..................................................................
(h) Neither the FDIC nor any other federal banking regulator has assigned you a composite rating, a CRA rating or a
compliance rating.
(i) You do not meet any of the criteria listed in paragraphs (a) through (h) of this section ...................................................
§ 390.102 How does the FDIC compute
time periods under this subpart?
In computing time periods under this
subpart, the FDIC does not include the
day of the act or event that commences
the time period. When the last day of a
time period is a Saturday, Sunday, or
Federal holiday, the time period runs
until the end of the next day that is not
a Saturday, Sunday, or Federal holiday.
Standard treatment.
Standard treatment.
Standard treatment.
Standard treatment.
Standard treatment.
Standard treatment.
Standard treatment.
Standard treatment.
Expedited treatment.
§ 390.103 Must I meet with the FDIC before
I file my application?
(a) Chart. To determine whether you
must attend a pre-filing meeting before
you file an application, please consult
the following chart:
Then . . .
An application to acquire control of a State savings association.
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If you file . . .
The FDIC may require you to meet with the FDIC before filing your application and may require you to submit a draft business plan or other relevant information before this meeting.
(b) Contacting the appropriate FDIC
region. (1) You must contact the
appropriate FDIC region a reasonable
time before you file an application
described in paragraph (a) of this
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section. Unless paragraph (a) already
requires a pre-filing meeting or a draft
business plan, the appropriate FDIC
region will determine whether it will
require a pre-filing meeting, and
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whether you must submit a business
plan or other relevant information
before the meeting. The appropriate
FDIC region will also establish a
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schedule for any meeting and the
submission of any information.
(2) All other applicants are
encouraged to contact the appropriate
FDIC region to determine whether a prefiling meeting or the submission of a
draft business plan or other relevant
information would expedite the
application review process.
§ 390.104 What information must I include
in my draft business plan?
If you are required to submit a draft
business plan under § 309.103, your
plan must:
(a) Clearly and completely describe
the State savings association’s projected
operations and activities;
(b) Describe the risks associated with
the transaction and the impact of this
transaction on any existing activities
and operations of the State savings
association, including financial
projections for a minimum of three
years;
(c) Identify the majority of the
proposed board of directors and the key
senior executive officers (as defined in
§ 390.361) of the State savings
association and demonstrate that these
individuals have the expertise to
prudently manage the activities and
operations described in the savings
association’s draft business plan; and
(d) Demonstrate how applicable
requirements regarding serving the
credit and lending needs in the market
areas served by the State savings
association will be met.
§ 390.105
file?
What type of application must I
(a) Expedited treatment. If you are
eligible for expedited treatment under
§ 390.101, you may file your application
in the form of a notice that includes all
information required by the applicable
substantive regulation. If the FDIC has
designated a form for your notice, you
must file that form. Your notice is an
application for the purposes of all
statutory and regulatory references to
‘‘applications.’’
(b) Standard treatment. If you are
subject to standard treatment under
§ 390.101, you must file your
application following all applicable
substantive regulations and guidelines
governing the filing of applications. If
the FDIC has a designated form for your
application, you must file that form.
(c) Waiver requests. If you want the
FDIC to waive a requirement that you
provide certain information with the
notice or application, you must include
a written waiver request:
(1) Describing the requirement to be
waived and
(2) Explaining why the information is
not needed to enable the FDIC to
evaluate your notice or application
under applicable standards.
§ 390.106 What information must I provide
with my application?
(a) Required information. You may
obtain information about required
certifications, other regulations and
guidelines affecting particular notices
and applications, appropriate forms,
and instructions from the appropriate
FDIC region.
(b) Captions and exhibits. You must
caption the original application and
required copies with the type of filing,
and must include all exhibits and other
pertinent documents with the original
application and all required copies. You
are not required to include original
signatures on copies if you include a
copy of the signed signature page or the
copy otherwise indicates that the
original was signed.
§ 390.107 May I keep portions of my
application confidential?
(a) Confidentiality. The FDIC makes
submissions under this subpart
available to the public, but may keep
portions of your application
confidential based on the rules in this
section.
(b) Confidentiality request. (1) You
may request the FDIC to keep portions
47689
of your application confidential. You
must submit your request in writing
with your application and must explain
in detail how your request is consistent
with the standards under the Freedom
of Information Act (5 U.S.C. 552) and
part 309 of this chapter. For example,
you should explain how you will be
substantially harmed by public
disclosure of the information. You must
separately bind and mark the portions of
the application you consider
confidential and the portions you
consider non-confidential.
(2) The FDIC will not treat as
confidential the portion of your
application describing how you plan to
meet your Community Reinvestment
Act (CRA) objectives. The FDIC will
make information in your CRA plan,
including any information incorporated
by reference from other parts of your
application, available to the public upon
request.
(c) FDIC determination on
confidentiality. The FDIC will
determine whether information that you
designate as confidential may be
withheld from the public under the
Freedom of Information Act (5 U.S.C.
552) and part 309 of this chapter. The
FDIC will advise you before it makes
information you designate as
confidential available to the public.
§ 390.108
Where do I file my application?
(a) Appropriate FDIC region. (1) You
must file the original application and
the number of copies indicated on the
applicable form with the appropriate
FDIC region. The appropriate FDIC
region addresses are listed in paragraph
(a)(2) of this section. If the form does not
indicate the number of copies you must
file or if FDIC has not prescribed a form
for your application, you must file the
original application and two copies.
(2) The addresses of appropriate FDIC
region and the states covered by each
office are:
Region
Office address
States served
New York .............................
350 Fifth Avenue, Suite 1200, New York, NY 10118 .....
Atlanta ..................................
Kansas .................................
10 Tenth Street, NE., Suite 800, Atlanta, GA 30309–
3906.
300 South Riverside Plaza, Suite 1700, Chicago, Illinois
60606.
1100 Walnut St., Suite 2100, Kansas City, MO 64106 ..
Connecticut, Delaware, District of Columbia, Maine,
Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Puerto Rico, Rhode Island, Vermont, Virgin Islands.
Alabama, Florida, Georgia, North Carolina, South Carolina, Virginia, West Virginia.
Illinois, Indiana, Kentucky, Ohio, Michigan, Wisconsin.
Dallas ...................................
1601 Bryan Street, Dallas, TX 75201 .............................
San Francisco ......................
25 Jessie Street at Ecker Square, Suite 2300, San
Francisco, CA 94105–2780.
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Iowa, Kansas, Minnesota, Missouri, Nebraska, North
Dakota, South Dakota.
Arkansas, Colorado, Louisiana, Mississippi, New Mexico, Oklahoma, Tennessee, Texas.
Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, Northern Mariana Islands, Oregon,
Utah, Washington, Wyoming.
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(b) Additional filings with FDIC
headquarters. (1) In addition to filing in
the appropriate FDIC region, if your
application involves a significant issue
of law or policy or if an applicable
regulation or form directs you to file
with FDIC Headquarters, you must also
file copies of your application with the
Risk Management and Applications
Section at FDIC headquarters, 550 17th
Street, NW., Washington, DC 20429.
You must file the number of copies
indicated on the applicable form. If the
form does not indicate the number of
copies you must file or if FDIC has not
prescribed a form for your application,
you must file three copies.
(2)(i) You may request a list of
applications involving significant issues
of law or policy by contacting
appropriate FDIC region.
(ii) The FDIC reserves the right to
identify significant issues of law or
policy in a particular application. The
FDIC will advise you, in writing, if it
makes this determination.
§ 390.109 What is the filing date of my
application?
(a) Your application’s filing date is the
date that you complete all of the
following requirements.
(1) You attend a pre-filing meeting
and submit a draft business plan or
relevant information, if the FDIC
requires you to do so under § 390.103.
(2) You file your application and all
required copies with the FDIC, as
described under § 390.108.
(i) If you are required to file with an
appropriate FDIC region and with the
FDIC headquarters, you have not filed
with the FDIC until you file with both
offices.
(ii) You have not filed with the
appropriate FDIC region or the FDIC
headquarters until you file the
application and the required number of
copies with that office.
(iii) If you file after the close of
business established by appropriate
FDIC region or the FDIC headquarters,
you have filed with that office on the
next business day.
(3) [Reserved].
(b) The FDIC may notify you that it
has adjusted your application filing date
if you fail to meet any applicable
publication requirements.
(c) If, after you properly file your
application with the appropriate FDIC
region, the FDIC determines that a
significant issue of law or policy exists
under § 390.108(b)(2)(ii), the filing date
of your application is the day you filed
with the appropriate FDIC region. The
30-day review period under § 390.126 or
§ 390.127 will restart in its entirety
when the appropriate FDIC region
forwards the appropriate number of
copies of your application to the FDIC
headquarters.
§ 390.110 How do I amend or supplement
my application?
To amend or supplement your
application, you must file the
amendment or supplemental
information at the appropriate FDIC
region along with the number of copies
required under § 390.108. Your
amendment or supplemental
information also must meet the caption
and exhibit requirements at
§ 390.106(b).
§ 390.111 Who must publish a public
notice of an application?
Sections 390.111 through 390.115
apply whenever a FDIC regulation
requires an applicant (‘‘you’’) to follow
the public notice procedures in this
subpart.
§ 390.112 What information must I include
in my public notice?
Your public notice must include the
following:
(a) Your name and address.
(b) The type of application.
(c) The name of the depository
institution(s) that is the subject matter of
the application.
(d) A statement indicating that the
public may submit comments to the
appropriate FDIC region.
(e) The address of the appropriate
FDIC region where the public may
submit comments.
(f) The date that the comment period
closes.
(g) A statement indicating that the
nonconfidential portions of the
application are on file in the appropriate
FDIC region, and are available for public
inspection during regular business
hours.
(h) Any other information that the
FDIC requires you to publish. You may
find the format for various publication
notices in the appendix to the FDIC
application processing handbook.
§ 390.113
notice?
When must I publish the public
You must publish a public notice of
the application no earlier than seven
days before and no later than the date
of filing of the application.
§ 390.114
notice?
Where must I publish the public
You must publish the notice in a
newspaper having a general circulation
in the communities indicated in the
following chart:
If you file . . .
You must publish in the following communities . . .
(a) Bank Merger Act application under 390.332(a), or
an application for a mutual to stock conversion under
12 CFR part 192.
(b) A change of control notice under part 391, subpart
E.
The community in which your home office is located.
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§ 390.115 What language must I use in my
publication?
(a) English. You must publish the
notice in a newspaper printed in the
English language.
(b) Other than English. If the FDIC
determines that the primary language of
a significant number of adult residents
of the community is a language other
than English, the FDIC may require that
you simultaneously publish additional
notice(s) in the community in the
appropriate language(s).
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The community in which the home office of the State savings association whose stock
is to be acquired is located and, if applicable, the community in which the home office of the acquiror’s largest subsidiary State savings association is located.
§ 390.116
Comment procedures.
Sections 390.116 though 390.120
contain the procedures governing the
submission of public comments on
certain types of applications or notices
(‘‘applications’’) pending before the
FDIC. It applies whenever a regulation
incorporates the procedures in
§§ 390.116 through 390.120, or where
otherwise required by the FDIC.
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§ 390.117 Who may submit a written
comment?
Any person may submit a written
comment supporting or opposing an
application.
§ 390.118 What information should a
comment include?
(a) A comment should recite relevant
facts, including any demographic,
economic, or financial data, supporting
the commenter’s position. A comment
opposing an application should also:
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A commenter must file with the
appropriate FDIC region (See table at
§ 390.108(a)(2)). The commenter must
simultaneously send a copy of the
comment to the applicant.
will benefit the decision-making
process. The FDIC may limit the issues
considered at the meeting to issues that
the FDIC decides are relevant or
material.
(b) The FDIC will inform the
applicant and all commenters
requesting a meeting of its decision to
grant or deny a meeting request, or of its
decision to conduct a meeting on its
own initiative.
(c) If the FDIC decides to conduct a
meeting, the FDIC will invite the
applicant and any commenters
requesting a meeting and raising an
issue that FDIC intends to consider at
the meeting. The FDIC may also invite
other interested persons to attend. The
FDIC will inform the participants of the
date, time, location, issues to be
considered, and format for the meeting
a reasonable time before the meeting.
§ 390.120
period?
§ 390.123 What procedures govern the
conduct of the meeting?
(1) Address at least one of the reasons
why the FDIC may deny the application
under the relevant statute or regulation;
(2) Recite any relevant facts and
supporting data addressing these
reasons; and
(3) Address how the approval of the
application could harm the commenter
or any community.
(b) A commenter must include any
request for a meeting under § 390.122 in
its comment. The commenter must
describe the nature of the issues or facts
to be discussed and the reasons why
written submissions are insufficient to
adequately address these facts or issues.
§ 390.119
Where are comments filed?
How long is the comment
(a) General. Except as provided in
paragraph (b) of this section, a
commenter must file a written comment
with the FDIC within 30 calendar days
after the date of publication of the initial
public notice.
(b) Late-filed comments. The FDIC
may consider late-filed comments if the
FDIC determines that the comment will
assist in the disposition of the
application.
§ 390.121
Meeting procedures.
Sections 390.121 through 390.125
contain meeting procedures. They apply
whenever a regulation incorporates the
procedures in §§ 390.121 through
390.125, or when otherwise required by
the FDIC.
(a) The FDIC may conduct meetings in
any format including, but not limited to,
a telephone conference, a face-to-face
meeting, or a more formal meeting.
(b) The Administrative Procedure Act
(5 U.S.C. 551 et seq.), the Federal Rules
of Evidence (28 U.S.C. Appendix), the
Federal Rules of Civil Procedure (28
U.S.C. Rule 1 et seq.) and the FDIC
Rules of Practice and Procedure in
Adjudicatory Proceedings (subpart C) do
not apply to meetings under this
section.
§ 390.124 Will FDIC approve or disapprove
an application at a meeting?
The FDIC will not approve or deny an
application at a meeting under
§§ 390.121 through 390.125.
§ 390.122 When will the FDIC conduct a
meeting on an application?
§ 390.125 Will a meeting affect application
processing time frames?
(a) The FDIC will grant a meeting
request or conduct a meeting on its own
initiative, if it finds that written
submissions are insufficient to address
facts or issues raised in an application,
or otherwise determines that a meeting
If the FDIC decides to conduct a
meeting, it may suspend applicable
application processing time frames,
including the time frames for deeming
an application complete and the
applicable approval time frames in
47691
§§ 390.126 through 390.135. If the FDIC
suspends applicable application
processing time frames, the time period
will resume when the FDIC determines
that a record has been developed that
sufficiently supports a determination on
the issues considered at the meeting.
§ 390.126 If I file a notice under expedited
treatment, when may I engage in the
proposed activities?
If you are eligible for expedited
treatment and you have appropriately
filed your notice with the FDIC, you
may engage in the proposed activities
upon the expiration of 30 days after the
filing date of your notice, unless the
FDIC takes one of the following actions
before the expiration of that time period:
(a) The FDIC notifies you in writing
that you must file additional
information supplementing your notice.
If you are required to file additional
information, you may engage in the
proposed activities upon the expiration
of 30 calendar days after the date you
file the additional information, unless
the FDIC takes one of the actions
described in paragraphs (b) through (d)
of this section before the expiration of
that time period;
(b) The FDIC notifies you in writing
that your notice is subject to standard
treatment under §§ 390.126 through
390.135. The FDIC will subject your
notice to standard treatment if it raises
a supervisory concern, raises a
significant issue of law or policy, or
requires significant additional
information;
(c) The FDIC notifies you in writing
that it is suspending the applicable time
frames under § 390.125; or
(d) The FDIC notifies you that it
disapproves your notice.
§ 390.127 What will the FDIC do after I file
my application?
(a) FDIC action. Within 30 calendar
days after the filing date of your
application, the FDIC will take one of
the following actions:
Then . . .
(1) Notifies you, in writing, that your application is complete * * * .........
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If the FDIC . . .
The applicable review period will begin on the date that the FDIC
deems your application complete.
You must submit the required additional information under § 390.128.
(2) Notifies you, in writing, that you must submit addition information to
complete your application * * *.
(3) Notifies you, in writing, that your application is materially deficient
* * *.
(4) Takes no action * * * .........................................................................
(b) Waiver requests. If your
application includes a request for
waiver of an information requirement
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The FDIC will not process your application.
Your application is deemed complete. The applicable review period will
begin on the day the 30-day time period expires.
under § 390.105(b), and the FDIC has
not notified you that you must submit
additional information under paragraph
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(a)(2) of this section, your request for
waiver is granted.
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§ 390.128 If the FDIC requests additional
information to complete my application,
how will it process my application?
to your submission of additional
information under § 390.127(a)(1):
(a) You may use the following chart
to determine the procedure that applies
If, within 30 calendar days after the date
of FDIC’s request for additional information . . .
(1) You file a response to all information
requests * * *.
(2) You request an extension of time to
file additional information * * *.
Then, FDIC may . . .
And . . .
(i) Notify you in writing within 15 days after the filing date of your response that your application
is complete * * * applicable to all response
that your application is complete * * *.
(ii) Notify you in writing within 15 calendar days
after the filing date of your response that you
must submit additional information regarding
matters derived from or prompted by information already furnished or any additional information necessary to resolve the issues presented in your application * * *.
(iii) Notify you in writing within 15 calendar days
after the filing date of your response that your
application is materially deficient * * *.
(iv) Take no action within 15 calendar days after
the filing date of your response * * *.
The applicable review period will begin on the
date that the FDIC deems your application
complete.
(i) Grant an extension, in writing, specifying the
number of days for the extension * * *.
(ii) Notify you in writing that your extension request is disapproved * * *.
(3) You fail to respond completely * * *
(i) Notify you in writing that your application is
deemed withdrawn * * *.
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(ii) Notify you, in writing, that your response is incomplete and extend the response period,
specifying the number of days for the respond
extension * * *.
(b) The FDIC may extend the 15-day
period referenced in paragraph (a)(1) of
this section by up to 15 calendar days,
if the FDIC requires the additional time
to review your response. The FDIC will
notify you that it has extended the
period before the end of the initial 15day period and will briefly explain why
the extension is necessary.
(c) If your response filed under
paragraph (a)(1) of this section includes
a request for a waiver of an
informational requirement, your request
for a waiver is granted if the FDIC fails
to act on it within 15 calendar days after
the filing of your response, unless the
FDIC extends the review period under
paragraph (b) of this section. If the FDIC
extends the review period under
paragraph (b), your request is granted if
the FDIC fails to act on it by the end of
the extended review period.
§ 390.129 Will the FDIC conduct an
eligibility examination?
(a) Eligibility examination. The FDIC
may notify you at any time before it
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deems your application complete that it
will conduct an eligibility examination.
If the FDIC decides to conduct an
eligibility examination, it will not deem
your application complete until it
concludes the examination.
(b) Additional information. The FDIC
may, as a result of the eligibility
examination, notify you that you must
submit additional information to
complete your application. If so, you
must respond to the additional
information request within the time
period required by the FDIC. The FDIC
will review your response under the
procedures described in § 390.128.
§ 390.130 What may the FDIC require me
to do after my application is deemed
complete?
After your application is deemed
complete, but before the end of the
applicable review period,
(a) The FDIC may require you to
provide additional information if the
information is necessary to resolve or
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You must respond to the additional information
request within the time period required by the
FDIC. The FDIC will review your response
under the procedures described in this section.
The FDIC will not process your application.
Your application is deemed complete. The applicable review period will begin on the day that
the 15-day time period expires.
You must fully respond within the extended time
period specified by the FDIC. The FDIC will review your response under the procedures described under this section.
The FDIC will not process your application further. You may resubmit the application for
processing as a new filing under the applicable
regulation.
The FDIC will not process your application further. You may resubmit the application for
processing as a new filing under the applicable
regulation.
You must fully respond within the extended time
period specified by the FDIC. The FDIC will review your response under the procedures described under this section.
clarify the issues presented by your
application.
(b) The FDIC may determine that a
major issue of law or a change in
circumstances arose after you filed your
application, and that the issue or
changed circumstances will
substantially effect your application. If
the FDIC identifies such an issue or
changed circumstances, it may:
(1) Notify you, in writing, that your
application is now incomplete and
require you to submit additional
information to complete the application
under the procedures described at
§ 390.128; and
(2) Require you to publish a new
public notice of your application under
§ 390.131.
§ 390.131 Will the FDIC require me to
publish a new public notice?
(a) If your application was subject to
a publication requirement, the FDIC
may require you to publish a new public
notice of your application if:
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(1) You submitted a revision to the
application, you submitted new or
additional information, or a major issue
of law or a change in circumstances
arose after the filing of your application;
and
(2) The FDIC determines that
additional comment on these matters is
appropriate because of the significance
of the new information or
circumstances.
(b) The FDIC will notify you in
writing if you must publish a new
public notice of your revised
application.
(c) If you are required to publish a
new public notice of your revised
application, you must notify the FDIC
after you publish the new public notice.
§ 390.132 May the FDIC suspend
processing of my application?
(a) Suspension. The FDIC may, at any
time, indefinitely suspend processing of
your application if:
(1) The FDIC, another governmental
entity, or a self-regulatory trade or
professional organization initiates an
investigation, examination, or
administrative proceeding that is
relevant to the FDIC’s evaluation of your
application;
(2) You request the suspension or
there are other extraordinary
circumstances that have a significant
impact on the processing of your
application.
(b) Notice. The FDIC will promptly
notify you, in writing, if it suspends
your application.
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§ 390.133
period?
How long is the FDIC review
(a) General. The applicable FDIC
review period is 60 calendar days after
the date that your application is deemed
complete, unless an applicable FDIC
regulation specifies a different review
period.
(b) Multiple applications. If you
submit more than one application in
connection with a proposed action or if
two or more applicants submit related
applications, the applicable review
period for all applications is the review
period for the application with the
longest review period, subject to
statutory review periods.
(c) Extensions. (1) The FDIC may
extend the review period for up to 30
calendar days beyond the period
described in paragraph (a) or (b) of this
section. The FDIC must notify you in
writing of the extension and the
duration of the extension. The FDIC
must issue the written extension before
the end of the review period.
(2) The FDIC may also extend the
review period as needed until it acts on
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the application, if the application
presents a significant issue of law or
policy that requires additional time to
resolve. The FDIC must notify you in
writing of the extension and the general
reasons for the extension. The FDIC
must issue the written extension before
the end of the review period, including
any extension of that period under
paragraph (c)(1) of this section.
§ 390.134 How will I know if my application
has been approved?
(a) FDIC approval or denial. (1) The
FDIC will approve or deny your
application before the expiration of the
applicable review period, including any
extensions of the review period.
(2) The FDIC will promptly notify you
in writing of its decision to approve or
deny your application.
(b) No FDIC action. If the FDIC fails
to act under paragraph (a)(1) of this
section, your application is approved.
§ 390.135 What will happen if the FDIC
does not approve or disapprove my
application within two calendar years after
the filing date?
(a) Withdrawal. If the FDIC has not
approved or denied your pending
application within two calendar years
after the filing date under § 390.109, the
FDIC will notify you, in writing, that
your application is deemed withdrawn
unless the FDIC determines that you are
actively pursuing a final FDIC
determination on your application. You
are not actively pursuing a final FDIC
determination if you have failed to
timely take an action required under
this part, including filing required
additional information, or the FDIC has
suspended processing of your
application under § 390.132 based on
circumstances that are, in whole or in
part, within your control and you have
failed to take reasonable steps to resolve
these circumstances.
(b) [Reserved].
Subpart G—Nondiscrimination
Requirements
§ 390.140
Definitions.
As used in this subpart—
Application. For purposes of this part,
an application for a loan or other service
is as defined in Regulation C, 12 CFR
203.2(b).
Dwelling. The term ‘‘dwelling’’ means
a residential structure (whether or not it
is attached to real property) located in
a state of the United States of America,
the District of Colombia, or the
Commonwealth of Puerto Rico. The
term includes an individual
condominium unit, cooperative unit, or
mobile or manufactured home.
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47693
State savings association. The term
‘‘State savings association’’ means any
State savings association as defined in
12 U.S.C. 1813(b).
§ 390.141
Supplementary guidelines.
The FDIC’s policy statement found at
12 CFR 390.150 supplements this
subpart and should be read together
with this subpart. Refer also to the HUD
Fair Housing regulations at 24 CFR parts
100 et seq., Federal Reserve Regulation
B at 12 CFR part 202, and Federal
Reserve Regulation C at 12 CFR part
203.
§ 390.142 Nondiscrimination in lending
and other services.
(a) No State savings association may
deny a loan or other service, or
discriminate in the purchase of loans or
securities or discriminate in fixing the
amount, interest rate, duration,
application procedures, collection or
enforcement procedures, or other terms
or conditions of such loan or other
service on the basis of the age or
location of the dwelling, or on the basis
of the race, color, religion, sex,
handicap, familial status (having one or
more children under the age of 18),
marital status, age (provided the person
has the capacity to contract) or national
origin of:
(1) An applicant or joint applicant;
(2) Any person associated with an
applicant or joint applicant regarding
such loan or other service, or with the
purposes of such loan or other service;
(3) The present or prospective owners,
lessees, tenants, or occupants of the
dwelling(s) for which such loan or other
service is to be made or given;
(4) The present or prospective owners,
lessees, tenants, or occupants of other
dwellings in the vicinity of the
dwelling(s) for which such loan or other
service is to be made or given.
(b) A State savings association shall
consider without prejudice the
combined income of joint applicants for
a loan or other service.
(c) No State savings association may
discriminate against an applicant for a
loan or other service on any prohibited
basis (as defined in 12 CFR 202.2(z) and
24 CFR part 100).
§ 390.143 Nondiscriminatory appraisal and
underwriting.
(a) Appraisal. No State savings
association may use or rely upon an
appraisal of a dwelling which the State
savings association knows, or
reasonably should know, is
discriminatory on the basis of the age or
location of the dwelling, or is
discriminatory per se or in effect under
the Fair Housing Act of 1968 or the
Equal Credit Opportunity Act.
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(a) No State savings association may
discourage, or refuse to allow, receive,
or consider, any application, request, or
inquiry regarding a loan or other
service, or discriminate in imposing
conditions upon, or in processing, any
such application, request, or inquiry on
the basis of the age or location of the
dwelling, or on the basis of the race,
color, religion, sex, handicap, familial
status (having one or more children
under the age of 18), marital status, age
(provided the person has the capacity to
contract), national origin, or other
characteristics prohibited from
consideration in § 390.142(c), of the
prospective borrower or other person,
who:
(1) Makes application for any such
loan or other service;
(2) Requests forms or papers to be
used to make application for any such
loan or other service; or
(3) Inquires about the availability of
such loan or other service.
(b) A State savings association shall
inform each inquirer of his or her right
to file a written loan application, and to
receive a copy of the association’s
underwriting standards.
§ 390.145
Nondiscriminatory advertising.
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No State savings association may
directly or indirectly engage in any form
of advertising that implies or suggests a
policy of discrimination or exclusion in
violation of title VIII of the Civil Rights
Acts of 1968, the Equal Credit
Opportunity Act, or this subpart.
Advertisements for any loan for the
purpose of purchasing, constructing,
improving, repairing, or maintaining a
dwelling or any loan secured by a
dwelling shall include a facsimile of the
following logotype and legend:
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Equal Housing Lender Poster.
(a) Each State savings association
shall post and maintain one or more
Equal Housing Lender Posters, the text
of which is prescribed in paragraph (b)
of this section, in the lobby of each of
its offices in a prominent place or places
readily apparent to all persons seeking
loans. The poster shall be at least 11 by
14 inches in size, and the text shall be
easily legible. It is recommended that
savings associations post a Spanish
language version of the poster in offices
serving areas with a substantial
Spanish-speaking population.
(b) The text of the Equal Housing
Lender Poster shall be as follows:
[ ] Because income is from public
assistance; or
[ ] Because a right has been
exercised under the Consumer Credit
Protection Act.
IF YOU BELIEVE YOU HAVE BEEN
DISCRIMINATED AGAINST, YOU
SHOULD SEND A COMPLAINT TO:
Federal Deposit Insurance
Corporation, Consumer Response
Center, 1100 Walnut St, Box #11,
Kansas City, MO 64106
§ 390.147
Loan application register.
State savings associations and other
lenders required to file Home Mortgage
Disclosure Act Loan Application
Registers with the FDIC in accordance
with 12 CFR part 203 must enter the
reason for denial, using the codes
provided in 12 CFR part 203, with
respect to all loan denials.
§ 390.148 Nondiscrimination in
employment.
We Do Business In Accordance With
Federal Fair Lending Laws.
UNDER THE FEDERAL FAIR
HOUSING ACT, IT IS ILLEGAL, ON
THE BASIS OF RACE, COLOR,
NATIONAL ORIGIN, RELIGION, SEX,
HANDICAP, OR FAMILIAL STATUS
(HAVING CHILDREN UNDER THE AGE
OF 18) TO:
[ ] Deny a loan for the purpose of
purchasing, constructing, improving,
repairing or maintaining a dwelling or
to deny any loan secured by a dwelling;
or
[ ] Discriminate in fixing the
amount, interest rate, duration,
application procedures, or other terms
or conditions of such a loan or in
appraising property.
IF YOU BELIEVE YOU HAVE BEEN
DISCRIMINATED AGAINST, YOU
SHOULD:
SEND A COMPLAINT TO:
Assistant Secretary for Fair Housing
and Equal Opportunity, Department of
Housing and Urban Development,
Washington, DC 20410.
For processing under the Federal Fair
Housing Act
AND TO:
Federal Deposit Insurance
Corporation, Consumer Response
Center, 1100 Walnut St, Box #11,
Kansas City, MO 64106
For processing under FDIC
Regulations.
UNDER THE EQUAL CREDIT
OPPORTUNITY ACT, IT IS ILLEGAL
TO DISCRIMINATE IN ANY CREDIT
TRANSACTION:
[ ] On the basis of race, color,
national origin, religion, sex, marital
status, or age;
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(a) No State savings association shall,
because of an individual’s race, color,
religion, sex, or national origin:
(1) Fail or refuse to hire such
individual;
(2) Discharge such individual;
(3) Otherwise discriminate against
such individual with respect to such
individual’s compensation, promotion,
or the terms, conditions, or privileges of
such individual’s employment; or
(4) Discriminate in admission to, or
employment in, any program of
apprenticeship, training, or retraining,
including on-the-job training.
(b) No State savings association shall
limit, segregate, or classify its
employees in any way which would
deprive or tend to deprive any
individual of employment opportunities
or otherwise adversely affect such
individual’s status as an employee
because of such individual’s race, color,
religion, sex, or national origin.
(c) No State savings association shall
discriminate against any employee or
applicant for employment because such
employee or applicant has opposed any
employment practice made unlawful by
Federal, State, or local law or regulation
or because he has in good faith made a
charge of such practice or testified,
assisted, or participated in any manner
in an investigation, proceeding, or
hearing of such practice by any lawfully
constituted authority.
(d) No State savings association shall
print or publish or cause to be printed
or published any notice or
advertisement relating to employment
by such savings association indicating
any preference, limitation, specification,
or discrimination based on race, color,
religion, sex, or national origin.
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§ 390.144 Nondiscrimination in
applications.
§ 390.146
ER05AU11.000</GPH>
(b) Underwriting. Each State savings
association shall have clearly written,
non-discriminatory loan underwriting
standards, available to the public upon
request, at each of its offices. Each
association shall, at least annually,
review its standards, and business
practices implementing them, to ensure
equal opportunity in lending.
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(e) This regulation shall not apply in
any case in which the Federal Equal
Employment Opportunities law is made
inapplicable by the provisions of section
2000e–1 or sections 2000e–2 (e) through
(j) of title 42, United States Code.
(f) Any violation of the following laws
or regulations by a State savings
association shall be deemed to be a
violation of this subpart:
(1) The Equal Employment
Opportunity Act, as amended, 42 U.S.C.
2000e–2000h–2, and Equal Employment
Opportunity Commission (EEOC)
regulations at 29 CFR part 1600;
(2) The Age Discrimination in
Employment Act, 29 U.S.C. 621–633,
and EEOC and Department of Labor
regulations;
(3) Department of the Treasury
regulations at 31 CFR part 12 and Office
of Federal Contract Compliance
Programs (OFCCP) regulations at 41 CFR
part 60;
(4) The Veterans Employment and
Readjustment Act of 1972, 38 U.S.C.
2011–2012, and the Vietnam Era
Veterans Readjustment Adjustment
Assistance Act of 1974, 38 U.S.C. 2021–
2026;
(5) The Rehabilitation Act of 1973, 29
U.S.C. 701 et al.; and
(6) The Immigration and Nationality
Act, 8 U.S.C. 1324b, and INS regulations
at 8 CFR part 274a.
§ 390.149
Complaints.
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Complaints regarding discrimination
in lending by a State savings association
shall be referred to the Assistant
Secretary for Fair Housing and Equal
Opportunity, U.S. Department of
Housing and Urban Development,
Washington, DC 20410 for processing
under the Fair Housing Act, and to the
Director, Division of Depositor and
Consumer Protection, Federal Deposit
Insurance Corporation, 550 17th Street,
NW., Washington, DC 20249 for
processing under FDIC regulations.
Complaints regarding discrimination in
employment by a State savings
association should be referred to the
Equal Employment Opportunity
Commission, Washington, DC 20506
and a copy, for information only, sent to
the Director, Division of Depositor and
Consumer Protection, Federal Deposit
Insurance Corporation, 550 17th Street,
NW., Washington, DC 20249.
§ 390.150 Guidelines relating to
nondiscrimination in lending.
(a) General. Fair housing and equal
opportunity in home financing is a
policy of the United States established
by Federal statutes and Presidential
orders and proclamations. In
furtherance of the Federal civil rights
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laws and the economical home
financing purposes of the statutes
administered by the FDIC, the FDIC has
adopted, in this subpart,
nondiscrimination regulations that,
among other things, prohibit arbitrary
refusals to consider loan applications on
the basis of the age or location of a
dwelling, and prohibit discrimination
based on race, color, religion, sex,
handicap, familial status (having one or
more children under the age of 18),
marital status, age (provided the person
has the capacity to contract), or national
origin in fixing the amount, interest rate,
duration, application procedures,
collection or enforcement procedures, or
other terms or conditions of housing
related loans. Such discrimination is
also prohibited in the purchase of loans
and securities. This section provides
supplementary guidelines to aid savings
associations in developing and
implementing nondiscriminatory
lending policies. Each State savings
association should reexamine its
underwriting standards at least annually
in order to ensure equal opportunity.
(b) Loan underwriting standards. The
basic purpose of the FDIC’s
nondiscrimination regulations is to
require that every applicant be given an
equal opportunity to obtain a loan. Each
loan applicant’s creditworthiness
should be evaluated on an individual
basis without reference to presumed
characteristics of a group. The use of
lending standards which have no
economic basis and which are
discriminatory in effect is a violation of
law even in the absence of an actual
intent to discriminate. However, a
standard which has a discriminatory
effect is not necessarily improper if its
use achieves a genuine business need
which cannot be achieved by means
which are not discriminatory in effect or
less discriminatory in effect.
(c) Discriminatory practices— (1)
Discrimination on the basis of sex or
marital status. The Civil Rights Act of
1968 and the National Housing Act
prohibit discrimination in lending on
the basis of sex. The Equal Credit
Opportunity Act, in addition to this
prohibition, forbids discrimination on
the basis of marital status. Refusing to
lend to, requiring higher standards of
creditworthiness of, or imposing
different requirements on, members of
one sex or individuals of one marital
status, is discrimination based on sex or
marital status. Loan underwriting
decisions must be based on an
applicant’s credit history and present
and reasonably foreseeable economic
prospects, rather than on the basis of
assumptions regarding comparative
differences in creditworthiness between
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married and unmarried individuals, or
between men and women.
(2) Discrimination on the basis of
language. Requiring fluency in the
English language as a prerequisite for
obtaining a loan may be a
discriminatory practice based on
national origin.
(3) Income of husbands and wives. A
practice of discounting all or part of
either spouse’s income where spouses
apply jointly is a violation of section
527 of the National Housing Act. As
with other income, when spouses apply
jointly for a loan, the determination as
to whether a spouse’s income qualifies
for credit purposes should depend upon
a reasonable evaluation of his or her
past, present, and reasonably
foreseeable economic circumstances.
Information relating to child-bearing
intentions of a couple or an individual
may not be requested.
(4) Supplementary income. Lending
standards which consider as effective
only the non-overtime income of the
primary wage-earner may result in
discrimination because they do not take
account of variations in employment
patterns among individuals and
families. The FDIC favors loan
underwriting which reasonably
evaluates the credit worthiness of each
applicant based on a realistic appraisal
of his or her own past, present, and
foreseeable economic circumstances.
The determination as to whether
primary income or additional income
qualifies as effective for credit purposes
should depend upon whether such
income may reasonably be expected to
continue through the early period of the
mortgage risk. Automatically
discounting other income from bonuses,
overtime, or part-time employment, will
cause some applicants to be denied
financing without a realistic analysis of
their credit worthiness. Since statistics
show that minority group members and
low- and moderate-income families rely
more often on such supplemental
income, the practice may be racially
discriminatory in effect, as well as
artificially restrictive of opportunities
for home financing.
(5) Applicant’s prior history. Loan
decisions should be based upon a
realistic evaluation of all pertinent
factors respecting an individual’s
creditworthiness, without giving undue
weight to any one factor. The State
savings association should, among other
things, take into consideration that:
(i) In some instances, past credit
difficulties may have resulted from
discriminatory practices;
(ii) A policy favoring applicants who
previously owned homes may
perpetuate prior discrimination;
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(iii) A current, stable earnings record
may be the most reliable indicator of
credit-worthiness, and entitled to more
weight than factors such as educational
level attained;
(iv) Job or residential changes may
indicate upward mobility; and
(v) Preferring applicants who have
done business with the lender can
perpetuate previous discriminatory
policies.
(6) Income level or racial composition
of area. Refusing to lend or lending on
less favorable terms in particular areas
because of their racial composition is
unlawful. Refusing to lend, or offering
less favorable terms (such as interest
rate, downpayment, or maturity) to
applicants because of the income level
in an area can discriminate against
minority group persons.
(7) Age and location factors. Sections
390.142–390.144 prohibit loan denials
based upon the age or location of a
dwelling. These restrictions are
intended to prohibit use of unfounded
or unsubstantiated assumptions
regarding the effect upon loan risk of the
age of a dwelling or the physical or
economic characteristics of an area.
Loan decisions should be based on the
present market value of the property
offered as security (including
consideration of specific improvements
to be made by the borrower) and the
likelihood that the property will retain
an adequate value over the term of the
loan. Specific factors which may
negatively affect its short-range future
value (up to 3–5 years) should be clearly
documented. Factors which in some
cases may cause the market value of a
property to decline are recent zoning
changes or a significant number of
abandoned homes in the immediate
vicinity of the property. However, not
all zoning changes will cause a decline
in property values, and proximity to
abandoned buildings may not affect the
market value of a property because of
rehabilitation programs or affirmative
lending programs, or because the cause
of abandonment is unrelated to high
risk. Proper underwriting considerations
include the condition and utility of the
improvements, and various physical
factors such as street conditions,
amenities such as parks and recreation
areas, availability of public utilities and
municipal services, and exposure to
flooding and land faults. However,
arbitrary decisions based on age or
location are prohibited, since many
older, soundly constructed homes
provide housing opportunities which
may be precluded by an arbitrary
lending policy.
(8) Fair Housing Act (title VIII, Civil
Rights Act of 1968, as amended). State
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savings associations, must comply with
all regulations promulgated by the
Department of Housing and Urban
Development to implement the Fair
Housing Act, found at 24 CFR part 100
et seq., except that they shall use the
Equal Housing Lender logo and poster
prescribed by FDIC regulations at
§§ 390.145 and 390.146 rather than the
Equal Housing Opportunity logo and
poster required by 24 CFR parts 109 and
110.
(d) Marketing practices. State savings
associations should review their
advertising and marketing practices to
ensure that their services are available
without discrimination to the
community they serve. Discrimination
in lending is not limited to loan
decisions and underwriting standards; a
State savings association does not meet
its obligations to the community or
implement its equal lending
responsibility if its marketing practices
and business relationships with
developers and real estate brokers
improperly restrict its clientele to
segments of the community. A review of
marketing practices could begin with an
examination of an association’s loan
portfolio and applications to ascertain
whether, in view of the demographic
characteristics and credit demands of
the community in which the institution
is located, it is adequately serving the
community on a nondiscriminatory
basis. The FDIC will systematically
review marketing practices where
evidence of discrimination in lending is
discovered.
Subpart H—Disclosure and Reporting
of CRA-Related Agreements
§ 390.160
subpart.
Purpose and scope of this
(a) General. This subpart implements
section 711 of the Gramm-Leach-Bliley
Act (12 U.S.C. 1831y). That section
requires any nongovernmental entity or
person (NGEP), insured depository
institution, or affiliate of an insured
depository institution that enters into a
covered agreement to—
(1) Make the covered agreement
available to the public and the
appropriate Federal banking agency;
and
(2) File an annual report with the
appropriate Federal banking agency
concerning the covered agreement.
(b) Scope of this subpart. The
provisions of this subpart apply to—
(1) State savings associations, as
defined in section 3(b) of the Federal
Deposit Insurance Act (FDIA), (12
U.S.C. 1813(b)) and their subsidiaries;
(2) [Reserved]
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(3) Affiliates of State savings
associations and savings and loan
holding companies, other than bank
holding companies, banks, and
subsidiaries of bank holding companies
and banks; and
(4) NGEPs that enter into covered
agreements with any company listed in
paragraphs (b)(1) through (b)(3) of this
section.
(c) Relation to Community
Reinvestment Act. This subpart does not
affect in any way the Community
Reinvestment Act of 1977 (CRA) (12
U.S.C. 2901 et seq.), 12 CFR Part 345, 12
CFR part 195 issued by the Office of the
Comptroller of the Currency and
applicable to State savings associations,
or FDIC’s interpretations or
administration of the CRA or
Community Reinvestment rule.
(d) Examples. (1) The examples in this
subpart are not exclusive. Compliance
with an example, to the extent
applicable, constitutes compliance with
this subpart.
(2) Examples in a paragraph illustrate
only the issue described in the
paragraph and do not illustrate any
other issues that may arise in this
subpart.
§ 390.161
Definition of covered agreement.
(a) General definition of covered
agreement. A covered agreement is any
contract, arrangement, or understanding
that meets all of the following criteria—
(1) The agreement is in writing.
(2) The parties to the agreement
include—
(i) One or more insured depository
institutions or affiliates of an insured
depository institution; and
(ii) One or more NGEPs.
(3) The agreement provides for the
insured depository institution or any
affiliate to—
(i) Provide to one or more individuals
or entities (whether or not parties to the
agreement) cash payments, grants, or
other consideration (except loans) that
have an aggregate value of more than
$10,000 in any calendar year; or
(ii) Make to one or more individuals
or entities (whether or not parties to the
agreement) loans that have an aggregate
principal amount of more than $50,000
in any calendar year.
(4) The agreement is made pursuant
to, or in connection with, the fulfillment
of the CRA, as defined in § 390.163.
(5) The agreement is with a NGEP that
has had a CRA communication as
described in § 390.162 prior to entering
into the agreement.
(b) Examples concerning written
arrangements or understandings—(1)
Example 1. A NGEP meets with an
insured depository institution and states
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that the institution needs to make more
community development investments in
the NGEP’s community. The NGEP and
insured depository institution do not
reach an agreement concerning the
community development investments
the institution should make in the
community, and the parties do not reach
any mutual arrangement or
understanding. Two weeks later, the
institution unilaterally issues a press
release announcing that it has
established a general goal of making
$100 million of community
development grants in low- and
moderate-income neighborhoods served
by the insured depository institution
over the next 5 years. The NGEP is not
identified in the press release. The press
release is not a written arrangement or
understanding.
(2) Example 2. A NGEP meets with an
insured depository institution and states
that the institution needs to offer new
loan programs in the NGEP’s
community. The NGEP and the insured
depository institution reach a mutual
arrangement or understanding that the
institution will provide additional loans
in the NGEP’s community. The
institution tells the NGEP that it will
issue a press release announcing the
program. Later, the insured depository
institution issues a press release
announcing the loan program. The press
release incorporates the key terms of the
understanding reached between the
NGEP and the insured depository
institution. The written press release
reflects the mutual arrangement or
understanding of the NGEP and the
insured depository institution and is,
therefore, a written arrangement or
understanding.
(3) Example 3. An NGEP sends a letter
to an insured depository institution
requesting that the institution provide a
$15,000 grant to the NGEP. The insured
depository institution responds in
writing and agrees to provide the grant
in connection with its annual grant
program. The exchange of letters
constitutes a written arrangement or
understanding.
(c) Loan agreements that are not
covered agreements. A covered
agreement does not include—
(1) Any individual loan that is
secured by real estate; or
(2) Any specific contract or
commitment for a loan or extension of
credit to an individual, business, farm,
or other entity, or group of such
individuals or entities, if—
(i) The funds are loaned at rates that
are not substantially below market rates;
and
(ii) The loan application or other loan
documentation does not indicate that
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the borrower intends or is authorized to
use the borrowed funds to make a loan
or extension of credit to one or more
third parties.
(d) Examples concerning loan
agreements—(1) Example 1. An insured
depository institution provides an
organization with a $1 million loan that
is documented in writing and is secured
by real estate owned or to-be-acquired
by the organization. The agreement is an
individual mortgage loan and is exempt
from coverage under paragraph (c)(1) of
this section, regardless of the interest
rate on the loan or whether the
organization intends or is authorized to
re-loan the funds to a third party.
(2) Example 2. An insured depository
institution commits to provide a
$500,000 line of credit to a small
business that is documented by a
written agreement. The loan is made at
rates that are within the range of rates
offered by the institution to similarly
situated small businesses in the market
and the loan documentation does not
indicate that the small business intends
or is authorized to re-lend the borrowed
funds. The agreement is exempt from
coverage under paragraph (c)(2) of this
section.
(3) Example 3. An insured depository
institution offers small business loans
that are guaranteed by the Small
Business Administration (SBA). A small
business obtains a $75,000 loan,
documented in writing, from the
institution under the institution’s SBA
loan program. The loan documentation
does not indicate that the borrower
intends or is authorized to re-lend the
funds. Although the rate charged on the
loan is well below that charged by the
institution on commercial loans, the rate
is within the range of rates that the
institution would charge a similarly
situated small business for a similar
loan under the SBA loan program.
Accordingly, the loan is not made at
substantially below market rates and is
exempt from coverage under paragraph
(c)(2) of this section.
(4) Example 4. A bank holding
company enters into a written
agreement with a community
development organization that provides
that insured depository institutions
owned by the bank holding company
will make $250 million in small
business loans in the community over
the next 5 years. The written agreement
is not a specific contract or commitment
for a loan or an extension of credit and,
thus, is not exempt from coverage under
paragraph (c)(2) of this section. Each
small business loan made by the insured
depository institution pursuant to this
general commitment would, however,
be exempt from coverage if the loan is
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made at rates that are not substantially
below market rates and the loan
documentation does not indicate that
the borrower intended or was
authorized to re-lend the funds.
(e) Agreements that include exempt
loan agreements. If an agreement
includes a loan, extension of credit or
loan commitment that, if documented
separately, would be exempt under
paragraph (c) of this section, the exempt
loan, extension of credit or loan
commitment may be excluded for
purposes of determining whether the
agreement is a covered agreement.
(f) Determining annual value of
agreements that lack schedule of
disbursements. For purposes of
paragraph (a)(3) of this section, a multiyear agreement that does not include a
schedule for the disbursement of
payments, grants, loans or other
consideration by the insured depository
institution or affiliate, is considered to
have a value in the first year of the
agreement equal to all payments, grants,
loans and other consideration to be
provided at any time under the
agreement.
§ 390.162
CRA communications.
(a) Definition of CRA communication.
A CRA communication is any of the
following—
(1) Any written or oral comment or
testimony provided to a Federal banking
agency concerning the adequacy of the
performance under the CRA of the
insured depository institution, any
affiliated insured depository institution,
or any CRA affiliate.
(2) Any written comment submitted to
the insured depository institution that
discusses the adequacy of the
performance under the CRA of the
institution and must be included in the
institution’s CRA public file.
(3) Any discussion or other contact
with the insured depository institution
or any affiliate about—
(i) Providing (or refraining from
providing) written or oral comments or
testimony to any Federal banking
agency concerning the adequacy of the
performance under the CRA of the
insured depository institution, any
affiliated insured depository institution,
or any CRA affiliate;
(ii) Providing (or refraining from
providing) written comments to the
insured depository institution that
concern the adequacy of the
institution’s performance under the
CRA and must be included in the
institution’s CRA public file; or
(iii) The adequacy of the performance
under the CRA of the insured depository
institution, any affiliated insured
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depository institution, or any CRA
affiliate.
(b) Discussions or contacts that are
not CRA communications. (1) Timing of
contacts with a Federal banking agency.
An oral or written communication with
a Federal banking agency is not a CRA
communication if it occurred more than
3 years before the parties entered into
the agreement.
(2) Timing of contacts with insured
depository institutions and affiliates. A
communication with an insured
depository institution or affiliate is not
a CRA communication if the
communication occurred—
(i) More than 3 years before the
parties entered into the agreement, in
the case of any written communication;
(ii) More than 3 years before the
parties entered into the agreement, in
the case of any oral communication in
which the NGEP discusses providing (or
refraining from providing) comments or
testimony to a Federal banking agency
or written comments that must be
included in the institution’s CRA public
file in connection with a request to, or
agreement by, the institution or affiliate
to take (or refrain from taking) any
action that is in fulfillment of the CRA;
or
(iii) More than 1 year before the
parties entered into the agreement, in
the case of any other oral
communication not described in
paragraph (b)(2)(ii) of this section.
(3) Knowledge of communication by
insured depository institution or
affiliate. (i) A communication is only a
CRA communication under paragraph
(a) of this section if the insured
depository institution or its affiliate has
knowledge of the communication under
paragraph (b)(3)(ii) or (iii) of this
section.
(ii) Communication with insured
depository institution or affiliate. An
insured depository institution or
affiliate has knowledge of a
communication by the NGEP to the
institution or its affiliate under this
paragraph only if one of the following
representatives of the insured
depository institution or any affiliate
has knowledge of the communication—
(A) An employee who approves,
directs, authorizes, or negotiates the
agreement with the NGEP; or
(B) An employee designated with
responsibility for compliance with the
CRA or executive officer if the employee
or executive officer knows that the
institution or affiliate is negotiating,
intends to negotiate, or has been
informed by the NGEP that it expects to
request that the institution or affiliate
negotiate an agreement with the NGEP.
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(iii) Other communications. An
insured depository institution or
affiliate is deemed to have knowledge
of—
(A) Any testimony provided to a
Federal banking agency at a public
meeting or hearing;
(B) Any comment submitted to a
Federal banking agency that is conveyed
in writing by the agency to the insured
depository institution or affiliate; and
(C) Any written comment submitted
to the insured depository institution
that must be and is included in the
institution’s CRA public file.
(4) Communication where NGEP has
knowledge. A NGEP has a CRA
communication with an insured
depository institution or affiliate only if
any of the following individuals has
knowledge of the communication—
(i) A director, employee, or member of
the NGEP who approves, directs,
authorizes, or negotiates the agreement
with the insured depository institution
or affiliate;
(ii) A person who functions as an
executive officer of the NGEP and who
knows that the NGEP is negotiating or
intends to negotiate an agreement with
the insured depository institution or
affiliate; or
(iii) Where the NGEP is an individual,
the NGEP.
(c) Examples of CRA
communications. (1) Examples of
actions that are CRA communications.
The following are examples of CRA
communications. These examples are
not exclusive and assume that the
communication occurs within the
relevant time period as described in
paragraph (b)(1) or (2) of this section
and the appropriate representatives
have knowledge of the communication
as specified in paragraphs (b)(3) and (4)
of this section.
(i) Example 1. A NGEP files a written
comment with a Federal banking agency
that states than an insured depository
institution successfully addresses the
credit needs of its community. The
written comment is in response to a
general request from the agency for
comments on an application of the
insured depository institution to open a
new branch and a copy of the comment
is provided to the institution.
(ii) Example 2. A NGEP meets with an
executive officer of an insured
depository institution and states that the
institution must improve its CRA
performance.
(iii) Example 3. A NGEP meets with
an executive officer of an insured
depository institution and states that the
institution needs to make more
mortgage loans in low- and moderate-
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income neighborhoods in its
community.
(iv) Example 4. A bank holding
company files an application with a
Federal banking agency to acquire an
insured depository institution. Two
weeks later, the NGEP meets with an
executive officer of the bank holding
company to discuss the adequacy of the
performance under the CRA of the target
insured depository institution. The
insured depository institution was an
affiliate of the bank holding company at
the time the NGEP met with the target
institution. (See § 390.170(a))
Accordingly, the NGEP had a CRA
communication with an affiliate of the
bank holding company.
(2) Examples of actions that are not
CRA communications. The following
are examples of actions that are not by
themselves CRA communications.
These examples are not exclusive.
(i) Example 1. A NGEP provides to a
Federal banking agency comments or
testimony concerning an insured
depository institution or affiliate in
response to a direct request by the
agency for comments or testimony from
that NGEP. Direct requests for
comments or testimony do not include
a general invitation by a Federal
banking agency for comments or
testimony from the public in connection
with a CRA performance evaluation of,
or application for a deposit facility (as
defined in section 803 of the CRA (12
U.S.C. 2902(3)) by, an insured
depository institution or an application
by a company to acquire an insured
depository institution.
(ii) Example 2. A NGEP makes a
statement concerning an insured
depository institution or affiliate at a
widely attended conference or seminar
regarding a general topic. A public or
private meeting, public hearing, or other
meeting regarding one or more specific
institutions, affiliates or transactions
involving an application for a deposit
facility is not considered a widely
attended conference or seminar.
(iii) Example 3. A NGEP, such as a
civil rights group, community group
providing housing and other services in
low- and moderate-income
neighborhoods, veterans organization,
community theater group, or youth
organization, sends a fundraising letter
to insured depository institutions and to
other businesses in its community. The
letter encourages all businesses in the
community to meet their obligation to
assist in making the local community a
better place to live and work by
supporting the fundraising efforts of the
NGEP.
(iv) Example 4. A NGEP discusses
with an insured depository institution
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or affiliate whether particular loans,
services, investments, community
development activities, or other
activities are generally eligible for
consideration by a Federal banking
agency under the CRA. The NGEP and
insured depository institution or
affiliate do not discuss the adequacy of
the CRA performance of the insured
depository institution or affiliate.
(v) Example 5. A NGEP engaged in the
sale or purchase of loans in the
secondary market sends a general
offering circular to financial institutions
offering to sell or purchase a portfolio of
loans. An insured depository institution
that receives the offering circular
discusses with the NGEP the types of
loans included in the loan pool,
whether such loans are generally
eligible for consideration under the
CRA, and which loans are made to
borrowers in the institution’s local
community. The NGEP and insured
depository institution do not discuss the
adequacy of the institution’s CRA
performance.
(d) Multiparty covered agreements. (1)
A NGEP that is a party to a covered
agreement that involves multiple NGEPs
is not required to comply with the
requirements of this part if—
(i) The NGEP has not had a CRA
communication; and
(ii) No representative of the NGEP
identified in paragraph (b)(4) of this
section has knowledge at the time of the
agreement that another NGEP that is a
party to the agreement has had a CRA
communication.
(2) An insured depository institution
or affiliate that is a party to a covered
agreement that involves multiple
insured depository institutions or
affiliates is not required to comply with
the requirements in §§ 390.165 and
390.166 if—
(i) No NGEP that is a party to the
agreement has had a CRA
communication concerning the insured
depository institution or any affiliate;
and
(ii) No representative of the insured
depository institution or any affiliate
identified in paragraph (b)(3) of this
section has knowledge at the time of the
agreement that an NGEP that is a party
to the agreement has had a CRA
communication concerning any other
insured depository institution or
affiliate that is a party to the agreement.
§ 390.163
Fulfillment of the CRA.
(a) List of factors that are in
fulfillment of the CRA. Fulfillment of
the CRA, for purposes of this subpart,
means the following list of factors—
(1) Comments to a Federal banking
agency or included in CRA public file.
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Providing or refraining from providing
written or oral comments or testimony
to any Federal banking agency
concerning the performance under the
CRA of an insured depository
institution or CRA affiliate that is a
party to the agreement or an affiliate of
a party to the agreement or written
comments that are required to be
included in the CRA public file of any
such insured depository institution; or
(2) Activities given favorable CRA
consideration. Performing any of the
following activities if the activity is of
the type that is likely to receive
favorable consideration by a Federal
banking agency in evaluating the
performance under the CRA of the
insured depository institution that is a
party to the agreement or an affiliate of
a party to the agreement—
(i) Home-purchase, homeimprovement, small business, small
farm, community development, and
consumer lending, as described in 12
CFR 195.22, including loan purchases,
loan commitments, and letters of credit;
(ii) Making investments, deposits, or
grants, or acquiring membership shares,
that have as their primary purpose
community development, as described
in 12 CFR 195.23;
(iii) Delivering retail banking services,
as described in 12 CFR 195.24(d);
(iv) Providing community
development services, as described in
12 CFR 195.24(e);
(v) In the case of a wholesale or
limited-purpose insured depository
institution, community development
lending, including originating and
purchasing loans and making loan
commitments and letters of credit,
making qualified investments, or
providing community development
services, as described in 12 CFR
195.25(c);
(vi) In the case of a small insured
depository institution, any lending or
other activity described in 12 CFR
195.26(a); or
(vii) In the case of an insured
depository institution that is evaluated
on the basis of a strategic plan, any
element of the strategic plan, as
described in 12 CFR 195.27(f).
(b) Agreements relating to activities of
CRA affiliates. An insured depository
institution or affiliate that is a party to
a covered agreement that concerns any
activity described in paragraph (a) of
this section of a CRA affiliate must,
prior to the time the agreement is
entered into, notify each NGEP that is a
party to the agreement that the
agreement concerns a CRA affiliate.
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§ 390.164 Related agreements considered
a single agreement.
The following rules must be applied
in determining whether an agreement is
a covered agreement under § 390.161.
(a) Agreements entered into by same
parties. All written agreements to which
an insured depository institution or an
affiliate of the insured depository
institution is a party shall be considered
to be a single agreement if the
agreements—
(1) Are entered into with the same
NGEP;
(2) Were entered into within the same
12-month period; and
(3) Are each in fulfillment of the CRA.
(b) Substantively related contracts.
All written contracts to which an
insured depository institution or an
affiliate of the insured depository
institution is a party shall be considered
to be a single agreement, without regard
to whether the other parties to the
contracts are the same or whether each
such contract is in fulfillment of the
CRA, if the contracts were negotiated in
a coordinated fashion and a NGEP is a
party to each contract.
§ 390.165 Disclosure of covered
agreements.
(a) Applicability date. This section
applies only to covered agreements
entered into after November 12, 1999.
(b) Disclosure of covered agreements
to the public—(1) Disclosure required.
Each NGEP and each insured depository
institution or affiliate that enters into a
covered agreement must make a copy of
the covered agreement available to any
individual or entity upon request.
(2) Nondisclosure of confidential and
proprietary information permitted. In
responding to a request for a covered
agreement from any individual or entity
under paragraph (b)(1) of this section, a
NGEP, insured depository institution, or
affiliate may withhold from public
disclosure confidential or proprietary
information that the party believes the
relevant supervisory agency could
withhold from disclosure under the
Freedom of Information Act (5 U.S.C.
552 et seq.) (FOIA).
(3) Information that must be
disclosed. Notwithstanding paragraph
(b)(2) of this section, a party must
disclose any of the following
information that is contained in a
covered agreement—
(i) The names and addresses of the
parties to the agreement;
(ii) The amount of any payments, fees,
loans, or other consideration to be made
or provided by any party to the
agreement;
(iii) Any description of how the funds
or other resources provided under the
agreement are to be used;
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(iv) The term of the agreement (if the
agreement establishes a term); and
(v) Any other information that the
relevant supervisory agency determines
is not properly exempt from public
disclosure.
(4) Request for review of withheld
information. Any individual or entity
may request that the relevant
supervisory agency review whether any
information in a covered agreement
withheld by a party must be disclosed.
Any requests for agency review of
withheld information must be filed, and
will be processed in accordance with,
the relevant supervisory agency’s rules
concerning the availability of
information (see part 309).
(5) Duration of obligation. The
obligation to disclose a covered
agreement to the public terminates 12
months after the end of the term of the
agreement.
(6) Reasonable copy and mailing fees.
Each NGEP and each insured depository
institution or affiliate may charge an
individual or entity that requests a copy
of a covered agreement a reasonable fee
not to exceed the cost of copying and
mailing the agreement.
(7) Use of CRA public file by insured
depository institution or affiliate. An
insured depository institution and any
affiliate of an insured depository
institution may fulfill its obligation
under this paragraph (b) by placing a
copy of the covered agreement in the
insured depository institution’s CRA
public file if the institution makes the
agreement available in accordance with
the procedures set forth in 12 CFR
195.43.
(c) Disclosure by NGEPs of covered
agreements to the relevant supervisory
agency. (1) Each NGEP that is a party to
a covered agreement must provide the
following within 30 days of receiving a
request from the relevant supervisory
agency—
(i) A complete copy of the agreement;
and
(ii) In the event the NGEP proposes
the withholding of any information
contained in the agreement in
accordance with paragraph (b)(2) of this
section, a public version of the
agreement that excludes such
information and an explanation
justifying the exclusions. Any public
version must include the information
described in paragraph (b)(3) of this
section.
(2) The obligation to provide a
covered agreement to the relevant
supervisory agency terminates 12
months after the end of the term of the
covered agreement.
(d) Disclosure by insured depository
institution or affiliate of covered
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agreements to the relevant supervisory
agency—(1) In general. Within 60 days
of the end of each calendar quarter, each
insured depository institution and
affiliate must provide each relevant
supervisory agency with—
(i)(A) A complete copy of each
covered agreement entered into by the
insured depository institution or
affiliate during the calendar quarter; and
(B) In the event the institution or
affiliate proposes the withholding of any
information contained in the agreement
in accordance with paragraph (b)(2) of
this section, a public version of the
agreement that excludes such
information (other than any information
described in paragraph (b)(3) of this
section) and an explanation justifying
the exclusions; or
(ii) A list of all covered agreements
entered into by the insured depository
institution or affiliate during the
calendar quarter that contains—
(A) The name and address of each
insured depository institution or
affiliate that is a party to the agreement;
(B) The name and address of each
NGEP that is a party to the agreement;
(C) The date the agreement was
entered into;
(D) The estimated total value of all
payments, fees, loans and other
consideration to be provided by the
institution or any affiliate of the
institution under the agreement; and
(E) The date the agreement terminates.
(2) Prompt filing of covered
agreements contained in list required.
(i) If an insured depository institution or
affiliate files a list of the covered
agreements entered into by the
institution or affiliate pursuant to
paragraph (d)(1)(ii) of this section, the
institution or affiliate must provide any
relevant supervisory agency a complete
copy and public version of any covered
agreement referenced in the list within
7 calendar days of receiving a request
from the agency for a copy of the
agreement.
(ii) The obligation of an insured
depository institution or affiliate to
provide a covered agreement to the
relevant supervisory agency under this
paragraph (d)(2) terminates 36 months
after the end of the term of the covered
agreement.
(3) Joint filings. In the event that 2 or
more insured depository institutions or
affiliates are parties to a covered
agreement, the insured depository
institution(s) and affiliate(s) may jointly
file the documents required by this
paragraph (d) of this section. Any joint
filing must identify the insured
depository institution(s) and affiliate(s)
for whom the filings are being made.
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§ 390.166
Annual reports.
(a) Applicability date. This section
applies only to covered agreements
entered into on or after May 12, 2000.
(b) Annual report required. Each
NGEP and each insured depository
institution or affiliate that is a party to
a covered agreement must file an annual
report with each relevant supervisory
agency concerning the disbursement,
receipt, and uses of funds or other
resources under the covered agreement.
(c) Duration of reporting
requirement—(1) NGEPs. A NGEP must
file an annual report for a covered
agreement for any fiscal year in which
the NGEP receives or uses funds or
other resources under the agreement.
(2) Insured depository institutions and
affiliates. An insured depository
institution or affiliate must file an
annual report for a covered agreement
for any fiscal year in which the
institution or affiliate—
(i) Provides or receives any payments,
fees, or loans under the covered
agreement that must be reported under
paragraphs (e)(1)(iii) and (iv) of this
section; or
(ii) Has data to report on loans,
investments, and services provided by a
party to the covered agreement under
the covered agreement under paragraph
(e)(1)(vi) of this section.
(d) Annual reports filed by NGEP—(1)
Contents of report. The annual report
filed by a NGEP under this section must
include the following—
(i) The name and mailing address of
the NGEP filing the report;
(ii) Information sufficient to identify
the covered agreement for which the
annual report is being filed, such as by
providing the names of the parties to the
agreement and the date the agreement
was entered into or by providing a copy
of the agreement;
(iii) The amount of funds or resources
received under the covered agreement
during the fiscal year; and
(iv) A detailed, itemized list of how
the funds or resources received by the
NGEP under the covered agreement
were used during the fiscal year,
including the total amount used for—
(A) Compensation of officers,
directors, and employees;
(B) Administrative expenses;
(C) Travel expenses;
(D) Entertainment expenses;
(E) Payment of consulting and
professional fees; and
(F) Other expenses and uses (specify
expense or use).
(2) More detailed reporting of uses of
funds or resources permitted—(i) In
general. If a NGEP allocated and used
funds received under a covered
agreement for a specific purpose, the
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NGEP may fulfill the requirements of
paragraph (d)(1)(iv) of this section with
respect to such funds by providing—
(A) A brief description of each
specific purpose for which the funds or
other resources were used; and
(B) The amount of funds or resources
used during the fiscal year for each
specific purpose.
(ii) Specific purpose defined. A NGEP
allocates and uses funds for a specific
purpose if the NGEP receives and uses
the funds for a purpose that is more
specific and limited than the categories
listed in paragraph (d)(1)(iv) of this
section.
(3) Use of other reports. The annual
report filed by a NGEP may consist of
or incorporate a report prepared for any
other purpose, such as the Internal
Revenue Service Return of Organization
Exempt From Income Tax on Form 990,
or any other Internal Revenue Service
form, state tax form, report to members
or shareholders, audited or unaudited
financial statements, audit report, or
other report, so long as the annual
report filed by the NGEP contains all of
the information required by this
paragraph (d).
(4) Consolidated reports permitted. A
NGEP that is a party to 2 or more
covered agreements may file with each
relevant supervisory agency a single
consolidated annual report covering all
the covered agreements. Any
consolidated report must contain all the
information required by this paragraph
(d). The information reported under
paragraphs (d)(1)(iv) and (d)(2) of this
section may be reported on an aggregate
basis for all covered agreements.
(5) Examples of annual report
requirements for NGEPs—(i) Example 1.
A NGEP receives an unrestricted grant
of $15,000 under a covered agreement,
includes the funds in its general
operating budget and uses the funds
during its fiscal year. The NGEP’s
annual report for the fiscal year must
provide the name and mailing address
of the NGEP, information sufficient to
identify the covered agreement, and
state that the NGEP received $15,000
during the fiscal year. The report must
also indicate the total expenditures
made by the NGEP during the fiscal year
for compensation, administrative
expenses, travel expenses,
entertainment expenses, consulting and
professional fees, and other expenses
and uses. The NGEP’s annual report
may provide this information by
submitting an Internal Revenue Service
Form 990 that includes the required
information. If the Internal Revenue
Service Form does not include
information for all of the required
categories listed in this part, the NGEP
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must report the total expenditures in the
remaining categories either by providing
that information directly or by
providing another form or report that
includes the required information.
(ii) Example 2. An organization
receives $15,000 from an insured
depository institution under a covered
agreement and allocates and uses the
$15,000 during the fiscal year to
purchase computer equipment to
support its functions. The organization’s
annual report must include the name
and address of the organization,
information sufficient to identify the
agreement, and a statement that the
organization received $15,000 during
the year. In addition, since the
organization allocated and used the
funds for a specific purpose that is more
narrow and limited than the categories
of expenses included in the detailed,
itemized list of expenses, the
organization would have the option of
providing either the total amount it used
during the year for each category of
expenses included in paragraph
(d)(1)(iv) of this section, or a statement
that it used the $15,000 to purchase
computer equipment and a brief
description of the equipment purchased.
(iii) Example 3. A community group
receives $50,000 from an insured
depository institution under a covered
agreement. During its fiscal year, the
community group specifically allocates
and uses $5,000 of the funds to pay for
a particular business trip and uses the
remaining $45,000 for general operating
expenses. The group’s annual report for
the fiscal year must include the name
and address of the group, information
sufficient to identify the agreement, and
a statement that the group received
$50,000. Because the group did not
allocate and use all of the funds for a
specific purpose, the group’s annual
report must provide the total amount of
funds it used during the year for each
category of expenses included in
paragraph (d)(1)(iv) of this section. The
group’s annual report also could state
that it used $5,000 for a particular
business trip and include a brief
description of the trip.
(iv) Example 4. A community
development organization is a party to
two separate covered agreements with
two unaffiliated insured depository
institutions. Under each agreement, the
organization receives $15,000 during its
fiscal year and uses the funds to support
its activities during that year. If the
organization elects to file a consolidated
annual report, the consolidated report
must identify the organization and the
two covered agreements, state that the
organization received $15,000 during
the fiscal year under each agreement,
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and provide the total amount that the
organization used during the year for
each category of expenses included in
paragraph (d)(1)(iv) of this section.
(e) Annual report filed by insured
depository institution or affiliate—(1)
General. The annual report filed by an
insured depository institution or
affiliate must include the following—
(i) The name and principal place of
business of the insured depository
institution or affiliate filing the report;
(ii) Information sufficient to identify
the covered agreement for which the
annual report is being filed, such as by
providing the names of the parties to the
agreement and the date the agreement
was entered into or by providing a copy
of the agreement;
(iii) The aggregate amount of
payments, aggregate amount of fees, and
aggregate amount of loans provided by
the insured depository institution or
affiliate under the covered agreement to
any other party to the agreement during
the fiscal year;
(iv) The aggregate amount of
payments, aggregate amount of fees, and
aggregate amount of loans received by
the insured depository institution or
affiliate under the covered agreement
from any other party to the agreement
during the fiscal year;
(v) A general description of the terms
and conditions of any payments, fees, or
loans reported under paragraphs
(e)(1)(iii) and (iv) of this section, or, in
the event such terms and conditions are
set forth—
(A) In the covered agreement, a
statement identifying the covered
agreement and the date the agreement
(or a list identifying the agreement) was
filed with the relevant supervisory
agency; or
(B) In a previous annual report filed
by the insured depository institution or
affiliate, a statement identifying the date
the report was filed with the relevant
supervisory agency; and
(vi) The aggregate amount and
number of loans, aggregate amount and
number of investments, and aggregate
amount of services provided under the
covered agreement to any individual or
entity not a party to the agreement—
(A) By the insured depository
institution or affiliate during its fiscal
year; and
(B) By any other party to the
agreement, unless such information is
not known to the insured depository
institution or affiliate filing the report or
such information is or will be contained
in the annual report filed by another
party under this section.
(2) Consolidated reports permitted—
(i) Party to multiple agreements. An
insured depository institution or
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affiliate that is a party to 2 or more
covered agreements may file a single
consolidated annual report with each
relevant supervisory agency concerning
all the covered agreements.
(ii) Affiliated entities party to the
same agreement. An insured depository
institution and its affiliates that are
parties to the same covered agreement
may file a single consolidated annual
report relating to the agreement with
each relevant supervisory agency for the
covered agreement.
(iii) Content of report. Any
consolidated annual report must contain
all the information required by this
paragraph (e). The amounts and data
required to be reported under
paragraphs (e)(1)(iv) and (vi) of this
section may be reported on an aggregate
basis for all covered agreements.
(f) Time and place of filing—(1)
General. Each party must file its annual
report with each relevant supervisory
agency for the covered agreement no
later than six months following the end
of the fiscal year covered by the report.
(2) Alternative method of fulfilling
annual reporting requirement for a
NGEP. (i) A NGEP may fulfill the filing
requirements of this section by
providing the following materials to an
insured depository institution or
affiliate that is a party to the agreement
no later than six months following the
end of the NGEP’s fiscal year—
(A) A copy of the NGEP’s annual
report required under paragraph (d) of
this section for the fiscal year; and
(B) Written instructions that the
insured depository institution or
affiliate promptly forward the annual
report to the relevant supervisory
agency or agencies on behalf of the
NGEP.
(ii) An insured depository institution
or affiliate that receives an annual report
from a NGEP pursuant to paragraph
(f)(2)(i) of this section must file the
report with the relevant supervisory
agency or agencies on behalf of the
NGEP within 30 days.
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§ 390.167
FOIA.
Release of information under
FDIC will make covered agreements
and annual reports available to the
public in accordance with the Freedom
of Information Act (5 U.S.C. 552 et seq.)
and the FDIC’s rules (part 309). A party
to a covered agreement may request
confidential treatment of proprietary
and confidential information in a
covered agreement or an annual report
under those procedures.
§ 390.168
Compliance provisions.
(a) Willful failure to comply with
disclosure and reporting obligations. (1)
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If FDIC determines that a NGEP has
willfully failed to comply in a material
way with § 390.165 or § 390.166, FDIC
will notify the NGEP in writing of that
determination and provide the NGEP a
period of 90 days (or such longer period
as FDIC finds to be reasonable under the
circumstances) to comply.
(2) If the NGEP does not comply
within the time period established by
FDIC, the agreement shall thereafter be
unenforceable by that NGEP by
operation of section 48 of the Federal
Deposit Insurance Act (12 U.S.C.
1831y).
(3) FDIC may assist any insured
depository institution or affiliate that is
a party to a covered agreement that is
unenforceable by a NGEP by operation
of section 48 of the Federal Deposit
Insurance Act (12 U.S.C. 1831y) in
identifying a successor to assume the
NGEP’s responsibilities under the
agreement.
(b) Diversion of funds. If a court or
other body of competent jurisdiction
determines that funds or resources
received under a covered agreement
have been diverted contrary to the
purposes of the covered agreement for
an individual’s personal financial gain,
FDIC may take either or both of the
following actions—
(1) Order the individual to disgorge
the diverted funds or resources received
under the agreement;
(2) Prohibit the individual from being
a party to any covered agreement for a
period not to exceed 10 years.
(c) Notice and opportunity to respond.
Before making a determination under
paragraph (a)(1) of this section, or taking
any action under paragraph (b) of this
section, FDIC will provide written
notice and an opportunity to present
information to FDIC concerning any
relevant facts or circumstances relating
to the matter.
(d) Inadvertent or de minimis errors.
Inadvertent or de minimis errors in
annual reports or other documents filed
with FDIC under §§ 390.165 or 390.166
will not subject the reporting party to
any penalty.
(e) Enforcement of provisions in
covered agreements. No provision of
this subpart shall be construed as
authorizing FDIC to enforce the
provisions of any covered agreement.
§ 390.169
[Reserved].
§ 390.170 Other definitions and rules of
construction used in this subpart.
(a) Affiliate. Affiliate means—
(1) Any company that controls, is
controlled by, or is under common
control with another company; and
(2) For the purpose of determining
whether an agreement is a covered
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agreement under § 390.161, an affiliate
includes any company that would be
under common control or merged with
another company on consummation of
any transaction pending before a
Federal banking agency at the time—
(i) The parties enter into the
agreement; and
(ii) The NGEP that is a party to the
agreement makes a CRA
communication, as described in
§ 390.162.
(b) Control. Control is defined in
section 2(a) of the Bank Holding
Company Act (12 U.S.C. 1841(a)).
(c) CRA affiliate. A CRA affiliate of an
insured depository institution is any
company that is an affiliate of an
insured depository institution to the
extent, and only to the extent, that the
activities of the affiliate were considered
by the appropriate Federal banking
agency when evaluating the CRA
performance of the institution at its
most recent CRA examination prior to
the agreement. An insured depository
institution or affiliate also may
designate any company as a CRA
affiliate at any time prior to the time a
covered agreement is entered into by
informing the NGEP that is a party to
the agreement of such designation.
(d) CRA public file. CRA public file
means the public file maintained by an
insured depository institution and
described in 12 CFR 195.43.
(e) Executive officer. The term
executive officer has the same meaning
as in § 215.2(e)(1) of the Board of
Governors of the Federal Reserve’s
Regulation O (12 CFR 215.2(e)(1)). In
applying this definition under this
subpart, the term State savings
association shall be used in place of the
term bank.
(f) Federal banking agency;
appropriate Federal banking agency.
The terms Federal banking agency and
appropriate Federal banking agency
have the same meanings as in section 3
of the Federal Deposit Insurance Act (12
U.S.C. 1813).
(g) Fiscal year. (1) The fiscal year for
a NGEP that does not have a fiscal year
shall be the calendar year.
(2) Any NGEP, insured depository
institution, or affiliate that has a fiscal
year may elect to have the calendar year
be its fiscal year for purposes of this
part.
(h) Insured depository institution.
Insured depository institution has the
same meaning as in section 3 of the
Federal Deposit Insurance Act (12
U.S.C. 1813).
(i) Nongovernmental entity or person
or NGEP—(1) General. A
nongovernmental entity or person or
NGEP is any partnership, association,
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trust, joint venture, joint stock company,
corporation, limited liability
corporation, company, firm, society,
other organization, or individual.
(2) Exclusions. A nongovernmental
entity or person does not include—
(i) The United States government, a
state government, a unit of local
government (including a county, city,
town, township, parish, village, or other
general-purpose subdivision of a state)
or an Indian tribe or tribal organization
established under Federal, state or
Indian tribal law (including the
Department of Hawaiian Home Lands),
or a department, agency, or
instrumentality of any such entity;
(ii) A federally-chartered public
corporation that receives Federal funds
appropriated specifically for that
corporation;
(iii) An insured depository institution
or affiliate of an insured depository
institution; or
(iv) An officer, director, employee, or
representative (acting in his or her
capacity as an officer, director,
employee, or representative) of an entity
listed in paragraphs (i)(2)(i), (ii), or (iii)
of this section.
(j) Party. The term party with respect
to a covered agreement means each
NGEP and each insured depository
institution or affiliate that entered into
the agreement.
(k) Relevant supervisory agency. The
relevant supervisory agency for a
covered agreement means the
appropriate Federal banking agency
for—
(1) Each insured depository
institution (or subsidiary thereof) that is
a party to the covered agreement;
(2) Each insured depository
institution (or subsidiary thereof) or
CRA affiliate that makes payments or
loans or provides services that are
subject to the covered agreement; and
(3) Any company (other than an
insured depository institution or
subsidiary thereof) that is a party to the
covered agreement.
(l) Term of agreement. An agreement
that does not have a fixed termination
date is considered to terminate on the
last date on which any party to the
agreement makes any payment or
provides any loan or other resources
under the agreement, unless the relevant
supervisory agency for the agreement
otherwise notifies each party in writing.
Subpart I—Consumer Protection in
Sales of Insurance
§ 390.180
Purpose and scope.
(a) General rule. This subpart
establishes consumer protections in
connection with retail sales practices,
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solicitations, advertising, or offers of
any insurance product or annuity to a
consumer by:
(1) Any State savings association, as
defined in section 3 of the Federal
Deposit Insurance Act (FDIA), (12
U.S.C. 1813(b)); or
(2) Any other person that is engaged
in such activities at an office of a State
savings association or on behalf of a
State savings association.
(b) Application to subsidiaries. A
subsidiary is subject to this subpart only
to the extent that it sells, solicits,
advertises, or offers insurance products
or annuities at an office of a State
savings association or on behalf of a
State savings association.
§ 390.181
Definitions.
As used in this subpart:
Affiliate means a company that
controls, is controlled by, or is under
common control with another company.
Company means any corporation,
partnership, business trust, association
or similar organization, or any other
trust (unless by its terms the trust must
terminate within twenty-five years or
not later than twenty-one years and ten
months after the death of individuals
living on the effective date of the trust).
It does not include any corporation the
majority of the shares of which are
owned by the United States or by any
State, or a qualified family partnership,
as defined in section 2(o)(10) of the
Bank Holding Company Act of 1956, as
amended (12 U.S.C. 1841(o)(10)).
Consumer means an individual who
purchases, applies to purchase, or is
solicited to purchase from a covered
person insurance products or annuities
primarily for personal, family, or
household purposes.
Control of a company has the same
meaning as in section 3(w)(5) of the
FDIA, (12 U.S.C. 1813(w)(5)).
Domestic violence means the
occurrence of one or more of the
following acts by a current or former
family member, household member,
intimate partner, or caretaker:
(1) Attempting to cause or causing or
threatening another person physical
harm, severe emotional distress,
psychological trauma, rape, or sexual
assault;
(2) Engaging in a course of conduct or
repeatedly committing acts toward
another person, including following the
person without proper authority, under
circumstances that place the person in
reasonable fear of bodily injury or
physical harm;
(3) Subjecting another person to false
imprisonment; or
(4) Attempting to cause or causing
damage to property so as to intimidate
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47703
or attempt to control the behavior of
another person.
Electronic media includes any means
for transmitting messages electronically
between a covered person and a
consumer in a format that allows visual
text to be displayed on equipment, for
example, a personal computer monitor.
Office means the premises of a State
savings association where retail deposits
are accepted from the public.
Subsidiary has the same meaning as
in section 3(w)(4) of the FDIA, (12
U.S.C. 1813(w)(4)).
You means:
(1) A State savings association, as
defined in § 390.308; or
(2) Any other person only when the
person sells, solicits, advertises, or
offers an insurance product or annuity
to a consumer at an office of a State
savings association, or on behalf of a
State savings association. For purposes
of this definition, activities on behalf of
a State savings association include
activities where a person, whether at an
office of the State savings association or
at another location, sells, solicits,
advertises, or offers an insurance
product or annuity and at least one of
the following applies:
(i) The person represents to a
consumer that the sale, solicitation,
advertisement, or offer of any insurance
product or annuity is by or on behalf of
the State savings association;
(ii) The State savings association
refers a consumer to a seller of
insurance products and annuities and
the State savings association has a
contractual arrangement to receive
commissions or fees derived from a sale
of an insurance product or annuity
resulting from that referral; or
(iii) Documents evidencing the sale,
solicitation, advertising, or offer of an
insurance product or annuity identify or
refer to the State savings association.
§ 390.182
Prohibited practices.
(a) Anti-coercion and anti-tying rules.
You may not engage in any practice that
would lead a consumer to believe that
an extension of credit, in violation of
section 5(q) of the Home Owners’ Loan
Act (12 U.S.C. 1464(q)), is conditional
upon either:
(1) The purchase of an insurance
product or annuity from a State savings
association or any of its affiliates; or
(2) An agreement by the consumer not
to obtain, or a prohibition on the
consumer from obtaining, an insurance
product or annuity from an unaffiliated
entity.
(b) Prohibition on misrepresentations
generally. You may not engage in any
practice or use any advertisement at any
office of, or on behalf of, a State savings
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association or a subsidiary of a State
savings association that could mislead
any person or otherwise cause a
reasonable person to reach an erroneous
belief with respect to:
(1) The fact that an insurance product
or annuity you or any subsidiary of a
State savings association sell or offer for
sale is not backed by the Federal
government or a State savings
association, or the fact that the
insurance product or annuity is not
insured by the Federal Deposit
Insurance Corporation;
(2) In the case of an insurance product
or annuity that involves investment risk,
the fact that there is an investment risk,
including the potential that principal
may be lost and that the product may
decline in value; or
(3) In the case of a State savings
association or subsidiary of a State
savings association at which insurance
products or annuities are sold or offered
for sale, the fact that:
(i) The approval of an extension of
credit to a consumer by the State
savings association or subsidiary may
not be conditioned on the purchase of
an insurance product or annuity by the
consumer from the State savings
association or a subsidiary of a State
savings association; and
(ii) The consumer is free to purchase
the insurance product or annuity from
another source.
(c) Prohibition on domestic violence
discrimination. You may not sell or
offer for sale, as principal, agent, or
broker, any life or health insurance
product if the status of the applicant or
insured as a victim of domestic violence
or as a provider of services to victims of
domestic violence is considered as a
criterion in any decision with regard to
insurance underwriting, pricing,
renewal, or scope of coverage of such
product, or with regard to the payment
of insurance claims on such product,
except as required or expressly
permitted under State law.
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§ 390.183
What you must disclose.
(a) Insurance disclosures. In
connection with the initial purchase of
an insurance product or annuity by a
consumer from you, you must disclose
to the consumer, except to the extent the
disclosure would not be accurate, that:
(1) The insurance product or annuity
is not a deposit or other obligation of,
or guaranteed by, a State savings
association or an affiliate of a State
savings association;
(2) The insurance product or annuity
is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any
other agency of the United States, a
State savings association, or (if
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applicable) an affiliate of a State savings
association; and
(3) In the case of an insurance product
or annuity that involves an investment
risk, there is investment risk associated
with the product, including the possible
loss of value.
(b) Credit disclosures. In the case of
an application for credit in connection
with which an insurance product or
annuity is solicited, offered, or sold, you
must disclose that a State savings
association may not condition an
extension of credit on either:
(1) The consumer’s purchase of an
insurance product or annuity from the
State savings association or any of its
affiliates; or
(2) The consumer’s agreement not to
obtain, or a prohibition on the consumer
from obtaining, an insurance product or
annuity from an unaffiliated entity.
(c) Timing and method of
disclosures—(1) In general. The
disclosures required by paragraph (a) of
this section must be provided orally and
in writing before the completion of the
initial sale of an insurance product or
annuity to a consumer. The disclosure
required by paragraph (b) of this section
must be made orally and in writing at
the time the consumer applies for an
extension of credit in connection with
which an insurance product or annuity
is solicited, offered, or sold.
(2) Exception for transactions by mail.
If you conduct an insurance product or
annuity sale by mail, you are not
required to make the oral disclosures
required by paragraph (a) of this section.
If you take an application for credit by
mail, you are not required to make the
oral disclosure required by paragraph
(b) of this section.
(3) Exception for transactions by
telephone. If a sale of an insurance
product or annuity is conducted by
telephone, you may provide the written
disclosures required by paragraph (a) of
this section by mail within 3 business
days beginning on the first business day
after the sale, solicitation, or offer,
excluding Sundays and the legal public
holidays specified in 5 U.S.C. 6103(a). If
you take an application for credit by
telephone, you may provide the written
disclosure required by paragraph (b) of
this section by mail, provided you mail
it to the consumer within three days
beginning the first business day after the
application is taken, excluding Sundays
and the legal public holidays specified
in 5 U.S.C. 6103(a).
(4) Electronic form of disclosures. (i)
Subject to the requirements of section
101(c) of the Electronic Signatures in
Global and National Commerce Act (12
U.S.C. 7001(c)), you may provide the
written disclosures required by
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paragraph (a) and (b) of this section
through electronic media instead of on
paper, if the consumer affirmatively
consents to receiving the disclosures
electronically and if the disclosures are
provided in a format that the consumer
may retain or obtain later, for example,
by printing or storing electronically
(such as by downloading).
(ii) You are not required to provide
orally any disclosures required by
paragraphs (a) or (b) of this section that
you provide by electronic media.
(5) Disclosures must be readily
understandable. The disclosures
provided shall be conspicuous, simple,
direct, readily understandable, and
designed to call attention to the nature
and significance of the information
provided. For instance, you may use the
following disclosures in visual media,
such as television broadcasting, ATM
screens, billboards, signs, posters and
written advertisements and promotional
materials, as appropriate and consistent
with paragraphs (a) and (b) of this
section:
• NOT A DEPOSIT
• NOT FDIC-INSURED
• NOT INSURED BY ANY FEDERAL
GOVERNMENT AGENCY
• NOT GUARANTEED BY THE
STATE SAVINGS ASSOCIATION
• MAY GO DOWN IN VALUE
(6) Disclosures must be meaningful.
(i) You must provide the disclosures
required by paragraphs (a) and (b) of
this section in a meaningful form.
Examples of the types of methods that
could call attention to the nature and
significance of the information provided
include:
(A) A plain-language heading to call
attention to the disclosures;
(B) A typeface and type size that are
easy to read;
(C) Wide margins and ample line
spacing;
(D) Boldface or italics for key words;
and
(E) Distinctive type size, style, and
graphic devices, such as shading or
sidebars, when the disclosures are
combined with other information.
(ii) You have not provided the
disclosures in a meaningful form if you
merely state to the consumer that the
required disclosures are available in
printed material, but do not provide the
printed material when required and do
not orally disclose the information to
the consumer when required.
(iii) With respect to those disclosures
made through electronic media for
which paper or oral disclosures are not
required, the disclosures are not
meaningfully provided if the consumer
may bypass the visual text of the
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depend on whether the referral results
in a transaction.
§ 390.184 Where insurance activities may
take place.
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disclosures before purchasing an
insurance product or annuity.
(7) Consumer acknowledgment. You
must obtain from the consumer, at the
time a consumer receives the
disclosures required under paragraphs
(a) or (b) of this section, or at the time
of the initial purchase by the consumer
of an insurance product or annuity, a
written acknowledgment by the
consumer that the consumer received
the disclosures. You may permit a
consumer to acknowledge receipt of the
disclosures electronically or in paper
form. If the disclosures required under
paragraphs (a) or (b) of this section are
provided in connection with a
transaction that is conducted by
telephone, you must:
(i) Obtain an oral acknowledgment of
receipt of the disclosures and maintain
sufficient documentation to show that
the acknowledgment was given; and
(ii) Make reasonable efforts to obtain
a written acknowledgment from the
consumer.
(d) Advertisements and other
promotional material for insurance
products or annuities. The disclosures
described in paragraph (a) of this
section are required in advertisements
and promotional material for insurance
products or annuities unless the
advertisements and promotional
material are of a general nature
describing or listing the services or
products offered by a State savings
association.
A State savings association must
conduct its fiduciary operations in
accordance with applicable State law,
and must exercise its fiduciary powers
in a safe and sound manner.
(a) General rule. A State savings
association must, to the extent
practicable:
(1) Keep the area where the State
savings association conducts
transactions involving insurance
products or annuities physically
segregated from areas where retail
deposits are routinely accepted from the
general public;
(2) Identify the areas where insurance
product or annuity sales activities
occur; and
(3) Clearly delineate and distinguish
those areas from the areas where the
State savings association’s retail
deposit-taking activities occur.
(b) Referrals. Any person who accepts
deposits from the public in an area
where such transactions are routinely
conducted in a State savings association
may refer a consumer who seeks to
purchase an insurance product or
annuity to a qualified person who sells
that product only if the person making
the referral receives no more than a onetime, nominal fee of a fixed dollar
amount for each referral that does not
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§ 390.185 Qualification and licensing
requirements for insurance sales
personnel.
A State savings association may not
permit any person to sell or offer for sale
any insurance product or annuity in any
part of the State savings association’s
office or on its behalf, unless the person
is at all times appropriately qualified
and licensed under applicable State
insurance licensing standards with
regard to the specific products being
sold or recommended.
Appendix A to Subpart I of Part 390—
Consumer Grievance Process
Any consumer who believes that any State
savings association or any other person
selling, soliciting, advertising, or offering
insurance products or annuities to the
consumer at an office of the State savings
association or on behalf of the State savings
association has violated the requirements of
this subpart should contact the FDIC at the
following address: Federal Deposit Insurance
Corporation, Consumer Response Center,
1100 Walnut St, Box #11, Kansas City, MO
64106, or telephone 1–877–275–3342
(1–877–ASK FDIC), or e-mail https://
www.fdic.gov/consumers/consumer/ccc/
contact.html.
Subpart J—Fiduciary Powers of State
Savings Associations
§ 390.190 What regulations govern the
fiduciary operations of State savings
associations?
Subpart K—Recordkeeping and
Confirmation Requirements for
Securities Transactions
§ 390.200
What does this subpart do?
This subpart establishes
recordkeeping and confirmation
requirements that apply when a State
savings association (‘‘you’’) effects
certain securities transactions for
customers.
§ 390.201
Must I comply with this subpart?
(a) General. Except as provided under
paragraph (b) of this section, you must
comply with this subpart when:
(1) You effect a securities transaction
for a customer.
(2) You effect a transaction in
government securities.
(3) You effect a transaction in
municipal securities and are not
registered as a municipal securities
dealer with the SEC.
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(4) You effect a securities transaction
as fiduciary. If you are a State savings
association, you must comply with
applicable law when you effect such a
transaction.
(b) Exceptions—(1) Small number of
transactions. You are not required to
comply with § 390.204(b) through (d)
(recordkeeping) and § 390.213(a)
through (c) (policies and procedures), if
you effected an average of fewer than
500 securities transactions per year for
customers over the three prior calendar
years. You may exclude transactions in
government securities when you
calculate this average.
(2) Government securities. If you
effect fewer than 500 government
securities brokerage transactions per
year, you are not required to comply
with § 390.204 (recordkeeping) for those
transactions. This exception does not
apply to government securities dealer
transactions. See 17 CFR 404.4(a).
(3) Municipal securities. If you are
registered with the SEC as a ‘‘municipal
securities dealer,’’ as defined in 15
U.S.C. 78c(a)(30) (see 15 U.S.C. 78o–4),
you are not required to comply with this
subpart when you conduct municipal
securities transactions.
(4) Foreign branches. You are not
required to comply with this subpart
when you conduct a transaction at your
foreign branch.
(5) Transactions by registered brokerdealers. You are not required to comply
with this subpart for securities
transactions effected by a registered
broker-dealer, if the registered brokerdealer directly provides the customer
with a confirmation. These transactions
include a transaction effected by your
employee who also acts as an employee
of a registered broker-dealer (‘‘dual
employee’’).
§ 390.202 What requirements apply to all
transactions?
You must effect all transactions,
including transactions excepted under
§ 390.201, in a safe and sound manner.
You must maintain effective systems of
records and controls regarding your
customers’ securities transactions.
These systems must clearly and
accurately reflect all appropriate
information and provide an adequate
basis for an audit.
§ 390.203
subpart?
What definitions apply to this
Asset-backed security means a
security that is primarily serviced by the
cash flows of a discrete pool of
receivables or other financial assets,
either fixed or revolving, that by their
terms convert into cash within a finite
time period. Asset-backed security
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includes any rights or other assets
designed to ensure the servicing or
timely distribution of proceeds to the
security holders.
Common or collective investment
fund means with respect to a fiduciary
account, a fund established and
administered by you in compliance with
12 CFR 9.18 or any fund established
under 12 CFR 9.18.
Completion of the transaction means:
(1) If the customer purchases a
security through or from you, except as
provided in paragraph (2) of this
definition, the time the customer pays
you any part of the purchase price. If
payment is made by a bookkeeping
entry, the time you make the
bookkeeping entry for any part of the
purchase price.
(2) If the customer purchases a
security through or from you and pays
for the security before you request
payment or notify the customer that
payment is due, the time you deliver the
security to or into the account of the
customer.
(3) If the customer sells a security
through or to you, except as provided in
paragraph (4) of this definition, the time
the customer delivers the security to
you. If you have custody of the security
at the time of sale, the time you transfer
the security from the customer’s
account.
(4) If the customer sells a security
through or to you and delivers the
security to you before you request
delivery or notify the customer that
delivery is due, the time you pay the
customer or pay into the customer’s
account.
Customer means a person or account,
including an agency, trust, estate,
guardianship, or other fiduciary account
for which you effect a securities
transaction. Customer does not include
a broker or dealer, or you when you: act
as a broker or dealer; act as a fiduciary
with investment discretion over an
account; are a trustee that acts as the
shareholder of record for the purchase
or sale of securities; or are the issuer of
securities that are the subject of the
transaction.
Debt security means any security,
such as a bond, debenture, note, or any
other similar instrument that evidences
a liability of the issuer (including any
security of this type that is convertible
into stock or a similar security). Debt
security also includes a fractional or
participation interest in these debt
securities. Debt security does not
include securities issued by an
investment company registered under
the Investment Company Act of 1940,
15 U.S.C. 80a–1, et seq.
Government security means:
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(1) A security that is a direct
obligation of, or an obligation that is
guaranteed as to principal and interest
by, the United States;
(2) A security that is issued or
guaranteed by a corporation in which
the United States has a direct or indirect
interest if the Secretary of the Treasury
has designated the security for
exemption as necessary or appropriate
in the public interest or for the
protection of investors;
(3) A security issued or guaranteed as
to principal and interest by a
corporation if a statute specifically
designates, by name, the corporation’s
securities as exempt securities within
the meaning of the laws administered by
the SEC; or
(4) Any put, call, straddle, option, or
privilege on a government security
described in this definition, other than
a put, call, straddle, option, or privilege:
(i) That is traded on one or more
national securities exchanges; or
(ii) For which quotations are
disseminated through an automated
quotation system operated by a
registered securities association.
Investment discretion means with
respect to a fiduciary account, the sole
or shared authority to determine what
securities or other assets to purchase or
sell on behalf of the account, regardless
of whether this authority has been
exercised.
Investment company plan means any
plan under which:
(1) A customer purchases securities
issued by an open-end investment
company or unit investment trust
registered under the Investment
Company Act of 1940, making the
payments directly to, or made payable
to, the registered investment company,
or the principal underwriter, custodian,
trustee, or other designated agent of the
registered investment company; or
(2) A customer sells securities issued
by an open-end investment company or
unit investment trust registered under
the Investment Company Act of 1940
under:
(i) An individual retirement or
individual pension plan qualified under
the Internal Revenue Code; or
(ii) A contractual or systematic
agreement under which the customer
purchases at the applicable public
offering price, or redeems at the
applicable redemption price, securities
in specified amounts (calculated in
security units or dollars) at specified
time intervals, and stating the
commissions or charges (or the means of
calculating them) that the customer will
pay in connection with the purchase.
Municipal security means:
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(1) A security that is a direct
obligation of, or an obligation
guaranteed as to principal or interest by,
a State or any political subdivision, or
any agency or instrumentality of a State
or any political subdivision.
(2) A security that is a direct
obligation of, or an obligation
guaranteed as to principal or interest by,
any municipal corporate instrumentality
of one or more States; or
(3) A security that is an industrial
development bond, the interest on
which is excludable from gross income
under section 103(a) of the Code (26
U.S.C. 103(a)).
Periodic plan means a written
document that authorizes you to act as
agent to purchase or sell for a customer
a specific security or securities (other
than securities issued by an open end
investment company or unit investment
trust registered under the Investment
Company Act of 1940). The written
document must authorize you to
purchase or sell in specific amounts
(calculated in security units or dollars)
or to the extent of dividends and funds
available, at specific time intervals, and
must set forth the commission or
charges to be paid by the customer or
the manner of calculating them.
SEC means the Securities and
Exchange Commission.
Security means any note, stock,
treasury stock, bond, debenture,
certificate of interest or participation in
any profit-sharing agreement or in any
oil, gas, or other mineral royalty or
lease, any collateral-trust certificate,
preorganization certificate or
subscription, transferable share,
investment contract, voting-trust
certificate, and any put, call, straddle,
option, or privilege on any security or
group or index of securities (including
any interest therein or based on the
value thereof), or, in general, any
instrument commonly known as a
‘‘security’’; or any certificate of interest
or participation in, temporary or interim
certificate for, receipt for, or warrant or
right to subscribe to or purchase, any of
the foregoing. Security does not include
currency; any note, draft, bill of
exchange, or banker’s acceptance which
has a maturity at the time of issuance of
less than nine months, exclusive of days
of grace, or any renewal thereof, the
maturity of which is likewise limited; a
deposit or share account in a Federal or
State chartered depository institution; a
loan participation; a letter of credit or
other form of bank indebtedness
incurred in the ordinary course of
business; units of a collective
investment fund; interests in a variable
amount (master) note of a borrower of
prime credit; U.S. Savings Bonds; or any
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other instrument FDIC determines does
not constitute a security for purposes of
this subpart.
Sweep account means any
prearranged, automatic transfer or
sweep of funds above a certain dollar
level from a deposit account to purchase
a security or securities, or any
prearranged, automatic redemption or
sale of a security or securities when a
deposit account drops below a certain
level with the proceeds being
transferred into a deposit account.
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§ 390.204 What records must I maintain for
securities transactions?
If you effect securities transactions for
customers, you must maintain all of the
following records for at least three years:
(a) Chronological records. You must
maintain an itemized daily record of
each purchase and sale of securities in
chronological order, including:
(1) The account or customer name for
which you effected each transaction;
(2) The name and amount of the
securities;
(3) The unit and aggregate purchase or
sale price;
(4) The trade date; and
(5) The name or other designation of
the registered broker-dealer or other
person from whom you purchased the
securities or to whom you sold the
securities.
(b) Account records. You must
maintain account records for each
customer reflecting:
(1) Purchases and sales of securities;
(2) Receipts and deliveries of
securities;
(3) Receipts and disbursements of
cash; and
(4) Other debits and credits pertaining
to transactions in securities.
(c) Memorandum (order ticket). You
must make and keep current a
memorandum (order ticket) of each
order or any other instruction given or
received for the purchase or sale of
securities (whether executed or not),
including:
(1) The account or customer name for
which you effected each transaction;
(2) Whether the transaction was a
market order, limit order, or subject to
special instructions;
(3) The time the trader received the
order;
(4) The time the trader placed the
order with the registered broker-dealer,
or if there was no registered brokerdealer, the time the trader executed or
cancelled the order;
(5) The price at which the trader
executed the order;
(6) The name of the registered brokerdealer you used.
(d) Record of registered brokerdealers. You must maintain a record of
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all registered broker-dealers that you
selected to effect securities transactions
and the amount of commissions that
you paid or allocated to each registered
broker-dealer during each calendar year.
(e) Notices. You must maintain a copy
of the written notice required under
sections 390.206–390.211.
§ 390.205
records?
How must I maintain my
(a) You may maintain the records
required under § 390.204 in any
manner, form, or format that you deem
appropriate. However, your records
must clearly and accurately reflect the
required information and provide an
adequate basis for an audit of the
information.
(b) You, or the person that maintains
and preserves records on your behalf,
must:
(1) Arrange and index the records in
a way that permits easy location, access,
and retrieval of a particular record;
(2) Separately store, for the time
required for preservation of the original
record, a duplicate copy of the record on
any medium allowed by this section;
(3) Provide promptly any of the
following that FDIC examiners or your
directors may request:
(i) A legible, true, and complete copy
of the record in the medium and format
in which it is stored;
(ii) A legible, true, and complete
printout of the record; and
(iii) Means to access, view, and print
the records.
(4) In the case of records on electronic
storage media, you, or the person that
maintains and preserves records for you,
must establish procedures:
(i) To maintain, preserve, and
reasonably safeguard the records from
loss, alteration, or destruction;
(ii) To limit access to the records to
properly authorized personnel, your
directors, and FDIC examiners; and
(iii) To reasonably ensure that any
reproduction of a non-electronic
original record on electronic storage
media is complete, true, and legible
when retrieved.
(c) You may contract with third party
service providers to maintain the
records.
§ 390.206 What type of notice must I
provide when I effect a securities
transaction for a customer?
If you effect a securities transaction
for a customer, you must give or send
the customer the registered brokerdealer confirmation described at
§ 390.207, or the written notice
described at § 390.208. For certain types
of transactions, you may elect to provide
the alternate notices described in
§ 390.209.
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§ 390.207 How do I provide a registered
broker-dealer confirmation?
(a) If you elect to satisfy § 390.206 by
providing the customer with a registered
broker-dealer confirmation, you must
provide the confirmation by having the
registered broker-dealer send the
confirmation directly to the customer or
by sending a copy of the registered
broker-dealer’s confirmation to the
customer within one business day after
you receive it.
(b) If you have received or will receive
remuneration from any source,
including the customer, in connection
with the transaction, you must provide
a statement of the source and amount of
the remuneration in addition to the
registered broker-dealer confirmation
described in paragraph (a) of this
section.
§ 390.208
notice?
How do I provide a written
If you elect to satisfy § 390.206 by
providing the customer a written notice,
you must give or send the written notice
at or before the completion of the
securities transaction. You must include
all of the following information in a
written notice:
(a) Your name and the customer’s
name.
(b) The capacity in which you acted
(for example, as agent).
(c) The date and time of execution of
the securities transaction (or a statement
that you will furnish this information
within a reasonable time after the
customer’s written request), and the
identity, price, and number of shares or
units (or principal amount in the case of
debt securities) of the security the
customer purchased or sold.
(d) The name of the person from
whom you purchased or to whom you
sold the security, or a statement that you
will furnish this information within a
reasonable time after the customer’s
written request.
(e) The amount of any remuneration
that you have received or will receive
from the customer in connection with
the transaction unless the remuneration
paid by the customer is determined
under a written agreement, other than
on a transaction basis.
(f) The source and amount of any
other remuneration you have received
or will receive in connection with the
transaction. If, in the case of a purchase,
you were not participating in a
distribution, or in the case of a sale,
were not participating in a tender offer,
the written notice may state whether
you have or will receive any other
remuneration and state that you will
furnish the source and amount of the
other remuneration within a reasonable
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time after the customer’s written
request.
(g) That you are not a member of the
Securities Investor Protection
Corporation, if that is the case. This
does not apply to a transaction in shares
of a registered open-end investment
company or unit investment trust if the
customer sends funds or securities
directly to, or receives funds or
securities directly from, the registered
open-end investment company or unit
investment trust, its transfer agent, its
custodian, or a designated broker or
dealer who sends the customer either a
confirmation or the written notice in
this section.
(h) Additional disclosures. You must
provide all of the additional disclosures
described in the following chart for
transactions involving certain debt
securities:
If you effect a transaction involving . . .
You must provide the following additional information in your written
notice . . .
(1) A debt security subject to redemption before maturity .......................
A statement that the issuer may redeem the debt security in whole or
in part before maturity, that the redemption could affect the represented yield, and that additional redemption information is available upon request.
(i) The dollar price at which you effected the transaction; and
(ii) The yield to maturity calculated from the dollar price. You do not
have to disclose the yield to maturity if:
(A) The issuer may extend the maturity date of the security with a
variable interest rate; or
(B) The security is an asset-backed security that represents an interest in, or is secured by, a pool of receivables or other financial assets that are subject continuously to prepayment.
(i) The yield at which the transaction, including the percentage amount
and its characterization (e.g., current yield, yield to maturity, or yield
to call). If you effected the transaction at yield to call, you must indicate the type of call, the call date, and the call price;
(ii) The dollar price calculated from that yield; and
(iii) The yield to maturity and the represented yield, if you effected the
transaction on a basis other than yield to maturity and the yield to
maturity is lower than the represented yield. You are not required to
disclose this information if:
(A) The issuer may extend the maturity date of the security with a
variable interest rate; or
(B) The security is an asset-backed security that represents an interest in, or is secured by, a pool of receivables or other financial assets that are subject continuously to prepayment.
(i) A statement that the actual yield of the asset-backed security may
vary according to the rate at which the underlying receivables or
other financial assets are prepaid; and
(ii) A statement that you will furnish information concerning the factors
that affect yield (including at a minimum estimated yield, weighted
average life, and the prepayment assumptions underlying yield) upon
the customer’s written request.
A statement that the security is unrated by a nationally recognized statistical rating organization, if that is the case.
(2) A debt security that you effected exclusively on the basis of a dollar
price.
(3) A debt security that you effected on basis of yield ............................
(4) A debt security that is an asset-backed security that represents an
interest in, or is secured by, a pool of receivables or other financial
assets that are subject continuously to prepayment.
(5) A debt security, other than a government security ............................
§ 390.209 What are the alternate notice
requirements?
described in the following chart for
certain types of transactions.
You may elect to satisfy § 390.206 by
providing the alternate notices
Then you may elect to . . .
(a) For or with the account of a customer under a periodic plan, sweep
account, or investment company plan.
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If you effect a securities transaction . . .
Give or send to the customer within five business days after the end of
each quarterly period a written statement disclosing:
(1) Each purchase and redemption that you effected for or with,
and each dividend or distribution that you credited to or reinvested for, the customer’s account during the period;
(2) The date of each transaction;
(3) The identity, number, and price of any securities that the customer purchased or redeemed in each transaction;
(4) The total number of shares of the securities in the customer’s
account;
(5) Any remuneration that you received or will receive in connection with the transaction; and
(6) That you will give or send the registered broker-dealer confirmation described in § 390.207 or the written notice described
in § 390.208 within a reasonable time after the customer’s written request.
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47709
If you effect a securities transaction . . .
Then you may elect to . . .
(b) For or with the account of a customer in shares of an open-ended
management company registered under the Investment Company
Act of 1940 that holds itself out as a money market fund and attempts to maintain a stable net asset value per share.
(c) For an account for which you do not exercise investment discretion,
and for which you and the customer have agreed in writing to an arrangement concerning the time and content of the written notice.
Give or send to the customer the written statement described at paragraph (a) of this section on a monthly basis. You may not use the alternate notice, however, if you deduct sales loads upon the purchase
or redemption of shares in the money market fund.
Give or send to the customer a written notice at the agreed-upon time
and with the agreed-upon content, and include a statement that you
will furnish the registered broker-dealer confirmation described in
§ 390.207 or the written notice described in § 390.208 within a reasonable time after the customer’s written request.
Give or send the registered broker-dealer confirmation described in
§ 390.207 or the written notice described in § 390.208 within a reasonable time after a written request by the person with the power to
terminate the account or, if there is no such person, any person
holding a vested beneficial interest in the account.
Give or send each customer a written itemized statement specifying
the funds and securities in your custody or possession and all debits,
credits, and transactions in the customer’s account. You must provide this information to the customer not less than once every three
months. You must give or send the registered broker-dealer confirmation described in § 390.207 or the written notice described in
§ 390.208 within a reasonable time after a customer’s written request.
(1) Give or send to a customer who invests in the fund a copy of the
annual financial report of the fund, or
(2) Notify the customer that a copy of the report is available and that
you will furnish the report within a reasonable time after a written request by a person to whom a regular periodic accounting would ordinarily be rendered with respect to each participating account.
(d) For an account for which you exercise investment discretion other
than in an agency capacity, excluding common or collective investment funds.
(e) For an account in which you exercise investment discretion in an
agency capacity.
(f) For a common or collective investment fund ......................................
§ 390.210 May I provide a notice
electronically?
You may provide any written notice
required under §§ 390.206 through
390.211 electronically. If a customer has
a facsimile machine, you may send the
notice by facsimile transmission. You
may use other electronic
communications if:
(a) The parties agree to use electronic
instead of hard copy notices;
(b) The parties are able to print or
download the notice;
(c) Your electronic communications
system cannot automatically delete the
electronic notice; and
(d) Both parties are able to receive
electronic messages.
§ 390.211
May I charge a fee for a notice?
You may not charge a fee for
providing a notice required under
§§ 390.206 through 390.211, except that
you may charge a reasonable fee for the
notices provided under § 390.209(a), (d),
and (e).
mstockstill on DSK4VPTVN1PROD with RULES2
§ 390.212 When must I settle a securities
transaction?
(a) You may not effect or enter into a
contract for the purchase or sale of a
security that provides for payment of
funds and delivery of securities later
than the latest of:
(1) The third business day after the
date of the contract. This deadline is no
later than the fourth business day after
the contract for contracts involving the
sale for cash of securities that are priced
after 4:30 p.m. Eastern Standard Time
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on the date the securities are priced and
are sold by an issuer to an underwriter
under a firm commitment underwritten
offering registered under the Securities
Act of 1933, 15 U.S.C. 77a, et seq., or are
sold by you to an initial purchaser
participating in the offering;
(2) Such other time as the SEC
specifies by rule (see SEC Rule 15c6–1,
17 CFR 240.15c6–1); or
(3) Such time as the parties expressly
agree at the time of the transaction. The
parties to a contract are deemed to have
expressly agreed to an alternate date for
payment of funds and delivery of
securities at the time of the transaction
for a contract for the sale for cash of
securities under a firm commitment
offering, if the managing underwriter
and the issuer have agreed to the date
for all securities sold under the offering
and the parties to the contract have not
expressly agreed to another date for
payment of funds and delivery of
securities at the time of the transaction.
(b) The deadlines in paragraph (a) of
this section do not apply to the
purchase or sale of limited partnership
interests that are not listed on an
exchange or for which quotations are
not disseminated through an automated
quotation system of a registered
securities association.
§ 390.213 What policies and procedures
must I maintain and follow for securities
transactions?
If you effect securities transactions for
customers, you must maintain and
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follow policies and procedures that
meet all of the following requirements:
(a) Your policies and procedures must
assign responsibility for the supervision
of all officers or employees who:
(1) Transmit orders to, or place orders
with, registered broker-dealers;
(2) Execute transactions in securities
for customers; or
(3) Process orders for notice or
settlement purposes, or perform other
back office functions for securities
transactions that you effect for
customers. Policies and procedures for
personnel described in this paragraph
(a)(3) must provide supervision and
reporting lines that are separate from
supervision and reporting lines for
personnel described in paragraphs (a)(1)
and (2) of this section.
(b) Your policies and procedures must
provide for the fair and equitable
allocation of securities and prices to
accounts when you receive orders for
the same security at approximately the
same time and you place the orders for
execution either individually or in
combination.
(c) Your policies and procedures must
provide for securities transactions in
which you act as agent for the buyer and
seller (crossing of buy and sell orders)
on a fair and equitable basis to the
parties to the transaction, where
permissible under applicable law.
(d) Your policies and procedures must
require your officers and employees to
file the personal securities trading
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reports described at § 390.214, if the
officer or employee:
(1) Makes investment
recommendations or decisions for the
accounts of customers;
(2) Participates in the determination
of these recommendations or decisions;
or
(3) In connection with their duties,
obtains information concerning which
securities you intend to purchase, sell,
or recommend for purchase or sale.
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§ 390.214 How do my officers and
employees file reports of personal
securities trading transactions?
An officer or employee described in
§ 390.213(d) must report all personal
transactions in securities made by or on
behalf of the officer or employee if he
or she has a beneficial interest in the
security.
(a) Contents and filing of report. The
officer or employee must file the report
with you no later than 30 calendar days
after the end of each calendar quarter.
The report must include the following
information:
(1) The date of each transaction, the
title and number of shares, the interest
rate and maturity date (if applicable),
and the principal amount of each
security involved.
(2) The nature of each transaction (i.e.,
purchase, sale, or other type of
acquisition or disposition).
(3) The price at which each
transaction was effected.
(4) The name of the broker, dealer, or
other intermediary effecting the
transaction.
(5) The date the officer or employee
submitted the report.
(b) Report not required for certain
transactions. Your officer or employee
is not required to report a transaction if:
(1) He or she has no direct or indirect
influence or control over the account for
which the transaction was effected or
over the securities held in that account;
(2) The transaction was in shares
issued by an open-end investment
company registered under the
Investment Company Act of 1940;
(3) The transaction was in direct
obligations of the government of the
United States;
(4) The transaction was in bankers’
acceptances, bank certificates of deposit,
commercial paper or high quality short
term debt instruments, including
repurchase agreements; or
(5) The officer or employee had an
aggregate amount of purchases and sales
of $10,000 or less during the calendar
quarter.
(c) Alternate report. When you act as
an investment adviser to an investment
company registered under the
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Investment Company Act of 1940, an
officer or employee that is an ‘‘access
person’’ may fulfill his or her reporting
requirements under this section by
filing with you the ‘‘access person’’
personal securities trading report
required by SEC Rule 17j–1(d), 17 CFR
270.17j–1(d).
Subpart L—Electronic Operations
§ 390.220
What does this subpart do?
This subpart addresses notification of
the FDIC by State savings associations
who intend to establish a transactional
Web site.
§ 390.221 Must I inform FDIC before I use
electronic means or facilities?
(a) General. A State savings
association (‘‘you’’) are not required to
inform FDIC before you use electronic
means or facilities, except as provided
in paragraphs (b) and (c) of this section.
However, FDIC encourages you to
consult with your appropriate FDIC
region before you engage in any
activities using electronic means or
facilities.
(b) Activities requiring advance
notice. You must file a written notice as
described in § 390.222 before you
establish a transactional Web site. A
transactional Web site is an Internet site
that enables users to conduct financial
transactions such as accessing an
account, obtaining an account balance,
transferring funds, processing bill
payments, opening an account, applying
for or obtaining a loan, or purchasing
other authorized products or services.
(c) Other procedures. If the
appropriate FDIC region informs you of
any supervisory or compliance concerns
that may affect your use of electronic
means or facilities, you must follow any
procedures it imposes in writing.
§ 390.222
How do I notify FDIC?
(a) Notice requirement. You must file
a written notice with the appropriate
FDIC region at least 30 days before you
establish a transactional Web site. The
notice must do three things:
(1) Describe the transactional Web
site.
(2) Indicate the date the transactional
Web site will become operational.
(3) List a contact familiar with the
deployment, operation, and security of
the transactional Web site.
(b) [Reserved].
Subpart M—Deposits
§ 390.230
What does this subpart do?
This subpart applies to the deposit
activities of State savings associations.
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§ 390.231 What records should I maintain
on deposit activities?
All State savings associations (‘‘you’’)
should establish and maintain deposit
documentation practices and records
that demonstrate that you appropriately
administer and monitor deposit-related
activities. Your records should
adequately evidence ownership,
balances, and all transactions involving
each account. You may maintain
records on deposit activities in any
format that is consistent with standard
business practices.
Subpart N—Possession by
Conservators and Receivers for
Federal and State Savings
Associations
§ 390.240 Procedure upon taking
possession.
(a) The conservator or receiver for a
Federal or State savings association
shall take possession of the savings
association by taking possession of the
principal office of the Federal or State
savings association in accordance with
the terms of the OCC’s or State bank
supervisor’s, as appropriate,
appointment.
(b) Upon taking possession, the
conservator or receiver shall
immediately:
(1) Take possession of the savings
association’s books, records and assets.
(2) Notify in writing, served
personally or by registered mail or
telegraph, all persons and entities that
the conservator or receiver knows to be
holding or in possession of assets of the
savings association, that the conservator
or receiver has succeeded to all rights,
titles, powers and privileges of the
savings associations.
(3) File with the Executive Secretary
a statement that possession was taken,
including the time of the taking, which
statement shall be conclusive evidence
thereof.
(4) Post a notice on the door of the
principal and other offices of the
savings association in the form, if any,
prescribed by the OCC or State bank
supervisor, as appropriate.
(5) By operation of law and without
any conveyance or other instrument, act
or deed, succeed to the rights, titles,
powers and privileges of the savings
association, and to the rights, powers,
and privileges of its stockholders,
members, accountholders, depositors,
officers, and directors. No stockholder,
member, accountholder, depositor,
officer or director shall thereafter have
or exercise any right, power, or
privilege, or act in connection with any
of the savings association’s assets or
property.
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§ 390.241
Notice of appointment.
(a) When the OCC or State bank
supervisor, as appropriate, issues an
order for the appointment of a
conservator or receiver, the FDIC will
designate the persons or entities whose
employees or agents must, before the
conservator or receiver takes possession
of the savings association:
(1) Give notice of the appointment to
any officer or employee who is present
in and appears to be in charge at the
principal office of the savings
association as determined by the FDIC.
(2) Serve a copy of the order for the
appointment upon the savings
association or upon the conservator by:
(i) Leaving a certified copy of the
order of appointment at the principal
office of the savings association as
determined by the FDIC; or
(ii) Handing a certified copy of the
order of appointment to the previous
conservator of the savings association,
or to the officer or employee of the
savings association, or to the previous
conservator who is present in and
appears to be in charge at the principal
office of the savings association as
determined by the FDIC.
(3) File with the Executive Secretary
of the FDIC a statement that includes
the date and time that notice of the
appointment was given and service of
the order of appointment was made.
(b) If the OCC or State bank
supervisor, as appropriate, appoints a
conservator or receiver under this
subpart, the FDIC will immediately file
a notice of the appointment for
publication in the Federal Register.
Subpart O—Subordinate Organizations
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§ 390.250
What does this subpart cover?
(a) The FDIC is issuing this subpart O
pursuant to its general rulemaking and
supervisory authority under the Federal
Deposit Insurance Act, 12 U.S.C. 1811 et
seq., and its specific authority under
section 18(m) of the Federal Deposit
Insurance Act, 12 U.S.C. 1828(m). This
subpart applies to subordinate
organizations of State savings
associations. The FDIC may, at any time,
limit a State savings association’s
investment in any of these entities, or
may limit or refuse to permit any
activities of any of these entities for
supervisory, legal, or safety and
soundness reasons.
(b) Notices under this subpart are
applications for purposes of statutory
and regulatory references to
‘‘applications.’’ Any conditions that the
FDIC imposes in approving any
application are enforceable as a
condition imposed in writing by the
FDIC in connection with the granting of
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a request by a State savings association
within the meaning of 12 U.S.C. 1818(b)
or 1818(i).
§ 390.251
Definitions.
For purposes of this subpart:
Control has the same meaning as in
part 391, subpart E.
GAAP-consolidated subsidiary means
an entity in which a State savings
association has a direct or indirect
ownership interest and whose assets are
consolidated with those of the savings
association for purposes of reporting
under Generally Accepted Accounting
Principles (GAAP). Generally, these are
entities in which a State savings
association has a majority ownership
interest.
Lower-tier entity includes any
company in which a subsidiary has a
direct or indirect ownership interest.
Ownership interest means any equity
interest in a business organization,
including stock, limited or general
partnership interests, or shares in a
limited liability company.
Subordinate organization means any
corporation, partnership, business trust,
association, joint venture, pool,
syndicate, or other similar business
organization in which a State savings
association has a direct or indirect
ownership interest, unless that
ownership interest qualifies as a passthrough investment and is so designated
by the investing State savings
association.
Subsidiary means any subordinate
organization directly or indirectly
controlled by a State savings
association.
§ 390.252 How must separate corporate
identities be maintained?
(a) Each State savings association and
subordinate organization thereof must
be operated in a manner that
demonstrates to the public that each
maintains a separate corporate
existence. Each must operate so that:
(1) Their respective business
transactions, accounts, and records are
not intermingled;
(2) Each observes the formalities of
their separate corporate procedures;
(3) Each is adequately financed as a
separate unit in light of normal
obligations reasonably foreseeable in a
business of its size and character;
(4) Each is held out to the public as
a separate enterprise; and
(5) Unless the parent State savings
association has guaranteed a loan to the
subordinate organization, all borrowings
by the subordinate organization indicate
that the parent is not liable.
(b) The FDIC regulations that apply
both to State savings associations and
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47711
subordinate organizations shall not be
construed as requiring a State savings
association and its subordinate
organizations to operate as a single
entity.
§ 390.253 What notices are required to
establish or acquire a new subsidiary or
engage in new activities through an existing
subsidiary?
When required by section 18(m) of the
Federal Deposit Insurance Act, a State
savings association (‘‘you’’) must file a
notice (‘‘Notice’’) with the FDIC before
establishing or acquiring a subsidiary or
engaging in new activities in a
subsidiary. The Notice must contain all
of the information the required under 12
CFR 362.15. If the FDIC notifies you
within 30 days that the Notice presents
supervisory concerns, or raises
significant issues of law or policy, you
must apply for and receive the FDIC’s
prior written approval before
establishing or acquiring the subsidiary
or engaging in new activities in the
subsidiary.
§ 390.254 How may a subsidiary of a State
savings association issue securities?
(a) A subsidiary may issue, either
directly or through a third party
intermediary, any securities that its
parent State savings association (‘‘you’’)
may issue. The subsidiary must not state
or imply that the securities it issues are
covered by federal deposit insurance. A
subsidiary may not issue any security
the payment, maturity, or redemption of
which may be accelerated upon the
condition that you are insolvent or have
been placed into receivership.
(b) You must file a notice with the
FDIC in accordance with § 390.253 at
least 30 days before your first issuance
of any securities through an existing
subsidiary or in conjunction with
establishing or acquiring a new
subsidiary. If the FDIC notifies you
within 30 days that the notice presents
supervisory concerns or raises
significant issues of law or policy, you
must receive the FDIC’s prior written
approval before issuing securities
through your subsidiary.
(c) For as long as any securities are
outstanding, you must maintain all
records generated through each
securities issuance in the ordinary
course of business, including a copy of
any prospectus, offering circular, or
similar document concerning such
issuance, and make such records
available for examination by the FDIC.
Such records must include, but are not
limited to:
(1) The amount of your assets or
liabilities (including any guarantees you
make with respect to the securities
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issuance) that have been transferred or
made available to the subsidiary; the
percentage that such amount represents
of the current book value of your assets
on an unconsolidated basis; and the
current book value of all such assets of
the subsidiary;
(2) The terms of any guarantee(s)
issued by you or any third party;
(3) A description of the securities the
subsidiary issued;
(4) The net proceeds from the
issuance of securities (or the pro rata
portion of the net proceeds from
securities issued through a jointly
owned subsidiary); the gross proceeds of
the securities issuance; and the market
value of assets collateralizing the
securities issuance (any assets of the
subsidiary, including any guarantees of
its securities issuance you have made);
(5) The interest or dividend rates and
yields, or the range thereof, and the
frequency of payments on the
subsidiary’s securities;
(6) The minimum denomination of
the subsidiary’s securities; and
(7) Where the subsidiary marketed or
intends to market the securities.
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General.
(a) Authority and scope. This subpart
is being issued by the FDIC under its
general rulemaking and supervisory
authority under the Federal Deposit
Insurance Act (FDIA), 12 U.S.C. 1811 et
seq. Sections 390.264, 390.265, and
390.267 through 390.272 contain safetyand-soundness based lending and
investment provisions applicable to
State savings associations.
(b) General lending standards. Each
State savings association is expected to
conduct its lending and investment
activities prudently. Each State savings
association should use lending and
investment standards that are consistent
with safety and soundness, ensure
adequate portfolio diversification and
are appropriate for the size and
condition of the institution, the nature
and scope of its operations, and
conditions in its lending market. Each
State savings association should
adequately monitor the condition of its
portfolio and the adequacy of any
collateral securing its loans.
[Reserved].
§ 390.262
(a) In accordance with this section, a
State savings association (‘‘you’’) may
exercise your salvage power to make a
contribution or a loan (including a
guarantee of a loan made by any other
person) to a lower-tier entity (‘‘salvage
investment’’) that exceeds the maximum
amount otherwise permitted under law
or regulation. You must notify the FDIC
at least 30 days before making such a
salvage investment. This notice must
demonstrate that:
(1) The salvage investment protects
your interest in the lower-tier entity;
(2) The salvage investment is
consistent with safety and soundness;
and
(3) You considered alternatives to the
salvage investment and determined that
such alternatives would not adequately
satisfy paragraphs (a)(1) and (2) of this
section.
(b) If the FDIC notifies you within 30
days that the Notice presents
supervisory concerns, or raises
significant issues of law or policy, you
must apply for and receive the FDIC’s
prior written approval before making a
salvage investment.
(c) If your lower-tier entity is a GAAPconsolidated subsidiary, your salvage
investment under this section will be
considered an investment in a
subsidiary for purposes of subpart Z.
17:13 Aug 04, 2011
§ 390.260
§ 390.261
§ 390.255 How may a State savings
association exercise its salvage power in
connection with a service corporation or
lower-tier entities?
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Subpart P—Lending and Investment
Definitions.
For purposes of this subpart:
Consumer loans include loans for
personal, family, or household purposes
and loans reasonably incident thereto,
and may be made as either open-end or
closed-end consumer credit (as defined
at 12 CFR 226.2(a)(10) and (20)).
Consumer loans do not include credit
extended in connection with credit card
loans, bona fide overdraft loans, and
other loans that the State savings
association has designated as made
under investment or lending authority
other than section 5(c)(2)(D) of the
HOLA.
Credit card is any card, plate, coupon
book, or other single credit device that
may be used from time to time to obtain
credit.
Credit card account is a credit
account established in conjunction with
the issuance of, or the extension of
credit through, a credit card. This term
includes loans made to consolidate
credit card debt, including credit card
debt held by other lenders, and
participation certificates, securities and
similar instruments secured by credit
card receivables.
Home loans include any loans made
on the security of a home (including a
dwelling unit in a multi-family
residential property such as a
condominium or a cooperative),
combinations of homes and business
property (i.e., a home used in part for
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business), farm residences, and
combinations of farm residences and
commercial farm real estate.
Loan commitment includes a loan in
process, a letter of credit, or any other
commitment to extend credit.
Real estate loan is a loan for which
the State savings association
substantially relies upon a security
interest in real estate given by the
borrower as a condition of making the
loan. A loan is made on the security of
real estate if:
(1) The security property is real estate
pursuant to the law of the state in which
the property is located;
(2) The security interest of the State
savings association may be enforced as
a real estate mortgage or its equivalent
pursuant to the law of the state in which
the property is located;
(3) The security property is capable of
separate appraisal; and
(4) With regard to a security property
that is a leasehold or other interest for
a period of years, the term of the interest
extends, or is subject to extension or
renewal at the option of the State
savings association for a term of at least
five years following the maturity of the
loan.
Small business includes a small
business concern or entity as defined by
section 3(a) of the Small Business Act,
15 U.S.C. 632(a), and implemented by
the regulations of the Small Business
Administration at 13 CFR part 121.
Small business loans and loans to
small businesses include any loan to a
small business as defined in this
section; or a loan that does not exceed
$2 million (including a group of loans
to one borrower) and is for commercial,
corporate, business, or agricultural
purposes.
§ 390.263
[Reserved].
§ 390.264 Real estate lending standards;
purpose and scope.
This section, and § 390.265, issued
pursuant to section 18(o) of the Federal
Deposit Insurance Act, (12 U.S.C.
1828(o)), prescribe standards for real
estate lending to be used by State
savings associations and all their
includable subsidiaries, as defined in
§ 390.461, over which the State savings
associations exercise control, in
adopting internal real estate lending
policies.
§ 390.265
Real estate lending standards.
(a) Each State savings association
shall adopt and maintain written
policies that establish appropriate limits
and standards for extensions of credit
that are secured by liens on or interests
in real estate, or that are made for the
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purpose of financing permanent
improvements to real estate.
(b)(1) Real estate lending policies
adopted pursuant to this section must:
(i) Be consistent with safe and sound
banking practices;
(ii) Be appropriate to the size of the
institution and the nature and scope of
its operations; and
(iii) Be reviewed and approved by the
State savings association’s board of
directors at least annually.
(2) The lending policies must
establish:
(i) Loan portfolio diversification
standards;
(ii) Prudent underwriting standards,
including loan-to-value limits, that are
clear and measurable;
(iii) Loan administration procedures
for the State savings association’s real
estate portfolio; and
(iv) Documentation, approval, and
reporting requirements to monitor
compliance with the State savings
association’s real estate lending policies.
(c) Each State savings association
must monitor conditions in the real
estate market in its lending area to
ensure that its real estate lending
policies continue to be appropriate for
current market conditions.
(d) The real estate lending policies
adopted pursuant to this section should
reflect consideration of the Interagency
Guidelines for Real Estate Lending
Policies established by the Federal
banking agencies.
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Appendix to § 390.265—Interagency
Guidelines for Real Estate Lending
Policies
The agencies’ regulations require that each
insured depository institution adopt and
maintain a written policy that establishes
appropriate limits and standards for all
extensions of credit that are secured by liens
on or interests in real estate or made for the
purpose of financing the construction of a
building or other improvements.1 These
guidelines are intended to assist institutions
in the formulation and maintenance of a real
estate lending policy that is appropriate to
the size of the institution and the nature and
scope of its individual operations, as well as
satisfies the requirements of the regulation.
Each institution’s policies must be
comprehensive, and consistent with safe and
sound lending practices, and must ensure
that the institution operates within limits and
according to standards that are reviewed and
approved at least annually by the board of
directors. Real estate lending is an integral
part of many institutions’ business plans and,
when undertaken in a prudent manner, will
not be subject to examiner criticism.
1 The agencies have adopted a uniform rule on
real estate lending. See 12 CFR part 365 and
§§ 390.264–390.265 (FDIC); 12 CFR part 208,
subpart C (FRB); and 12 CFR part 34, subpart D
(OCC).
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Loan Portfolio Management Considerations
The lending policy should contain a
general outline of the scope and distribution
of the institution’s credit facilities and the
manner in which real estate loans are made,
serviced, and collected. In particular, the
institution’s policies on real estate lending
should:
• Identify the geographic areas in which
the institution will consider lending.
• Establish a loan portfolio diversification
policy and set limits for real estate loans by
type and geographic market (e.g., limits on
higher risk loans).
• Identify appropriate terms and
conditions by type of real estate loan.
• Establish loan origination and approval
procedures, both generally and by size and
type of loan.
• Establish prudent underwriting
standards that are clear and measurable,
including loan-to-value limits, that are
consistent with these supervisory guidelines.
• Establish review and approval
procedures for exception loans, including
loans with loan-to-value percentages in
excess of supervisory limits.
• Establish loan administration
procedures, including documentation,
disbursement, collateral inspection,
collection, and loan review.
• Establish real estate appraisal and
evaluation programs.
• Require that management monitor the
loan portfolio and provide timely and
adequate reports to the board of directors.
The institution should consider both
internal and external factors in the
formulation of its loan policies and strategic
plan. Factors that should be considered
include:
• The size and financial condition of the
institution.
• The expertise and size of the lending
staff.
• The need to avoid undue concentrations
of risk.
• Compliance with all real estate related
laws and regulations, including the
Community Reinvestment Act, antidiscrimination laws, and for State savings
associations, the Qualified Thrift Lender test.
• Market conditions.
The institution should monitor conditions
in the real estate markets in its lending area
so that it can react quickly to changes in
market conditions that are relevant to its
lending decisions. Market supply and
demand factors that should be considered
include:
• Demographic indicators, including
population and employment trends.
• Zoning requirements.
• Current and projected vacancy,
construction, and absorption rates.
• Current and projected lease terms, rental
rates, and sales prices, including
concessions.
• Current and projected operating
expenses for different types of projects.
• Economic indicators, including trends
and diversification of the lending area.
• Valuation trends, including discount and
direct capitalization rates.
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47713
Underwriting Standards
Prudently underwritten real estate loans
should reflect all relevant credit factors,
including:
• The capacity of the borrower, or income
from the underlying property, to adequately
service the debt.
• The value of the mortgaged property.
• The overall creditworthiness of the
borrower.
• The level of equity invested in the
property.
• Any secondary sources of repayment.
• Any additional collateral or credit
enhancements (such as guarantees, mortgage
insurance or takeout commitments).
The lending policies should reflect the
level of risk that is acceptable to the board
of directors and provide clear and
measurable underwriting standards that
enable the institution’s lending staff to
evaluate these credit factors. The
underwriting standards should address:
• The maximum loan amount by type of
property.
• Maximum loan maturities by type of
property.
• Amortization schedules.
• Pricing structure for different types of
real estate loans.
• Loan-to-value limits by type of property.
For development and construction
projects, and completed commercial
properties, the policy should also establish,
commensurate with the size and type of the
project or property:
• Requirements for feasibility studies and
sensitivity and risk analyses (e.g., sensitivity
of income projections to changes in economic
variables such as interest rates, vacancy rates,
or operating expenses).
• Minimum requirements for initial
investment and maintenance of hard equity
by the borrower (e.g., cash or unencumbered
investment in the underlying property).
• Minimum standards for net worth, cash
flow, and debt service coverage of the
borrower or underlying property.
• Standards for the acceptability of and
limits on non-amortizing loans.
• Standards for the acceptability of and
limits on the use of interest reserves.
• Pre-leasing and pre-sale requirements for
income-producing property.
• Pre-sale and minimum unit release
requirements for non-income-producing
property loans.
• Limits on partial recourse or nonrecourse
loans and requirements for guarantor
support.
• Requirements for takeout commitments.
• Minimum covenants for loan
agreements.
Loan Administration
The institution should also establish loan
administration procedures for its real estate
portfolio that address:
• Documentation, including:
Type and frequency of financial
statements, including requirements for
verification of information provided by the
borrower;
Type and frequency of collateral
evaluations (appraisals and other estimates of
value).
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• Loan closing and disbursement.
• Payment processing.
• Escrow administration.
• Collateral administration.
• Loan payoffs.
• Collections and foreclosure, including:
Delinquency follow-up procedures;
Foreclosure timing;
Extensions and other forms of forbearance;
Acceptance of deeds in lieu of foreclosure.
• Claims processing (e.g., seeking recovery
on a defaulted loan covered by a government
guaranty or insurance program).
• Servicing and participation agreements.
Supervisory Loan-to-Value Limits
Institutions should establish their own
internal loan-to-value limits for real estate
loans. These internal limits should not
exceed the following supervisory limits:
Loan-tovalue limit
(percent)
Loan category
Raw land .....................................
Land development ......................
Construction:
Commercial, multifamily,2 and
other nonresidential .............
1- to 4-family residential .........
Improved property ......................
Owner-occupied 1- to 4-family
and home equity .....................
65
75
80
85
85
(3)
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The supervisory loan-to-value limits
should be applied to the underlying property
that collateralizes the loan. For loans that
fund multiple phases of the same real estate
project (e.g., a loan for both land
development and construction of an office
building), the appropriate loan-to-value limit
is the limit applicable to the final phase of
the project funded by the loan; however, loan
disbursements should not exceed actual
development or construction outlays. In
situations where a loan is fully crosscollateralized by two or more properties or is
secured by a collateral pool of two or more
properties, the appropriate maximum loan
amount under supervisory loan-to-value
limits is the sum of the value of each
property, less senior liens, multiplied by the
appropriate loan-to-value limit for each
property. To ensure that collateral margins
remain within the supervisory limits, lenders
should redetermine conformity whenever
collateral substitutions are made to the
collateral pool.
In establishing internal loan-to-value
limits, each lender is expected to carefully
consider the institution-specific and market
factors listed under ‘‘Loan Portfolio
Management Considerations,’’ as well as any
2 Multifamily construction includes
condominiums and cooperatives.
3 A loan-to-value limit has not been established
for permanent mortgage or home equity loans on
owner-occupied, 1- to 4-family residential property.
However, for any such loan with a loan-to-value
ratio that equals or exceeds 90 percent at
origination, an institution should require
appropriate credit enhancement in the form of
either mortgage insurance or readily marketable
collateral.
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other relevant factors, such as the particular
subcategory or type of loan. For any
subcategory of loans that exhibits greater
credit risk than the overall category, a lender
should consider the establishment of an
internal loan-to-value limit for that
subcategory that is lower than the limit for
the overall category.
The loan-to-value ratio is only one of
several pertinent credit factors to be
considered when underwriting a real estate
loan. Other credit factors to be taken into
account are highlighted in the ‘‘Underwriting
Standards’’ section above. Because of these
other factors, the establishment of these
supervisory limits should not be interpreted
to mean that loans at these levels will
automatically be considered sound.
Loans in Excess of the Supervisory Loan-toValue Limits
The agencies recognize that appropriate
loan-to-value limits vary not only among
categories of real estate loans but also among
individual loans. Therefore, it may be
appropriate in individual cases to originate
or purchase loans with loan-to-value ratios in
excess of the supervisory loan-to-value
limits, based on the support provided by
other credit factors. Such loans should be
identified in the institutions’ records, and
their aggregate amount reported at least
quarterly to the institution’s board of
directors. (See additional reporting
requirements described under ‘‘Exceptions to
the General Policy.’’) The aggregate amount
of all loans in excess of the supervisory loanto-value limits should not exceed 100 percent
of total capital.4 Moreover, within the
aggregate limit, total loans for all commercial,
agricultural, multifamily or other non-1- to 4family residential properties should not
exceed 30 percent of total capital. An
institution will come under increased
supervisory scrutiny as the total of such
loans approaches these levels.
In determining the aggregate amount of
such loans, institutions should: (a) Include
all loans secured by the same property if any
one of those loans exceeds the supervisory
loan-to-value limits; and (b) include the
recourse obligation of any such loan sold
with recourse. Conversely, a loan should no
longer be reported to the directors as part of
aggregate totals when reduction in principal
or senior liens, or additional contribution of
collateral or equity (e.g., improvements to the
real property securing the loan), bring the
loan-to-value ratio into compliance with
supervisory limits.
Excluded Transactions
The agencies also recognize that there are
a number of lending situations in which
other factors significantly outweigh the need
to apply the supervisory loan-to-value limits.
These include:
4 For the state member banks, the term ‘‘total
capital’’ means ‘‘total risk-based capital’’ as defined
in Appendix A to 12 CFR part 208. For insured state
non-member banks, ‘‘total capital’’ refers to that
term described in table I of Appendix A to 12 CFR
part 325. For national banks, the term ‘‘total
capital’’ is defined at 12 CFR 3.2(e). For State
savings associations, the term ‘‘total capital’’ refers
to the term as described in subpart Z.
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• Loans guaranteed or insured by the U.S.
government or its agencies, provided that the
amount of the guaranty or insurance is at
least equal to the portion of the loan that
exceeds the supervisory loan-to-value limit.
• Loans backed by the full faith and credit
of a state government, provided that the
amount of the assurance is at least equal to
the portion of the loan that exceeds the
supervisory loan-to-value limit.
• Loans guaranteed or insured by a state,
municipal or local government, or an agency
thereof, provided that the amount of the
guaranty or insurance is at least equal to the
portion of the loan that exceeds the
supervisory loan-to-value limit, and provided
that the lender has determined that the
guarantor or insurer has the financial
capacity and willingness to perform under
the terms of the guaranty or insurance
agreement.
• Loans that are to be sold promptly after
origination, without recourse, to a financially
responsible third party.
• Loans that are renewed, refinanced, or
restructured without the advancement of new
funds or an increase in the line of credit
(except for reasonable closing costs), or loans
that are renewed, refinanced, or restructured
in connection with a workout situation,
either with or without the advancement of
new funds, where consistent with safe and
sound banking practices and part of a clearly
defined and well-documented program to
achieve orderly liquidation of the debt,
reduce risk of loss, or maximize recovery on
the loan.
• Loans that facilitate the sale of real estate
acquired by the lender in the ordinary course
of collecting a debt previously contracted in
good faith.
• Loans for which a lien on or interest in
real property is taken as additional collateral
through an abundance of caution by the
lender (e.g., the institution takes a blanket
lien on all or substantially all of the assets
of the borrower, and the value of the real
property is low relative to the aggregate value
of all other collateral).
• Loans, such as working capital loans,
where the lender does not rely principally on
real estate as security and the extension of
credit is not used to acquire, develop, or
construct permanent improvements on real
property.
• Loans for the purpose of financing
permanent improvements to real property,
but not secured by the property, if such
security interest is not required by prudent
underwriting practice.
Exceptions to the General Lending Policy
Some provision should be made for the
consideration of loan requests from
creditworthy borrowers whose credit needs
do not fit within the institution’s general
lending policy. An institution may provide
for prudently underwritten exceptions to its
lending policies, including loan-to-value
limits, on a loan-by-loan basis. However, any
exceptions from the supervisory loan-tovalue limits should conform to the aggregate
limits on such loans discussed above.
The board of directors is responsible for
establishing standards for the review and
approval of exception loans. Each institution
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should establish an appropriate internal
process for the review and approval of loans
that do not conform to its own internal policy
standards. The approval of any such loan
should be supported by a written justification
that clearly sets forth all of the relevant credit
factors that support the underwriting
decision. The justification and approval
documents for such loans should be
maintained as a part of the permanent loan
file. Each institution should monitor
compliance with its real estate lending policy
and individually report exception loans of a
significant size to its board of directors.
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Supervisory Review of Real Estate Lending
Policies and Practices
The real estate lending policies of
institutions will be evaluated by examiners
during the course of their examinations to
determine if the policies are consistent with
safe and sound lending practices, these
guidelines, and the requirements of the
regulation. In evaluating the adequacy of the
institution’s real estate lending policies and
practices, examiners will take into
consideration the following factors:
• The nature and scope of the institution’s
real estate lending activities.
• The size and financial condition of the
institution.
• The quality of the institution’s
management and internal controls.
• The expertise and size of the lending and
loan administration staff.
• Market conditions.
Lending policy exception reports will also
be reviewed by examiners during the course
of their examinations to determine whether
the institutions’ exceptions are adequately
documented and appropriate in light of all of
the relevant credit considerations. An
excessive volume of exceptions to an
institution’s real estate lending policy may
signal a weakening of its underwriting
practices, or may suggest a need to revise the
loan policy.
Definitions
For the purposes of these Guidelines:
Construction loan means an extension of
credit for the purpose of erecting or
rehabilitating buildings or other structures,
including any infrastructure necessary for
development.
Extension of credit or loan means:
(1) The total amount of any loan, line of
credit, or other legally binding lending
commitment with respect to real property;
and
(2) The total amount, based on the amount
of consideration paid, of any loan, line of
credit, or other legally binding lending
commitment acquired by a lender by
purchase, assignment, or otherwise.
Improved property loan means an
extension of credit secured by one of the
following types of real property:
(1) Farmland, ranchland or timberland
committed to ongoing management and
agricultural production;
(2) 1- to 4-family residential property that
is not owner-occupied;
(3) Residential property containing five or
more individual dwelling units;
(4) Completed commercial property; or
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(5) Other income-producing property that
has been completed and is available for
occupancy and use, except incomeproducing owner-occupied 1- to 4-family
residential property.
Land development loan means an
extension of credit for the purpose of
improving unimproved real property prior to
the erection of structures. The improvement
of unimproved real property may include the
laying or placement of sewers, water pipes,
utility cables, streets, and other infrastructure
necessary for future development.
Loan origination means the time of
inception of the obligation to extend credit
(i.e., when the last event or prerequisite,
controllable by the lender, occurs causing the
lender to become legally bound to fund an
extension of credit).
Loan-to-value or loan-to-value ratio means
the percentage or ratio that is derived at the
time of loan origination by dividing an
extension of credit by the total value of the
property(ies) securing or being improved by
the extension of credit plus the amount of
any readily marketable collateral and other
acceptable collateral that secures the
extension of credit. The total amount of all
senior liens on or interests in such
property(ies) should be included in
determining the loan-to-value ratio. When
mortgage insurance or collateral is used in
the calculation of the loan-to-value ratio, and
such credit enhancement is later released or
replaced, the loan-to-value ratio should be
recalculated.
Other acceptable collateral means any
collateral in which the lender has a perfected
security interest, that has a quantifiable
value, and is accepted by the lender in
accordance with safe and sound lending
practices. Other acceptable collateral should
be appropriately discounted by the lender
consistent with the lender’s usual practices
for making loans secured by such collateral.
Other acceptable collateral includes, among
other items, unconditional irrevocable
standby letters of credit for the benefit of the
lender.
Owner-occupied, when used in
conjunction with the term 1- to 4-family
residential property means that the owner of
the underlying real property occupies at least
one unit of the real property as a principal
residence of the owner.
Readily marketable collateral means
insured deposits, financial instruments, and
bullion in which the lender has a perfected
interest. Financial instruments and bullion
must be salable under ordinary
circumstances with reasonable promptness at
a fair market value determined by quotations
based on actual transactions, on an auction
or similarly available daily bid and ask price
market. Readily marketable collateral should
be appropriately discounted by the lender
consistent with the lender’s usual practices
for making loans secured by such collateral.
Value means an opinion or estimate, set
forth in an appraisal or evaluation,
whichever may be appropriate, of the market
value of real property, prepared in
accordance with the agency’s appraisal
regulations and guidance. For loans to
purchase an existing property, the term
‘‘value’’ means the lesser of the actual
acquisition cost or the estimate of value.
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1- to 4-family residential property means
property containing fewer than five
individual dwelling units, including
manufactured homes permanently affixed to
the underlying property (when deemed to be
real property under state law).
§ 390.266
[Reserved].
§ 390.267 Letters of credit and other
independent undertakings to pay against
documents.
(a) General authority. A State savings
association may issue and commit to
issue letters of credit within the scope
of applicable laws or rules of practice
recognized by law. It may also issue
other independent undertakings within
the scope of such laws or rules of
practice recognized by law, that have
been approved by the FDIC (approved
undertaking).1 Under such letters of
credit and approved undertakings, the
State savings association’s obligation to
honor depends upon the presentation of
specified documents and not upon
nondocumentary conditions or
resolution of questions of fact or law at
issue between the account party and the
beneficiary. A State savings association
may also confirm or otherwise
undertake to honor or purchase
specified documents upon their
presentation under another person’s
independent undertaking within the
scope of such laws or rules.
(b) Safety and soundness
considerations—(1) Terms. As a matter
of safe and sound banking practice,
State savings associations that issue
letters of credit or approved
undertakings should not be exposed to
undue risk. At a minimum, State
savings associations should consider the
following:
(i) The independent character of the
letter of credit or approved undertaking
should be apparent from its terms (such
as terms that subject it to laws or rules
providing for its independent character);
(ii) The letter of credit or approved
undertaking should be limited in
amount;
1 Samples of laws or rules of practice applicable
to letters of credit and other independent
undertakings include, but are not limited to: the
applicable version of Article 5 of the Uniform
Commercial Code (UCC) (1962, as amended 1990)
or revised Article 5 of the UCC (as amended 1995)
(available from West Publishing Co., 1/800/328–
4880); the Uniform Customs and Practice for
Documentary Credits (International Chamber of
Commerce (ICC) Publication No. 500) (available
from ICC Publishing, Inc., 212/206–1150; the
United Nations Convention on Independent
Guarantees and Standby Letters of Credit (adopted
by the U.N. General Assembly in 1995 and signed
by the U.S. in 1997) (available from the U.N.
Commission on International Trade Law, 212/963–
5353); and the Uniform Rules for Bank-to-Bank
Reimbursements Under Documentary Credits (ICC
Publication No. 525) (available from ICC
Publishing, Inc., 212/206–1150).
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(iii) The letter of credit or approved
undertaking should:
(A) Be limited in duration; or
(B) Permit the State savings
association to terminate the letter of
credit or approved undertaking, either
on a periodic basis (consistent with the
State savings association’s ability to
make any necessary credit assessments)
or at will upon either notice or payment
to the beneficiary; or
(C) Entitle the State savings
association to cash collateral from the
account party on demand (with a right
to accelerate the customer’s obligations,
as appropriate); and
(iv) The State savings association
either should be fully collateralized or
have a post-honor right of
reimbursement from its customer or
from another issuer of a letter of credit
or an independent undertaking.
Alternatively, if the State savings
association’s undertaking is to purchase
documents of title, securities, or other
valuable documents, it should obtain a
first priority right to realize on the
documents if the State savings
association is not otherwise to be
reimbursed.
(2) Additional considerations in
special circumstances. Certain letters of
credit and approved undertakings
require particular protections against
credit, operational, and market risk:
(i) In the event that the undertaking is
to honor by delivery of an item of value
other than money, the State savings
association should ensure that market
fluctuations that affect the value of the
item will not cause the State savings
association to assume undue market
risk;
(ii) In the event that the undertaking
provides for automatic renewal, the
terms for renewal should allow the State
savings association to make any
necessary credit assessment prior to
renewal;
(iii) In the event that a State savings
association issues an undertaking for its
own account, the underlying transaction
for which it is issued must be within the
State savings association’s authority and
comply with any safety and soundness
requirements applicable to that
transaction.
(3) Operational expertise. The State
savings association should possess
operational expertise that is
commensurate with the sophistication
of its letter of credit or independent
undertaking activities.
(4) Documentation. The State savings
association must accurately reflect its
letters of credit or approved
undertakings in its records, including
any acceptance or deferred payment or
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other absolute obligation arising out of
its contingent undertaking.
§ 390.268 Investment in State housing
corporations.
(a) Any State savings association to
the extent it has legal authority to do so,
may make investments in, commitments
to invest in, loans to, or commitments
to lend to any state housing corporation;
provided, that such obligations or loans
are secured directly, or indirectly
through a fiduciary, by a first lien on
improved real estate which is insured
under the National Housing Act, as
amended, and that in the event of
default, the holder of such obligations or
loans has the right directly, or indirectly
through a fiduciary, to subject to the
satisfaction of such obligations or loans
the real estate described in the first lien,
or the insurance proceeds.
(b) Any State savings association that
is adequately capitalized may, to the
extent it has legal authority to do so,
invest in obligations (including loans)
of, or issued by, any state housing
corporation incorporated in the state in
which such State savings association
has its home or a branch office;
provided (except with respect to loans),
that:
(1) The obligations are rated in one of
the four highest grades as shown by the
most recently published rating made of
such obligations by a nationally
recognized rating service; or
(2) The obligations, if not rated, are
approved by the FDIC. The aggregate
outstanding direct investment in
obligations under paragraph (b) of this
section shall not exceed the amount of
the State savings association’s total
capital.
(c) Each state housing corporation in
which a State savings association
invests under the authority of paragraph
(b) of this section shall agree, before
accepting any such investment
(including any loan or loan
commitment), to make available at any
time to the FDIC such information as the
FDIC may consider to be necessary to
ensure that investments are properly
made under this section.
§ 390.269
fees.
Prohibition on loan procurement
If you are a director, officer, or other
natural person having the power to
direct the management or policies of a
State savings association, you must not
receive, directly or indirectly, any
commission, fee, or other compensation
in connection with the procurement of
any loan made by the State savings
association or a subsidiary of the State
savings association.
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§ 390.270
Asset classification.
(a)(1) Each State savings association
must evaluate and classify its assets on
a regular basis in a manner consistent
with, or reconcilable to, the asset
classification system used by the FDIC.
(2) In connection with the
examination of a State savings
association or its affiliates, the FDIC
examiners may identify problem assets
and classify them, if appropriate. The
association must recognize such
examiner classifications in its
subsequent reports to the FDIC.
(b) Based on the evaluation and
classification of its assets, each State
savings association shall establish
adequate valuation allowances or
charge-offs, as appropriate, consistent
with generally accepted accounting
principles and the practices of the
federal banking agencies.
§ 390.271 Records for lending
transactions.
In establishing and maintaining its
records pursuant to § 390.350, each
State savings association should
establish and maintain loan
documentation practices that:
(a) Ensure that the institution can
make an informed lending decision and
can assess risk on an ongoing basis;
(b) Identify the purpose and all
sources of repayment for each loan, and
assess the ability of the borrower(s) and
any guarantor(s) to repay the
indebtedness in a timely manner;
(c) Ensure that any claims against a
borrower, guarantor, security holders,
and collateral are legally enforceable;
(d) Demonstrate appropriate
administration and monitoring of its
loans; and
(e) Take into account the size and
complexity of its loans.
§ 390.272
owned.
Re-evaluation of real estate
A State savings association shall
appraise each parcel of real estate
owned at the earlier of in-substance
foreclosure or at the time of the State
savings association’s acquisition of such
property, and at such times thereafter as
dictated by prudent management policy;
such appraisals shall be consistent with
the requirements of subpart X of this
part. The appropriate regional director
or his or her designee may require
subsequent appraisals if, in his or her
discretion, such subsequent appraisal is
necessary under the particular
circumstances. The foregoing
requirement shall not apply to any
parcel of real estate that is sold and
reacquired less than 12 months
subsequent to the most recent appraisal
made pursuant to this subpart. A dated,
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signed copy of each report of appraisal
made pursuant to any provisions of this
subpart shall be retained in the State
savings association’s records.
Subpart Q—Definitions for Regulations
Affecting All State Savings
Associations
§ 390.280 When do the definitions in this
subpart apply?
The definitions in this subpart apply
throughout parts 390 and 391, unless
another definition is specifically
provided.
§ 390.281
Account.
The term account means any savings
account, demand account, certificate
account, tax and loan account, note
account, United States Treasury general
account or United States Treasury time
deposit-open account, whether in the
form of a deposit or a share, held by an
accountholder in a State savings
association.
§ 390.282
Accountholder.
The term accountholder means the
holder of an account or accounts in a
State savings association insured by the
Deposit Insurance Fund. The term does
not include the holder of any
subordinated debt security or any
mortgage-backed bond issued by the
State savings association.
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§ 390.283
Affiliate.
The term affiliate of a State savings
association, unless otherwise defined,
means any corporation, business trust,
association, or other similar
organization:
(a) Of which a State savings
association, directly or indirectly, owns
or controls either a majority of the
voting shares or more than 50 per
centum of the number of shares voted
for the election of its directors, trustees,
or other persons exercising similar
functions at the preceding election, or
controls in any manner the election of
a majority of its directors, trustees, or
other persons exercising similar
functions; or
(b) Of which control is held, directly
or indirectly through stock ownership or
in any other manner, by the
shareholders of a State savings
association who own or control either a
majority of the shares of such State
savings association or more than 50 per
centum of the number of shares voted
for the election of directors of such State
savings association at the preceding
election, or by trustees for the benefit of
the shareholders of any such State
savings association; or
(c) Of which a majority of its
directors, trustees, or other persons
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exercising similar functions are
directors of any one State savings
association.
change in audit period) covered by the
annual audit conducted to satisfy
§ 390.350.
§ 390.284
§ 390.286
Affiliated person.
The term affiliated person of a State
savings association means the following:
(a) A director, officer, or controlling
person of such association;
(b) A spouse of a director, officer, or
controlling person of such association;
(c) A member of the immediate family
of a director, officer, or controlling
person of such association, who has the
same home as such person or who is a
director or officer of any subsidiary of
such association or of any holding
company affiliate of such association;
(d) Any corporation or organization
(other than the State savings association
or a corporation or organization through
which the State savings association
operates) of which a director, officer or
the controlling person of such
association:
(1) Is chief executive officer, chief
financial officer, or a person performing
similar functions;
(2) Is a general partner;
(3) Is a limited partner who, directly
or indirectly either alone or with his or
her spouse and the members of his or
her immediate family who are also
affiliated persons of the association,
owns an interest of 10 percent or more
in the partnership (based on the value
of his or her contribution) or who,
directly or indirectly with other
directors, officers, and controlling
persons of such association and their
spouses and their immediate family
members who are also affiliated persons
of the association, owns an interest of 25
percent or more in the partnership; or
(4) Directly or indirectly either alone
or with his or her spouse and the
members of his or her immediate family
who are also affiliated persons of the
association, owns or controls 10 percent
or more of any class of equity securities
or owns or controls, with other
directors, officers, and controlling
persons of such association and their
spouses and their immediate family
members who are also affiliated persons
of the association, 25 percent or more of
any class of equity securities; and
(5) Any trust or other estate in which
a director, officer, or controlling person
of such association or the spouse of
such person has a substantial beneficial
interest or as to which such person or
his or her spouse serves as trustee or in
a similar fiduciary capacity.
§ 390.285
Audit period.
The audit period of a State savings
association means the twelve month
period (or other period in the case of a
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Certificate account.
The term certificate account means a
savings account evidenced by a
certificate that must be held for a fixed
or minimum term.
§ 390.287
Consumer credit.
The term consumer credit means
credit extended to a natural person for
personal, family, or household
purposes, including loans secured by
liens on real estate and chattel liens
secured by mobile homes and leases of
personal property to consumers that
may be considered the functional
equivalent of loans on personal security:
Provided, the State savings association
relies substantially upon other factors,
such as the general credit standing of
the borrower, guaranties, or security
other than the real estate or mobile
home, as the primary security for the
loan. Appropriate evidence to
demonstrate justification for such
reliance should be retained in a State
savings association’s files. Among the
types of credit included within this term
are consumer loans; educational loans;
unsecured loans for real property
alteration, repair or improvement, or for
the equipping of real property; loans in
the nature of overdraft protection; and
credit extended in connection with
credit cards.
§ 390.288
Controlling person.
The term controlling person of a State
savings association means any person or
entity which, either directly or
indirectly, or acting in concert with one
or more other persons or entities, owns,
controls, or holds with power to vote, or
holds proxies representing, ten percent
or more of the voting shares or rights of
such State savings association; or
controls in any manner the election or
appointment of a majority of the
directors of such State savings
association. However, a director of a
State savings association will not be
deemed to be a controlling person of
such State savings association based
upon his or her voting, or acting in
concert with other directors in voting,
proxies:
(a) Obtained in connection with an
annual solicitation of proxies, or
(b) Obtained from savings account
holders and borrowers if such proxies
are voted as directed by a majority vote
of the entire board of directors of such
association, or of a committee of such
directors if such committee’s
composition and authority are
controlled by a majority vote of the
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contract for low-rent housing under the
provisions of the United States Housing
Act of 1937, as amended.
entire board and if its authority is
revocable by such a majority.
§ 390.289
Corporation.
§ 390.296 Money Market Deposit
Accounts.
The terms Corporation and FDIC
mean the Federal Deposit Insurance
Corporation.
§ 390.290
Demand accounts.
The term demand accounts means
non-interest-bearing demand deposits
that are subject to check or to
withdrawal or transfer on negotiable or
transferable order to the State savings
association and that are permitted to be
issued by statute, regulation, or
otherwise and are payable on demand.
§ 390.291
Director.
The term director means any director,
trustee, or other person performing
similar functions with respect to any
organization whether incorporated or
unincorporated. Such term does not
include an advisory director, honorary
director, director emeritus, or similar
person, unless the person is otherwise
performing functions similar to those of
a director.
§ 390.292
Financial institution.
The term financial institution has the
same meaning as the term depository
institution set forth in 12 U.S.C.
1813(c)(1).
§ 390.293
Immediate family.
The term immediate family of any
natural person means the following
(whether by the full or half blood or by
adoption):
(a) Such person’s spouse, father,
mother, children, brothers, sisters, and
grandchildren;
(b) The father, mother, brothers, and
sisters of such person’s spouse; and
(c) The spouse of a child, brother, or
sister of such person.
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§ 390.294
Land loan.
The term land loan means a loan:
(a) Secured by real estate upon which
all facilities and improvements have
been completely installed, as required
by local regulations and practices, so
that it is entirely prepared for the
erection of structures;
(b) To finance the purchase of land
and the accomplishment of all
improvements required to convert it to
developed building lots; or
(c) Secured by land upon which there
is no structure.
§ 390.295
Low-rent housing.
The term low-rent housing means real
estate which is, or which is being
constructed, remodeled, rehabilitated,
modernized, or renovated to be, the
subject of an annual contributions
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(a) Money Market Deposit Accounts
(MMDAs) offered by State savings
associations in accordance with
applicable state law are savings
accounts on which interest may be paid
if issued subject to the following
limitations:
(1) The State savings association shall
reserve the right to require at least seven
days’ notice prior to withdrawal or
transfer of any funds in the account; and
(2)(i) The depositor is authorized by
the State savings association to make no
more than six transfers per calendar
month or statement cycle (or similar
period) of at least four weeks by means
of preauthorized, automatic, telephonic,
or data transmission agreement, order,
or instruction to another account of the
depositor at the same State savings
association to the State savings
association itself, or to a third party.
(ii) State savings associations may
permit holders of MMDAs to make
unlimited transfers for the purpose of
repaying loans (except overdraft loans
on the depositor’s demand account) and
associated expenses at the same State
savings association (as originator or
servicer), to make unlimited transfers of
funds from this account to another
account of the same depositor at the
same State savings association or to
make unlimited payments directly to
the depositor from the account when
such transfers or payments are made by
mail, messenger, automated teller
machine, or in person, or when such
payments are made by telephone (via
check mailed to the depositor).
(3) In order to ensure that no more
than the number of transfers specified in
paragraph (a)(2)(i) of this section are
made, a State savings association must
either:
(i) Prevent transfers of funds in excess
of the limitations; or
(ii) Adopt procedures to monitor
those transfers on an after-the-fact basis
and contact customers who exceed the
limits on more than an occasional basis.
For customers who continue to violate
those limits after being contacted by the
depository State savings association the
depository State savings association
must either place funds in another
account that the depositor is eligible to
maintain or take away the account’s
transfer and draft capacities.
(iii) Insured State savings associations
at their option, may use on a consistent
basis either the date on a check or the
date it is paid in determining whether
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the transfer limitations within the
specified interval are exceeded.
(b) State savings associations may
offer MMDAs to any depositor not
inconsistent with applicable state law.
§ 390.297 Negotiable Order of Withdrawal
Accounts.
(a) Negotiable Order of Withdrawal
(NOW) accounts are savings accounts
authorized by 12 U.S.C. 1832 on which
the State savings association reserves
the right to require at least seven days’
notice prior to withdrawal or transfer of
any funds in the account.
(b) For purposes of 12 U.S.C. 1832:
(1) An organization shall be deemed
‘‘operated primarily for religious,
philanthropic, charitable, educational,
or other similar purposes and * * * not
* * * for profit’’ if it is described in
sections 501(c)(3) through (13),
501(c)(19), or 528 of the Internal
Revenue Code; and
(2) The funds of a sole proprietorship
or unincorporated business owned by a
husband and wife shall be deemed
beneficially owned by ‘‘one or more
individuals.’’
§ 390.298
loan.
Nonresidential construction
The term nonresidential construction
loan means a loan for construction of
other than one or more dwelling units.
§ 390.299
Nonwithdrawable account.
The term nonwithdrawable account
means an account which by the terms of
the contract of the accountholder with
the State savings association or by
provisions of state law cannot be paid
to the accountholder until all liabilities,
including other classes of share liability
of the State savings association have
been fully liquidated and paid upon the
winding up of the State savings
association is referred to as a
nonwithdrawable account.
§ 390.300
Note account.
The term note account means a note,
subject to the right of immediate call,
evidencing funds held by depositories
electing the note option under
applicable United States Treasury
Department regulations. Note accounts
are not savings accounts or savings
deposits.
§ 390.301
[Reserved]
§ 390.302
Officer.
The term Officer means the president,
any vice-president (but not an assistant
vice-president, second vice-president, or
other vice president having authority
similar to an assistant or second vicepresident), the secretary, the treasurer,
the comptroller, and any other person
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performing similar functions with
respect to any organization whether
incorporated or unincorporated. The
term officer also includes the chairman
of the board of directors if the chairman
is authorized by the charter or by-laws
of the organization to participate in its
operating management or if the
chairman in fact participates in such
management.
§ 390.303
Parent company; subsidiary.
The term parent company means any
company which directly or indirectly
controls any other company or
companies. The term subsidiary means
any company which is owned or
controlled directly or indirectly by a
person, and includes a subsidiary
owned in whole or in part by a State
savings association, or a subsidiary of
that subsidiary.
§ 390.304
Political subdivision.
The term political subdivision
includes any subdivision of a public
unit, any principal department of such
public unit:
(a) The creation of which subdivision
or department has been expressly
authorized by state statute,
(b) To which some functions of
government have been delegated by
state statute, and
(c) To which funds have been
allocated by statute or ordinance for its
exclusive use and control. It also
includes drainage, irrigation, navigation,
improvement, levee, sanitary, school or
power districts and bridge or port
authorities and other special districts
created by state statute or compacts
between the states. Excluded from the
term are subordinate or nonautonomous
divisions, agencies or boards within
principal departments.
§ 390.305
Principal office.
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§ 390.306
Public unit.
The term public unit means the
United States, any state of the United
States, the District of Columbia, any
territory of the United States, Puerto
Rico, the Virgin Islands, any county, any
municipality or any political
subdivision thereof.
§ 390.307
Savings account.
17:13 Aug 04, 2011
same priority as account holders or any
higher priority.
§ 390.308
§ 390.313
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State savings association.
Tax and loan account.
The term State savings association
means a State savings association as
defined in section 3 of the Federal
Deposit Insurance Act, the deposits of
which are insured by the Corporation. It
includes a building and loan, savings
and loan, or homestead association, or
a cooperative bank (other than a
cooperative bank which is a State bank
as defined in section 3(a)(2) of the
Federal Deposit Insurance Act)
organized and operating according to
the laws of the State in which it is
chartered or organized, or a corporation
(other than a bank as defined in section
3(a)(1) of the Federal Deposit Insurance
Act) that the Board of Directors of the
Federal Deposit Insurance Corporation
determine to be operating substantially
in the same manner as a State savings
association.
The term tax and loan account means
an account, the balance of which is
subject to the right of immediate
withdrawal, established for receipt of
payments of Federal taxes and certain
United States obligations. Such
accounts are not savings accounts or
savings deposits.
§ 390.309
§ 390.315 United States Treasury Time
Deposit Open Account.
Security.
The term security means any nonwithdrawable account, note, stock,
treasury stock, bond, debenture,
evidence of indebtedness, certificate of
interest or participation in any profitsharing agreement, collateral-trust
certificate, preorganization certificate or
subscription, transferable share,
investment contract, voting-trust
certificate, or, in general, any interest or
instrument commonly known as a
security, or any certificate of interest or
participation in, temporary or interim
certificate for, receipt for, guarantee of,
or warrant or right to subscribe to or
purchase, any of the foregoing, except
that a security shall not include an
account or deposit insured by the
Federal Deposit Insurance Corporation.
Service corporation.
The term service corporation means
any corporation, the majority of the
capital stock of which is owned by one
or more savings associations and which
engages, directly or indirectly, in any
activities similar to activities which may
be engaged in by a service corporation
in which a Federal savings association
may invest.
§ 390.311
State.
The term State means a State, the
District of Columbia, Guam, Puerto
Rico, and the Virgin Islands of the
United States.
§ 390.312
The term savings account means any
withdrawable account, except a demand
account as defined in § 390.290, a tax
and loan account, a note account, a
United States Treasury general account,
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or a United States Treasury time
deposit-open account.
§ 390.310
The term principal office means the
home office of a State savings
association established as such in
conformity with the laws under which
the State savings association is
organized.
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Subordinated debt security.
The term subordinated debt security
means any unsecured note, debenture,
or other debt security issued by a State
savings association and subordinated on
liquidation to all claims having the
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§ 390.314
Account.
United States Treasury General
The term United States Treasury
General Account means an account
maintained in the name of the United
States Treasury the balance of which is
subject to the right of immediate
withdrawal, except in the case of the
closure of the member, and in which a
zero balance may be maintained. Such
accounts are not savings accounts or
savings deposits.
The term United States Treasury Time
Deposit Open Account means a noninterest-bearing account maintained in
the name of the United States Treasury
which may not be withdrawn prior to
the expiration of 30 days’ written notice
from the United States Treasury, or such
other period of notice as the Treasury
may require. Such accounts are not
savings accounts or savings deposits.
§ 390.316
With recourse.
(a) The term with recourse means, in
connection with the sale of a loan or a
participation interest in a loan, an
agreement or arrangement under which
the purchaser is to be entitled to receive
from the seller a sum of money or thing
of value, whether tangible or intangible
(including any substitution), upon
default in payment of any loan involved
or any part thereof or to withhold or to
have withheld from the seller a sum of
money or anything of value by way of
security against default. The recourse
liability resulting from a sale with
recourse shall be the total book value of
any loan sold with recourse less:
(1) The amount of any insurance or
guarantee against loss in the event of
default provided by a third party,
(2) The amount of any loss to be borne
by the purchaser in the event of default,
and
(3) The amount of any loss resulting
from a recourse obligation entered on
the books and records of the State
savings association.
(b) The term with recourse does not
include loans or interests therein where
the agreement of sale provides for the
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State savings association directly or
indirectly
(1) To hold or retain a subordinate
interest in a specified percentage of the
loans or interests; or
(2) To guarantee against loss up to a
specified percentage of the loans or
interests, which specified percentage
shall not exceed ten percent of the
outstanding balance of the loans or
interests at the time of sale: Provided,
that the State savings association
designates adequate reserves for the
subordinate interest or guarantee.
(c) This definition does not apply for
purposes of determining the capital
adequacy requirements under subpart Z.
Subpart R—Regulatory Reporting
Standards
§ 390.320 Regulatory reporting
requirements.
(a) Authority and scope. This subpart
is issued by the FDIC pursuant to 12
U.S.C. sections 1831m; 1831n(a)(2);
1831p–1;1464(v)(1). It applies to all
State savings associations regulated by
the FDIC.
(b) Records and reports—general—(1)
Records. Each State savings association
and its affiliates shall maintain accurate
and complete records of all business
transactions. Such records shall support
and be readily reconcilable to any
regulatory reports submitted to the FDIC
and financial reports prepared in
accordance with GAAP. The records
shall be maintained in the United States
and be readily accessible for
examination and other supervisory
purposes within 5 business days upon
request by the FDIC, at a location
acceptable to the FDIC.
(2) Reports. For purposes of
examination by and regulatory reports
to the FDIC and compliance with this
section, all State savings associations
shall use such forms and follow such
regulatory reporting requirements as the
FDIC may require by regulation or
otherwise.
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§ 390.321
Regulatory reports.
(a) Definition and scope. This section
applies to all regulatory reports, as
defined herein. A regulatory report is
any report that the FDIC prepares, or is
submitted to, or is used by the FDIC, to
determine compliance with its rules and
regulations, and to evaluate the safe and
sound condition and operation of State
savings associations. Regulatory reports
are regulatory documents, not
accounting documents.
(b) Regulatory reporting requirements
—(1) General. The instructions to
regulatory reports are referred to as
‘‘regulatory reporting requirements.’’
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Regulatory reporting requirements
include, but are not limited to, the
accounting instructions, guidance
contained in FDIC regulations, financial
institution letters, manuals, bulletins,
examination handbooks, and safe and
sound practices. Regulatory reporting
requirements are not limited to the
minimum requirements under generally
accepted accounting principles (GAAP)
because of the special supervisory,
regulatory, and economic policy needs
served by such reports. Regulatory
reporting by State savings associations
that purports to comply with GAAP
shall incorporate the GAAP that best
reflects the underlying economic
substance of the transaction at issue.
Regulatory reporting requirements shall,
at a minimum:
(i) Incorporate GAAP whenever GAAP
is the referenced accounting instruction
for regulatory reports to the Federal
banking agencies;
(ii) Incorporate safe and sound
practices contained in FDIC regulations,
financial institution letters, bulletins,
examination handbooks, manuals, and
instructions to regulatory reports; and
(iii) Incorporate additional safety and
soundness requirements more stringent
than GAAP, as the FDIC may prescribe.
(2) Exceptions. Regulatory reporting
requirements that are not consistent
with GAAP, if any, are not required to
be reflected in audited financial
statements, including financial
statements contained in securities
filings submitted to the FDIC pursuant
to the Securities and Exchange Act of
1934 or subparts U and W and 12 CFR
part 192.
(3) Compliance. When the FDIC
determines that a State savings
association’s regulatory reports did not
conform to regulatory reporting
requirements in previous reporting
periods, the association shall correct its
regulatory reports in accordance with
the directions of the FDIC.
§ 390.322 Audit of State savings
associations.
(a) General. The FDIC may require, at
any time, an independent audit of the
financial statements of, or the
application of procedures agreed upon
by the FDIC to a State savings
association, by qualified independent
public accountants when needed for any
safety and soundness reason identified
by the FDIC.
(b) Audits required for safety and
soundness purposes. The FDIC requires
an independent audit for safety and
soundness purposes:
(1) If a State savings association has
received a composite rating of 3, 4 or 5,
as defined at § 390.101(c).
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(2) [Reserved]
(c) Procedures. (1) When the FDIC
requires an independent audit because
such an audit is needed for safety and
soundness purposes, the FDIC shall
determine whether the audit was
conducted and filed in a manner
satisfactory to the FDIC.
(2) The FDIC may waive the
independent audit requirement
described at paragraph (b)(1) of this
section, if the FDIC determines that an
audit would not provide further
information on safety and soundness
issues relevant to the examination
rating.
(3) When the FDIC requires the
application of procedures agreed upon
by the FDIC for safety and soundness
purposes, the FDIC shall identify the
procedures to be performed. The FDIC
shall also determine whether the agreed
upon procedures were conducted and
filed in a manner satisfactory to the
FDIC.
(d) Qualifications for independent
public accountants. The audit shall be
conducted by an independent public
accountant who:
(1) Is registered or licensed to practice
as a public accountant, and is in good
standing, under the laws of the state or
other political subdivision of the United
States in which the State savings
association‘s or holding company’s
principal office is located;
(2) Agrees in the engagement letter to
provide the FDIC with access to and
copies of any work papers, policies, and
procedures relating to the services
performed;
(3)(i) Is in compliance with the
American Institute of Certified Public
Accountants’ (AICPA) Code of
Professional Conduct; and
(ii) Meets the independence
requirements and interpretations of the
Securities and Exchange Commission
and its staff; and
(4) Has received, or is enrolled in, a
peer review program that meets
guidelines acceptable to the FDIC.
(e) Voluntary audits. When a State
savings association obtains an
independent audit voluntarily, it must
be performed by an independent public
accountant who satisfies the
requirements of paragraphs (d)(1), (2),
and (3)(i) of this section.
Subpart S—State Savings
Associations—Operations
§ 390.330
Chartering documents.
(a) Submission for approval. Any de
novo State savings association prior to
commencing operations shall file its
charter and bylaws with the FDIC for
approval, together with a certification
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that such charter and bylaws are
permissible under all applicable laws,
rules and regulations.
(b) Availability of chartering
documents. Each State savings
association shall cause a true copy of its
charter and bylaws and all amendments
thereto to be available to accountholders
at all times in each office of the State
savings association, and shall upon
request deliver to any accountholders a
copy of such charter and bylaws or
amendments thereto.
§ 390.331 Securities: Statement of noninsurance.
Every security issued by a State
savings association must include in its
provisions a clear statement that the
security is not insured by the Federal
Deposit Insurance Corporation.
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§ 390.332 Merger, consolidation, purchase
or sale of assets, or assumption of
liabilities.
(a) No State savings association may,
without application to and approval by
the FDIC:
(1) Combine with any insured
depository institution, if the acquiring
or resulting institution is to be a State
savings association; or
(2) Assume liability to pay any
deposit made in, any insured depository
institution.
(b)(1) No State savings association
may, without notifying the FDIC, as
provided in paragraph (h)(1) of this
section:
(i) Combine with another insured
depository institution where a State
savings association is not the resulting
institution; or
(ii) In the case of a State savings
association that meets the conditions for
expedited treatment under § 390.101,
convert, directly or indirectly, to a
national or state bank.
(2) A State savings association that
does not meet the conditions for
expedited treatment under § 390.101
may not, directly or indirectly, convert
to a national or state bank without prior
application to and approval of FDIC, as
provided in paragraph (h)(2)(ii) of this
section.
(c) No State savings association may
make any transfer (excluding transfers
subject to paragraphs (a) or (b) of this
section) without notice or application to
the FDIC, as provided in paragraph
(h)(2) of this section. For purposes of
this paragraph, the term ‘‘transfer’’
means purchases or sales of assets or
liabilities in bulk not made in the
ordinary course of business including,
but not limited to, transfers of assets or
savings account liabilities, purchases of
assets, and assumptions of deposit
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accounts or other liabilities, and
combinations with a depository
institution other than an insured
depository institution.
(d)(1) In determining whether to
confer approval for a transaction under
paragraphs (a), (b)(2), or (c) of this
section, the FDIC shall take into account
the following:
(i) The capital level of any resulting
State savings association;
(ii) The financial and managerial
resources of the constituent institutions;
(iii) The future prospects of the
constituent institutions;
(iv) The convenience and needs of the
communities to be served;
(v) The conformity of the transaction
to applicable law, regulation, and
supervisory policies;
(vi) Factors relating to the fairness of
and disclosure concerning the
transaction, including, but not limited
to:
(A) Equitable treatment. The
transaction should be equitable to all
concerned—savings account holders,
borrowers, creditors and stockholders (if
any) of each State savings association—
giving proper recognition of and
protection to their respective legal rights
and interests. The transaction will be
closely reviewed for fairness where the
transaction does not appear to be the
result of arms’ length bargaining or, in
the case of a stock State savings
association, where controlling
stockholders are receiving different
consideration from other stockholders.
No finder’s or similar fee should be paid
to any officer, director, or controlling
person of a State savings association
which is a party to the transaction.
(B) Full disclosure. The filing should
make full disclosure of all written or
oral agreements or understandings by
which any person or company will
receive, directly or indirectly, any
money, property, service, release of
pledges made, or other thing of value,
whether tangible or intangible, in
connection with the transaction.
(C) Compensation to officers.
Compensation, including deferred
compensation, to officers, directors and
controlling persons of the disappearing
State savings association by the
resulting institution or an affiliate
thereof should not be in excess of a
reasonable amount, and should be
commensurate with their duties and
responsibilities. The filing should fully
justify the compensation to be paid to
such persons. The transaction will be
particularly scrutinized where any of
such persons is to receive a material
increase in compensation above that
paid by the disappearing State savings
association prior to the commencement
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47721
of negotiations regarding the proposed
transaction. An increase in
compensation in excess of the greater of
15% or $10,000 gives rise to
presumptions of unreasonableness and
sale of control. In the case of such an
increase, evidence sufficient to rebut
such presumptions should be
submitted.
(D) Advisory boards. Advisory board
members should be elected for a term
not exceeding one year. No advisory
board fees should be paid to salaried
officers or employees of the resulting
State savings association. The filing
should describe and justify the duties
and responsibilities and any
compensation paid to any advisory
board of the resulting State savings
association that consists of officers,
directors or controlling persons of the
disappearing institution, particularly if
the disappearing institution experienced
significant supervisory problems prior
to the transaction. No advisory board
fees should exceed the director fees paid
by the resulting State savings
association. Advisory board fees that are
in excess of 115 percent of the director
fees paid by the disappearing State
savings association prior to
commencement of negotiations
regarding the transaction give rise to
presumptions of unreasonableness and
sale of control unless sufficient
evidence to rebut such presumptions is
submitted. Rebuttal evidence is not
required if:
(1) The advisory board fees do not
exceed the fee that advisory board
members of the resulting institution
receive for each monthly meeting
attended or $150, whichever is greater;
or
(2) The advisory board fees do not
exceed $100 per meeting attended for
disappearing State savings associations
with assets greater than $10,000,000 or
$50 per meeting attended for
disappearing State savings associations
with assets of $10,000,000 or less, based
on a schedule of 12 meetings per year.
(E) The accounting and tax treatment
of the transaction; and
(F) Fees paid and professional
services rendered in connection with
the transaction.
(2) In conferring approval of a
transaction under paragraph (a) of this
section, the FDIC also will consider the
competitive impact of the transaction,
including whether:
(i) The transaction would result in a
monopoly, or would be in furtherance of
any monopoly or conspiracy to
monopolize or to attempt to monopolize
the State savings association business in
any part of the United States; or
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(ii) The effect of the transaction on
any section of the country may be
substantially to lessen competition, or
tend to create a monopoly, or in any
other manner would be in restraint of
trade, unless the FDIC finds that the
anticompetitive effects of the proposed
transaction are clearly outweighed in
the public interest by the probable effect
of the transaction in meeting the
convenience and needs of the
communities to be served.
(3) Applications and notices filed
under this section shall be upon forms
prescribed by the FDIC.
(4) Applications filed under
paragraph (a) of this section must be
processed in accordance with the time
frames set forth in §§ 390.127 through
390.135, provided that the period for
review may be extended only if the
FDIC determines that the applicant has
failed to furnish all requested
information or that the information
submitted is substantially inaccurate, in
which case the review period may be
extended for up to 30 days.
(e)(1) The following procedures apply
to applications described in paragraph
(a) of this section, unless the FDIC finds
that it must act immediately to prevent
the probable default of one of the
depository institutions involved:
(i) The applicant must publish a
public notice of the application in
accordance with the procedures in
§§ 390.111 through 390.115. In addition
to the initial publication, the applicant
must also publish on a weekly basis
during the public comment period.
(ii) Commenters may submit
comments on an application in
accordance with the procedures in
§§ 390.116 through 390.120. The public
comment period is 30 calendar days
after the date of publication of the initial
public notice. However, if the FDIC has
advised the Attorney General that an
emergency exists requiring expeditious
action, the public comment period is 10
calendar days after the date of
publication of the initial public notice.
(iii) The FDIC may arrange a meeting
in accordance with the procedures in
§§ 390.121 through 390.125.
(iv) The FDIC will request the
Attorney General, the Office of the
Comptroller of the Currency, and the
Board of Governors of the Federal
Reserve System to provide reports on
the competitive impacts involved in the
transaction.
(v) The FDIC will immediately notify
the Attorney General of the approval of
the transaction. The applicant may not
consummate the transaction before the
date established under 12 U.S.C.
1828(c)(6).
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(2) For applications described in
§ 390.332, certain State savings
associations described below must
provide affected accountholders with a
notice of a proposed account transfer
and an option of retaining the account
in the transferring State savings
association. The notice must allow
affected accountholders at least 30 days
to consider whether to retain their
accounts in the transferring State
savings association. The following State
savings associations must provide the
notices:
(i) A State savings association
transferring account liabilities to an
institution the accounts of which are not
insured by the Deposit Insurance Fund
or the National Credit Union Share
Insurance Fund; and
(ii) Any mutual State savings
association transferring account
liabilities to a stock form depository
institution.
(f) Automatic approvals by the FDIC.
Applications filed pursuant to
paragraph (a) of this section shall be
deemed to be approved automatically by
the FDIC 30 calendar days after the
FDIC sends written notice to the
applicant that the application is
complete, unless:
(1) The acquiring State savings
association does not meet the criteria for
expedited treatment under § 390.101;
(2) The FDIC recommends the
imposition of non-standard conditions
prior to approving the application;
(3) The FDIC suspends the applicable
processing time frames under § 390.125;
(4) The FDIC raises objections to the
transaction;
(5) The resulting State savings
association would be one of the 3 largest
depository institutions competing in the
relevant geographic area where before
the transaction there were 5 or fewer
depository institutions, the resulting
State savings association would have 25
percent or more of the total deposits
held by depository institutions in the
relevant geographic area, and the share
of total deposits would have increased
by 5 percent or more;
(6) The resulting State savings
association would be one of the 2 largest
depository institutions competing in the
relevant geographic area where before
the transaction there were 6 to 11
depository institutions the resulting
State savings association would have 30
percent or more of the total deposits
held by depositing institutions in the
relevant geographic area, and the share
of total deposits would have increased
by 10 percent or more;
(7) The resulting State savings
association would be one of the 2 largest
depository institutions competing in the
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relevant geographic area where before
the transaction there were 12 or more
depository institutions, the resulting
State savings association would have 35
percent or more of the total deposits
held by the depository institutions in
the relevant geographic area, and the
share of total deposits would have
increased by 15 percent or more;
(8) The Herfindahl-Hirschman Index
(HHI) in the relevant geographic area
was more than 1800 before the
transaction, and the increase in the HHI
used by the transaction would be 50 or
more;
(9) In a transaction involving potential
competition, the FDIC determines that
the acquiring State savings association
is one of three or fewer potential
entrants into the relevant geographic
area;
(10) The acquiring State savings
association has assets of $1 billion or
more and proposes to acquire assets of
$1 billion or more;
(11) The State savings association that
will be the resulting State savings
association in the transaction has a
composite Community Reinvestment
Act rating of less than satisfactory, or is
otherwise seriously deficient with
respect to the FDIC’s nondiscrimination
regulations and the deficiencies have
not been resolved to the satisfaction of
the FDIC;
(12) The transaction involves any
supervisory or assistance agreement
with the FDIC;
(13) The transaction is part of a
conversion under 12 CFR part 192;
(14) The transaction raises a
significant issue of law or policy; or
(15) The transaction is opposed by
any constituent institution or contested
by a competing acquiror.
(g) Definitions. (1) The terms used in
this subpart shall have the same
meaning as set forth in 12 CFR
152.13(b).
(2) Insured depository institution.
Insured depository institution has the
same meaning as defined in section
3(c)(2) of the Federal Deposit Insurance
Act.
(3) With regard to paragraph (f) of this
section, the term relevant geographic
area is used as a substitute for relevant
geographic market, which means the
area within which the competitive
effects of a merger or other combination
may be evaluated. The relevant
geographic area shall be delineated as a
county or similar political subdivision,
an area smaller than a county, or an
aggregation of counties within which
the merging or combining insured
depository institutions compete. In
addition, the FDIC may consider
commuting patterns, newspaper and
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other advertising activities, or other
factors as the FDIC deems relevant.
(h) Special requirements and
procedures for transactions under
paragraphs (b) and (c) of this section—
(1)(i) Certain transactions with no
surviving State savings association. The
FDIC must be notified of any transaction
under paragraph (b)(1) of this section.
Such notification must be submitted to
the appropriate FDIC region, as defined
in § 303.2 of this chapter, at least 30
days prior to the effective date of the
transaction, but not later than the date
on which an application relating to the
proposed transaction is filed with the
primary regulator of the resulting
institution; the FDIC may, upon request
or on its own initiative, shorten the 30day prior notification requirement.
Notifications under this paragraph must
demonstrate compliance with
applicable stockholder or accountholder
approval requirements. Where the State
savings association submitting the
notification maintains a liquidation
account established pursuant to 12 CFR
part 192, the notification must state that
the resulting institution will assume
such liquidation account.
(ii) The notification may be in the
form of either a letter describing the
material features of the transaction or a
copy of a filing made with another
Federal or state regulatory agency
seeking approval from that agency for
the transaction under the Bank Merger
Act or other applicable statute. If the
action contemplated by the notification
is not completed within one year after
the FDIC’s receipt of the notification, a
new notification must be submitted to
the FDIC.
(2) Other transfer transactions—(i)
Expedited treatment. A notice in
conformity with § 390.105(a) may be
submitted to the appropriate FDIC
region, as defined in § 303.2 of this
chapter, under § 390.108 for any
transaction under paragraph (c) of this
section, provided all constituent State
savings associations meet the conditions
for expedited treatment under § 390.101.
Notices submitted under this paragraph
must be deemed approved automatically
by the FDIC 30 days after receipt, unless
the FDIC advises the applicant in
writing prior to the expiration of such
period that the proposed transaction
may not be consummated without the
FDIC’s approval of an application under
paragraphs (h)(2)(ii) or (h)(2)(iii) of this
section.
(ii) Standard treatment. An
application in conformity with
§ 390.105(b) and paragraph (d) of this
section must be submitted to the
appropriate FDIC region, as defined in
§ 303.2 of this chapter, under § 390.108
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by each State savings association
participating in a transaction under
paragraph (b)(2) or (c) of this section,
where any constituent State savings
association does not meet the conditions
for expedited treatment under § 390.101.
Applications under this paragraph must
be processed in accordance with
§§ 390.103 through 390.110 and
§§ 390.126 through 390.135.
§ 390.333
Advertising.
No State savings association shall use
advertising (which includes print or
broadcast media, displays or signs,
stationery, and all other promotional
materials), or make any representation
which is inaccurate in any particular or
which in any way misrepresents its
services, contracts, investments, or
financial condition.
§ 390.334 Directors, officers, and
employees.
(a) Directors—(1) Requirements. The
composition of the board of directors of
a State savings association must be in
accordance with the following
requirements:
(i) A majority of the directors must
not be salaried officers or employees of
the State savings association or of any
subsidiary or (except in the case of a
State savings association having 80% or
more of any class of voting shares
owned by a holding company) any
holding company affiliate thereof.
(ii) Not more than two of the directors
may be members of the same immediate
family.
(iii) Not more than one director may
be an attorney with a particular law
firm.
(2) Prospective application. In the
case of an association whose board of
directors does not conform with any
requirement set forth in paragraph (a)(1)
of this section as of October 5, 1983, this
paragraph (a) shall not prohibit the
uninterrupted service, including reelection and re-appointment, of any
person serving on the board of directors
at that date.
(b) [Reserved]
§ 390.335
Tying restriction exception.
For applicable rules, see the
regulations issued by the Board of
Governors of the Federal Reserve
System.
§ 390.336
Employment contracts.
(a) General. A State savings
association may enter into an
employment contract with its officers
and other employees only in accordance
with the requirements of this section.
All employment contracts shall be in
writing and shall be approved
specifically by a State savings
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47723
association’s board of directors. A State
savings association shall not enter into
an employment contract with any of its
officers or other employees if such
contract would constitute an unsafe or
unsound practice. The making of such
an employment contract would be an
unsafe or unsound practice if such
contract could lead to material financial
loss or damage to the State savings
association or could interfere materially
with the exercise by the members of its
board of directors of their duty or
discretion provided by law, charter,
bylaw or regulation as to the
employment or termination of
employment of an officer or employee of
the State savings association. This may
occur, depending upon the
circumstances of the case, where an
employment contract provides for an
excessive term.
(b) Required provisions. Each
employment contract shall provide that:
(1) The State savings association’s
board of directors may terminate the
officer or employee’s employment at
any time, but any termination by the
State savings association’s board of
directors other than termination for
cause, shall not prejudice the officer or
employee’s right to compensation or
other benefits under the contract. The
officer or employee shall have no right
to receive compensation or other
benefits for any period after termination
for cause. Termination for cause shall
include termination because of the
officer or employee’s personal
dishonesty, incompetence, willful
misconduct, breach of fiduciary duty
involving personal profit, intentional
failure to perform stated duties, willful
violation of any law, rule, or regulation
(other than traffic violations or similar
offenses) or final cease-and-desist order,
or material breach of any provision of
the contract.
(2) If the officer or employee is
suspended and/or temporarily
prohibited from participating in the
conduct of the State savings
association’s affairs by a notice served
under section 8(e)(3) or (g)(1) of Federal
Deposit Insurance Act (12 U.S.C.
1818(e)(3) and (g)(1)), the State savings
association’s obligations under the
contract shall be suspended as of the
date of service unless stayed by
appropriate proceedings. If the charges
in the notice are dismissed, the State
savings association may in its
discretion:
(i) Pay the officer or employee all or
part of the compensation withheld
while its contract obligations were
suspended; and
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(ii) Reinstate (in whole or in part) any
of its obligations which were
suspended.
(3) If the officer or employee is
removed and/or permanently prohibited
from participating in the conduct of the
State savings association’s affairs by an
order issued under section 8 (e)(4) or
(g)(1) of the Federal Deposit Insurance
Act (12 U.S.C. 1818 (e)(4) or (g)(1)), all
obligations of the State savings
association under the contract shall
terminate as of the effective date of the
order, but vested rights of the
contracting parties shall not be affected.
(4) If the State savings association is
in default (as defined in section 3(x)(1)
of the Federal Deposit Insurance Act),
all obligations under the contract shall
terminate as of the date of default, but
this paragraph (b)(4) shall not affect any
vested rights of the contracting parties:
Provided, that this paragraph (b)(4) need
not be included in an employment
contract if prior written approval is
secured from the FDIC.
(5)(i) All obligations under the
contract shall be terminated, except to
the extent determined that continuation
of the contract is necessary of the
continued operation of the State savings
association
(A) By the FDIC, at the time the FDIC
enters into an agreement to provide
assistance to or on behalf of the State
savings association under the authority
contained in 13(c) of the Federal
Deposit Insurance Act; or
(B) By the FDIC, at the time the FDIC
approves a supervisory merger to
resolve problems related to operation of
the State savings association or when
the State savings association is
determined by the FDIC to be in an
unsafe or unsound condition.
(ii) Any rights of the parties that have
already vested, however, shall not be
affected by such action.
§ 390.337
Transactions with affiliates.
For applicable rules, see the
regulations issued by the Board of
Governors of the Federal Reserve
System.
mstockstill on DSK4VPTVN1PROD with RULES2
§ 390.338 Loans by State savings
associations to their executive officers,
directors, and principal shareholders.
For applicable rules, see the
regulations issued by the Board of
Governors of the Federal Reserve
System.
§ 390.339
Pension plans.
(a) General. No State savings
association shall sponsor an employee
pension plan which, because of
unreasonable costs or any other reason,
could lead to material financial loss or
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damage to the sponsor. For purposes of
this section, an employee pension plan
is defined in section 3(2) of the
Employee Retirement Income Security
Act of 1974, as amended. The
prospective obligation or liability of a
plan sponsor to each plan participant
shall be stated in or determinable from
the plan, and, for a defined benefit plan,
shall also be based upon an actuarial
estimate of future experience under the
plan.
(b) Funding. Actuarial cost methods
permitted under the Employee
Retirement Income Security Act of 1974
and the Internal Revenue Code of 1954,
as amended, shall be used to determine
plan funding.
(c) Plan amendment. A plan may be
amended to provide reasonable annual
cost-of-living increases to retired
participants: Provided, That
(1) Any such increase shall be for a
period and amount determined by the
sponsor’s board of directors, but in no
event shall it exceed the annual increase
in the Consumer Price Index published
by the Bureau of Labor Statistics; and
(2) No increase shall be granted
unless:
(i) Anticipated charges to net income
for future periods have first been found
by such board of directors to be
reasonable and are documented by
appropriate resolution and supporting
analysis; and
(ii) The increase will not reduce the
State savings association’s regulatory
capital below its regulatory capital
requirement.
(d) Termination. The plan shall
permit the sponsor’s board of directors
and its successors to terminate such
plan. Notice of intent to terminate shall
be filed with the FDIC at least 60 days
prior to the proposed termination date.
(e) Records. Each State savings
association maintaining a plan not
subject to recordkeeping and reporting
requirements of the Employee
Retirement Income Security Act of 1974,
and the Internal Revenue Code of 1954,
as amended, shall establish and
maintain records containing the
following:
(1) Plan description;
(2) Schedule of participants and
beneficiaries;
(3) Schedule of participants and
beneficiaries’ rights and obligations;
(4) Plan’s financial statements; and
(5) Except for defined contribution
plans, an opinion signed by an enrolled
actuary (as defined by the Employee
Retirement Income Security Act of
1974) affirming that actuarial
assumptions in the aggregate are
reasonable, take into account the plan’s
experience and expectations, and
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Fmt 4701
Sfmt 4700
represent the actuary’s best estimate of
the plan’s projected experiences.
§ 390.340 Offers and sales of securities at
an office of a State savings association.
(a) A State saving association may not
offer or sell debt or equity securities
issued by the State savings association
or an affiliate of the State savings
association at an office of the State
savings association; except that equity
securities issued by the State savings
association or an affiliate in connection
with the State savings association’s
conversion from the mutual to stock
form of organization in a conversion
approved pursuant to 12 CFR part 192
may be offered and sold at the State
savings association’s offices: Provided,
That:
(1) The FDIC does not object on
supervisory grounds that the offer and
sale of the securities at the offices of the
State savings association;
(2) No commissions, bonuses, or
comparable payments are paid to any
employee of the State savings
association or its affiliates or to any
other person in connection with the sale
of securities at an office of a State
savings association; except that
compensation and commissions
consistent with industry norms may be
paid to securities personnel of registered
broker-dealers;
(3) No offers or sales are made by
tellers or at the teller counter, or by
comparable persons at comparable
locations;
(4) Sales activity is conducted in a
segregated or separately identifiable area
of the State savings association’s offices
apart from the area accessible to the
general public for the purposes of
making or withdrawing deposits;
(5) Offers and sales are made only by
regular, full-time employees of the State
savings association or by securities
personnel who are subject to
supervision by a registered brokerdealer;
(6) An acknowledgment, in the form
set forth in paragraph (c) of this section,
is signed by any customer to whom the
security is sold in the State savings
association’s offices prior to the sale of
any such securities;
(7) A legend that the security is not a
deposit or account and is not federally
insured or guaranteed appears
conspicuously on the security and in all
offering documents and advertisements
for the securities; the legend must state
in bold or other prominent type at least
as large as other textual type in the
document that ‘‘This security is not a
deposit or account and is not federally
insured or guaranteed’’; and
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association does not include covered
securities in supplementary capital, it is
not required to comply with this
section.
(b) Application and notice
procedures. (1) A State savings
association must file an application or
notice under §§ 390.103 through
390.110 seeking FDIC approval of, or
non-objection to, the inclusion of
covered securities in supplementary
capital. The State savings association
may file its application or notice before
or after it issues covered securities, but
may not include covered securities in
supplementary capital until the FDIC
approves the application or does not
FORM OF CERTIFICATION
object to the notice.
I ACKNOWLEDGE THAT THIS
(2) A State savings association must
SECURITY IS NOT A DEPOSIT OR
also comply with the securities offering
ACCOUNT AND IS NOT FEDERALLY
rules at subpart W by filing an offering
INSURED, AND IS NOT GUARANTEED circular for a proposed issuance of
BY [insert name of State savings
covered securities, unless the offering
association] OR BY THE FEDERAL
qualifies for an exemption under that
GOVERNMENT.
subpart.
If anyone asserts that this security is
(c) Securities requirements. To be
federally insured or guaranteed, or is as
included in supplementary capital,
safe as an insured deposit, I should call
covered securities must meet the
the FDIC’s appropriate regional director following requirements:
[insert name and telephone number
(1) Form. (i) Each certificate
with area code of the appropriate
evidencing a covered security must:
(A) Bear the following legend on its
regional director, as defined in section
face, in bold type: ‘‘This security is not
303.2 of this chapter].
I further certify that, before
a savings account or deposit and it is
purchasing the [description of security
not insured by the United States or any
being offered] of [name of issuer, name
agency or fund of the United States;’’
(B) State that the security is
of State savings association and
subordinated on liquidation, as to
affiliation to issuer (if different)], I
principal, interest, and premium, to all
received an offering circular.
claims against the State savings
The offering circular that I received
association that have the same priority
contains disclosure concerning the
as savings accounts or a higher priority;
nature of the security being offered and
(C) State that the security is not
describes the risks involved in the
secured by the State savings
investment, including:
association’s assets or the assets of any
[List briefly the principal risks
affiliate of the State savings association.
involved and cross reference certain
For purposes of this subpart, the term
specified pages of the offering circular
affiliate means any person or company
where a more complete description of
which controls, is controlled by, or is
the risks is made.]
Signature: llllllllllllllll under common control with such State
Date: llllllllllllllllll savings association.
(D) State that the security is not
(d) For purposes of this section, an
eligible collateral for a loan by the State
‘‘office’’ of a State savings association
savings association;
means any premises used by the State
(E) State the prohibition on the
savings association that are identified to
payment of dividends or interest at 12
the public through advertising or
U.S.C. 1828(b) and, in the case of
signage using the State savings
association’s name, trade name, or logo. subordinated debt securities, state the
prohibition on the payment of principal
§ 390.341 Inclusion of subordinated debt
and interest at 12 U.S.C. 1831o(h);
securities and mandatorily redeemable
(F) For subordinated debt securities,
preferred stock as supplementary capital.
state or refer to a document stating the
(a) Scope. A State savings association
terms under which the State savings
must comply with this section in order
association may prepay the obligation;
to include subordinated debt securities
and
(G) State or refer to a document
or mandatorily redeemable preferred
stating that the State savings association
stock (‘‘covered securities’’) in
must obtain FDIC approval before the
supplementary capital (tier 2 capital)
voluntarily prepayment of principal on
under subpart Z. If a State savings
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(8) The State savings association will
be in compliance with its current capital
requirements upon completion of the
conversion stock offering.
(b) Securities sales practices,
advertisements, and other sales
literature used in connection with offers
and sales of securities by State savings
associations shall be subject to
§ 390.419.
(c) Offers and sales of securities of a
State savings association or its affiliates
in any office of the State savings
association must use a one-page,
unambiguous, certification in
substantially the following form:
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Fmt 4701
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47725
subordinated debt securities, the
acceleration of payment of principal on
subordinated debt securities, or the
voluntarily redemption of mandatorily
redeemable preferred stock (other than
scheduled redemptions), if the State
savings association is undercapitalized,
significantly undercapitalized, or
critically undercapitalized as described
in § 390.453(4)(b), fails to meet the
regulatory capital requirements at
subpart Z, or would fail to meet any of
these standards following the payment.
(ii) A State savings association must
include such additional statements as
the FDIC may prescribe for certificates,
purchase agreements, indentures, and
other related documents.
(2) Maturity requirements. Covered
securities must have an original
weighted average maturity or original
weighted average period to required
redemption of at least five years.
(3) Mandatory prepayment.
Subordinated debt securities and related
documents may not provide events of
default or contain other provisions that
could result in a mandatory prepayment
of principal, other than events of default
that:
(i) Arise from the State savings
association’s failure to make timely
payment of interest or principal;
(ii) Arise from its failure to comply
with reasonable financial, operating,
and maintenance covenants of a type
that are customarily included in
indentures for publicly offered debt
securities; or
(iii) Relate to bankruptcy, insolvency,
receivership, or similar events.
(4) Indenture. (i) Except as provided
in paragraph (c)(4)(ii) of this section, a
State savings association must use an
indenture for subordinated debt
securities. If the aggregate amount of
subordinated debt securities publicly
offered (excluding sales in a non-public
offering as defined in § 390.413 and sold
in any consecutive 12-month or 36month period exceeds $5,000,000 or
$10,000,000 respectively (or such lesser
amount that the Securities and
Exchange Commission shall establish by
rule or regulation under 15 U.S.C.
77ddd), the indenture must provide for
the appointment of a trustee other than
the State savings association or an
affiliate of the State savings association
(as defined at § 390.283) and for
collective enforcement of the security
holders’ rights and remedies.
(ii) A State savings association is not
required to use an indenture if the
subordinated debt securities are sold
only to accredited investors, as that term
is defined in 15 U.S.C. 77d(6). A State
savings association must have an
indenture that meets the requirements
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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations
of paragraph (c)(4)(i) of this section in
place before any debt securities for
which an exemption from the indenture
requirement is claimed, are transferred
to any non-accredited investor. If a State
savings association relies on this
exemption from the indenture
requirement, it must place a legend on
the debt securities indicating that an
indenture must be in place before the
debt securities are transferred to any
non-accredited investor.
(d) FDIC review. (1) The FDIC will
review notices and applications under
§§ 390.126 through 390.135.
(2) In reviewing notices and
applications under this section, the
FDIC will consider whether:
(i) The issuance of the covered
securities is authorized under
applicable laws and regulations and is
consistent with the State savings
association’s charter and bylaws.
(ii) The State savings association is at
least adequately capitalized under
§ 390.453(4)(b) and meets the regulatory
capital requirements at subpart Z.
(iii) The State savings association is or
will be able to service the covered
securities.
(iv) The covered securities are
consistent with the requirements of this
section.
(v) The covered securities and related
transactions sufficiently transfer risk
from the Deposit Insurance Fund.
(vi) The FDIC has no objection to the
issuance based on the State savings
association’s overall policies, condition,
and operations.
(3) The FDIC approval or nonobjection is conditioned upon no
material changes to the information
disclosed in the application or notice
submitted to the FDIC. The FDIC may
impose such additional requirements or
conditions as it may deem necessary to
protect purchasers, the State savings
association, or the Deposit Insurance
Fund.
(e) Amendments. If a State savings
association amends the covered
securities or related documents
following the completion of the FDIC’s
review, it must obtain the FDIC’s
approval or non-objection under this
section before it may include the
amended securities in supplementary
capital.
(f) Sale of covered securities. The
State savings association must complete
the sale of covered securities within one
year after the FDIC’s approval or nonobjection under this section. A State
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Jkt 223001
savings association may request an
extension of the offering period by filing
a written request with the FDIC. The
State savings association must
demonstrate good cause for the
extension and file the request at least 30
days before the expiration of the offering
period or any extension of the offering
period.
(g) Reports. A State savings
association must file the following
information with the FDIC within 30
days after the State savings association
completes the sale of covered securities
includable as supplementary capital. If
the State savings association filed its
application or notice following the
completion of the sale, it must submit
this information with its application or
notice:
(1) A written report indicating the
number of purchasers, the total dollar
amount of securities sold, the net
proceeds received by the State savings
association from the issuance, and the
amount of covered securities, net of all
expenses, to be included as
supplementary capital;
(2) Three copies of an executed form
of the securities and a copy of any
related documents governing the
issuance or administration of the
securities; and
(3) A certification by the appropriate
executive officer indicating that the
State savings association complied with
all applicable laws and regulations in
connection with the offering, issuance,
and sale of the securities.
§ 390.342 Capital distributions by State
savings associations.
Sections 390.342 through 390.348
apply to all capital distributions by a
State savings association (‘‘you’’).
§ 390.343
What is a capital distribution?
A capital distribution is:
(a) A distribution of cash or other
property to your owners made on
account of their ownership, but
excludes:
(1) Any dividend consisting only of
your shares or rights to purchase your
shares; or
(2) If you are a mutual State savings
association, any payment that you are
required to make under the terms of a
deposit instrument and any other
amount paid on deposits that the FDIC
determines is not a distribution for the
purposes of this section;
(b) Your payment to repurchase,
redeem, retire or otherwise acquire any
of your shares or other ownership
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Fmt 4701
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interests, any payment to repurchase,
redeem, retire, or otherwise acquire debt
instruments included in your total
capital under subpart Z, and any
extension of credit to finance an
affiliate’s acquisition of your shares or
interests;
(c) Any direct or indirect payment of
cash or other property to owners or
affiliates made in connection with a
corporate restructuring. This includes
your payment of cash or property to
shareholders of another savings
association or to shareholders of its
holding company to acquire ownership
in that savings association, other than
by a distribution of shares;
(d) Any other distribution charged
against your capital accounts if you
would not be well capitalized, as set
forth in § 390.453(b)(1), following the
distribution; and
(e) Any transaction that the FDIC
determines, by order or regulation, to be
in substance a distribution of capital.
§ 390.344 Definitions applicable to capital
distributions.
The following definitions apply to
sections 390.342 through 390.348:
Affiliate means an affiliate, as defined
in regulations governing transactions
with affiliates as issued by the Board of
Governors of the Federal Reserve
System.
Capital means total capital, as
computed under subpart Z.
Net income means your net income
computed in accordance with generally
accepted accounting principles.
Retained net income means your net
income for a specified period less total
capital distributions declared in that
period.
Shares means common and preferred
stock, and any options, warrants, or
other rights for the acquisition of such
stock. The term ‘‘share’’ also includes
convertible securities upon their
conversion into common or preferred
stock. The term does not include
convertible debt securities prior to their
conversion into common or preferred
stock or other securities that are not
equity securities at the time of a capital
distribution.
§ 390.345
Must I file with the FDIC?
Whether and what you must file with
the FDIC depends on whether you and
your proposed capital distribution fall
within certain criteria.
(a) Application required.
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If:
Then you:
(1) You are not eligible for expedited treatment under § 390.101 ..................................................
(2) The total amount of all of your capital distributions (including the proposed capital distribution) for the applicable calendar year exceeds your net income for that year to date plus your
retained net income for the preceding two years.
(3) You would not be at least adequately capitalized, as set forth in § 390.453(b)(2), following
the distribution.
(4) Your proposed capital distribution would violate a prohibition contained in any applicable
statute, regulation, or agreement between you and the FDIC, or violate a condition imposed
on you in an FDIC-approved application or notice.
47727
Must file an application with the FDIC.
Must file an application with the FDIC.
Must file an application with the FDIC.
Must file an application with the FDIC.
(b) Notice required.
If you are not required to file an application under paragraph (a) of this section, but:
Then you:
(1) You would not be well capitalized, as set forth under § 390.453(b)(1), following the distribution.
(2) Your proposed capital distribution would reduce the amount of or retire any part of your
common or preferred stock or retire any part of debt instruments such as notes or debentures included in capital under subpart Z (other than regular payments required under a debt
instrument approved under § 390.341).
Must file a notice with the FDIC.
Must file a notice with the FDIC.
(c) No prior notice required.
If neither you nor your proposed capital distribution meet any of the criteria listed in paragraphs
(a) and (b) of this section.
Then you do not need to file a notice or an application with the FDIC before making a capital distribution.
§ 390.346
financial policies that are safe and
consistent with economical home
financing and the purposes of State
savings associations.
(2) As part of meeting its requirements
under paragraph (a)(1) of this section,
each State savings association must
maintain sufficient liquidity to ensure
its safe and sound operation.
(b) Compensation to officers,
directors, and employees of each State
savings association shall not be in
excess of that which is reasonable and
commensurate with their duties and
responsibilities. Former officers,
directors, and employees of State
savings association who regularly
perform services therefor under
consulting contracts are employees
thereof for purposes of this paragraph
(b).
How do I file with the FDIC?
(a) Contents. Your notice or
application must:
(1) Be in narrative form.
(2) Include all relevant information
concerning the proposed capital
distribution, including the amount,
timing, and type of distribution.
(3) Demonstrate compliance with
§ 390.348.
(b) Schedules. Your notice or
application may include a schedule
proposing capital distributions over a
specified period, not to exceed 12
months.
(c) Timing. You must file your notice
or application at least 30 days before the
proposed declaration of dividend or
approval of the proposed capital
distribution by your board of directors.
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§ 390.347 May I combine my notice or
application with other notices or
applications?
You may combine the notice or
application required under § 390.345
with any other notice or application, if
the capital distribution is a part of, or is
proposed in connection with, another
transaction requiring a notice or
application under Parts 390 and 391. If
you submit a combined filing, you must:
(a) State that the related notice or
application is intended to serve as a
notice or application under §§ 390.342
through 390.348; and
(b) Submit the notice or application in
a timely manner.
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§ 390.348 Will the FDIC permit my capital
distribution?
The FDIC will review your notice or
application under the review
procedures in §§ 390.126 through
390.135. The FDIC may disapprove your
notice or deny your application filed
under § 390.345 in whole or in part, if
the FDIC makes any of the following
determinations.
(a) You will be undercapitalized,
significantly undercapitalized, or
critically undercapitalized as set forth in
§ 390.453(b), following the capital
distribution. If so, the FDIC will
determine if your capital distribution is
permitted under 12 U.S.C.
1831o(d)(1)(B).
(b) Your proposed capital distribution
raises safety or soundness concerns.
(c) Your proposed capital distribution
violates a prohibition contained in any
statute, regulation, agreement between
you and the FDIC or a condition
imposed on you in an FDIC-approved
application or notice. If so, the FDIC
will determine whether it may permit
your capital distribution
notwithstanding the prohibition or
condition.
§ 390.349
policies.
Management and financial
(a)(1) For the protection of depositors
and other State savings associations,
each State savings association must be
well managed and operate safely and
soundly. Each also must pursue
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§ 390.350 Examinations and audits;
appraisals; establishment and maintenance
of records.
(a) Examinations and audits. Each
State savings association and affiliate
thereof shall be examined periodically,
and may be examined at any time, by
the FDIC, with appraisals when deemed
advisable, in accordance with general
policies from time to time established
by the FDIC.
(b) Appraisals. (1) Unless otherwise
ordered by the FDIC, appraisal of real
estate by the FDIC in connection with
any examination or audit of a State
savings association or its affiliate shall
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be made by an appraiser, or by
appraisers, selected by the appropriate
FDIC region, as that term is defined in
§ 303.2 of this chapter, in which such
State savings association is located. The
cost of such appraisal shall promptly be
paid by such State savings association
or its affiliate direct to such appraiser or
appraisers upon receipt by the State
savings association or its affiliate of a
statement of such cost as approved by
the appropriate regional director. A
copy of the report of each appraisal
made by the FDIC pursuant to any of the
foregoing provisions of this section shall
be furnished to the State savings
association or its affiliate, as appropriate
within a reasonable time, not to exceed
90 days, following the completion of
such appraisals and the filing of a report
thereof by the appraiser, or appraisers,
with the appropriate FDIC office.
(2) The FDIC may obtain at any time,
at its expense, such appraisals of any of
the assets, including the security
therefor, of a State savings association or
its affiliate as the FDIC deems
appropriate.
(c) Establishment and maintenance of
records. To enable the FDIC to examine
State savings associations and affiliates
and audit State savings associations and
its affiliates, pursuant to the provisions
of paragraph (a) of this section, each
State savings association, and its
affiliate shall establish and maintain
such accounting and other records as
will provide an accurate and complete
record of all business it transacts. This
includes, without limitation,
establishing and maintaining such other
records as are required by statute or any
other regulation to which the State
savings association and its affiliate is
subject. The documents, files, and other
material or property comprising said
records shall at all times be available for
such examination and audit wherever
any of said records, documents, files,
material, or property may be.
(d) Change in location of records. A
State savings association shall not
transfer the location of any of its general
accounting or control records, or the
maintenance thereof, from its home
office to a branch or service office, or
from a branch or service office to its
home office or to another branch or
service office unless prior to the date of
transfer its board of directors has:
(1) By resolution authorized the
transfer or maintenance and;
(2) Sent a certified copy of the
resolution to the appropriate regional
director for the region in which the
principal office of the State savings
association is located.
(e) Use of data processing services for
maintenance of records. A State savings
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association which determines to
maintain any of its records by means of
data processing services shall so notify
the appropriate regional director for the
region in which the principal office of
such State savings association is
located, in writing, at least 90 days prior
to the date on which such maintenance
of records will begin. Such notification
shall include identification of the
records to be maintained by data
processing services and a statement as
to the location at which such records
will be maintained. Any contract,
agreement, or arrangement made by a
State savings association pursuant to
which data processing services are to be
performed for such State savings
association shall be in writing and shall
expressly provide that the records to be
maintained by such services shall at all
times be available for examination and
audit.
§ 390.351 Frequency of safety and
soundness examination.
(a) General. The FDIC examines State
savings associations pursuant to
authority conferred by 12 U.S.C. 1463
and the requirements of 12 U.S.C.
1820(d). The FDIC is required to
conduct a full-scope, on-site
examination of every State savings
association at least once during each 12month period.
(b) 18-month rule for certain small
institutions. The FDIC may conduct a
full-scope, on-site examination of a
State savings association 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 State savings association has
total assets of less than $500 million;
(2) The State savings association is
well capitalized as defined in § 390.453;
(3) At its most recent examination, the
FDIC—
(i) Assigned the State savings
association a rating of 1 or 2 for
management as part of the State savings
association’s composite rating under the
Uniform Financial Institutions Rating
System (commonly referred to as
CAMELS), and
(ii) Determined that the State savings
association was in outstanding or good
condition, that is, it received a
composite rating, as defined in
§ 390.101(c), of 1 or 2;
(4) The State savings association
currently is not subject to a formal
enforcement proceeding or order by the
FDIC; and
(5) No person acquired control of the
State savings association during the
preceding 12-month period in which a
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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 State savings association
as frequently as the agency deems
necessary.
§ 390.352
Financial derivatives.
(a) What is a financial derivative? A
financial derivative is a financial
contract whose value depends on the
value of one or more underlying assets,
indices, or reference rates. The most
common types of financial derivatives
are futures, forward commitments,
options, and swaps. A mortgage
derivative security, such as a
collateralized mortgage obligation or a
real estate mortgage investment conduit,
is not a financial derivative under this
section.
(b) May I engage in transactions
involving financial derivatives? (1)
[Reserved]
(2) If you are a State savings
association, you may engage in a
transaction involving a financial
derivative if your charter or applicable
State law authorizes you to engage in
such transactions, the transaction is safe
and sound, and you otherwise meet the
requirements in this section.
(3) In general, if you engage in a
transaction involving a financial
derivative, you should do so to reduce
your risk exposure.
(c) What are my board of directors’
responsibilities with respect to financial
derivatives? (1) Your board of directors
is responsible for effective oversight of
financial derivatives activities.
(2) Before you may engage in any
transaction involving a financial
derivative, your board of directors must
establish written policies and
procedures governing authorized
financial derivatives. Your board of
directors should review Thrift Bulletin
13a, ‘‘Management of Interest Rate Risk,
Investment Securities, and Derivatives
Activities,’’ and other applicable agency
guidance on establishing a sound risk
management program.
(3) Your board of directors must
periodically review:
(i) Compliance with the policies and
procedures established under paragraph
(c)(2) of this section; and
(ii) The adequacy of these policies
and procedures to ensure that they
continue to be appropriate to the nature
and scope of your operations and
existing market conditions.
(4) Your board of directors must
ensure that management establishes an
adequate system of internal controls for
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transactions involving financial
derivatives.
(d) What are management’s
responsibilities with respect to financial
derivatives? (1) Management is
responsible for daily oversight and
management of financial derivatives
activities. Management must implement
the policies and procedures established
by the board of directors and must
establish a system of internal controls.
This system of internal controls should,
at a minimum, provide for periodic
reporting to the board of directors and
management, segregation of duties, and
internal review procedures.
(2) Management must ensure that
financial derivatives activities are
conducted in a safe and sound manner
and should review Thrift Bulletin 13a,
‘‘Management of Interest Rate Risk,
Investment Securities, and Derivatives
Activities,’’ and other applicable agency
guidance on implementing a sound risk
management program.
(e) What records must I keep on
financial derivative transactions? You
must maintain records adequate to
demonstrate compliance with this
section and with your board of
directors’ policies and procedures on
financial derivatives.
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§ 390.353 Interest-rate-risk-management
procedures.
State savings associations shall take
the following actions:
(a) The board of directors or a
committee thereof shall review the State
savings association’s interest-rate-risk
exposure and devise a policy for the
State savings association’s management
of that risk.
(b) The board of directors shall
formerly adopt a policy for the
management of interest-rate risk. The
management of the State savings
association shall establish guidelines
and procedures to ensure that the
board’s policy is successfully
implemented.
(c) The management of the State
savings association shall periodically
report to the board of directors regarding
implementation of the State savings
association’s policy for interest-rate-risk
management and shall make that
information available upon request to
the FDIC.
(d) The State savings association’s
board of directors shall review the
results of operations at least quarterly
and shall make such adjustments as it
considers necessary and appropriate to
the policy for interest-rate-risk
management, including adjustments to
the authorized acceptable level of
interest-rate risk.
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§ 390.354 Procedures for monitoring Bank
Secrecy Act (BSA) compliance.
(a) Purpose. The purpose of this
regulation is to require State savings
associations (as defined by § 390.308 to
establish and maintain procedures
reasonably designed to assure and
monitor compliance with the
requirements of subchapter II of chapter
53 of title 31, United States Code, and
the implementing regulations
promulgated thereunder by the U.S.
Department of Treasury, 31 CFR part
103.
(b) Establishment of a BSA
compliance program—(1) Program
requirement. Each State savings
association shall develop and provide
for the continued administration of a
program reasonably designed to assure
and monitor compliance with the
recordkeeping and reporting
requirements set forth in subchapter II
of chapter 53 of title 31, United States
Code and the implementing regulations
issued by the Department of the
Treasury at 31 CFR part 103. The
compliance program must be written,
approved by the State savings
association’s board of directors, and
reflected in the minutes of the State
savings association.
(2) Customer identification program.
Each State savings association is subject
to the requirements of 31 U.S.C. 5318(l)
and the implementing regulation
promulgated at 31 CFR 103.121, which
require a customer identification
program to be implemented as part of
the BSA compliance program required
under this section.
(c) Contents of compliance program.
The compliance program shall, at a
minimum:
(1) Provide for a system of internal
controls to assure ongoing compliance;
(2) Provide for independent testing for
compliance to be conducted by a
savings association’s in-house personnel
or by an outside party;
(3) Designate individual(s)
responsible for coordinating and
monitoring day-to-day compliance; and
(4) Provide training for appropriate
personnel.
§ 390.355 Suspicious Activity Reports and
other reports and statements.
(a) Periodic reports. Each State
savings association shall make such
periodic or other reports of its affairs in
such manner and on such forms as the
FDIC may prescribe. The FDIC may
provide that reports filed by State
savings associations to meet the
requirements of other regulations also
satisfy requirements imposed under this
section.
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(b) False or misleading statements or
omissions. No State savings association
or director, officer, agent, employee,
affiliated person, or other person
participating in the conduct of the
affairs of such State savings association
nor any person filing or seeking
approval of any application shall
knowingly:
(1) Make any written or oral statement
to the FDIC or to an agent,
representative or employee of the FDIC
that is false or misleading with respect
to any material fact or omits to state a
material fact concerning any matter
within the jurisdiction of the FDIC; or
(2) Make any such statement or
omission to a person or organization
auditing a State savings association or
otherwise preparing or reviewing its
financial statements concerning the
accounts, assets, management condition,
ownership, safety, or soundness, or
other affairs of the State savings
association.
(c) Notifications of loss and reports of
increase in deductible amount of bond.
A State savings association maintaining
bond coverage as required by § 390.356
shall promptly notify its bond company
and file a proof of loss under the
procedures provided by its bond,
concerning any covered losses greater
than twice the deductible amount.
(d) Suspicious Activity Reports—(1)
Purpose and scope. This paragraph (d)
ensures that State savings associations
and service corporations file a
Suspicious Activity Report when they
detect a known or suspected violation of
Federal law or a suspicious transaction
related to a money laundering activity
or a violation of the Bank Secrecy Act.
(2) Definitions. For the purposes of
this paragraph (d):
(i) FinCEN means the Financial
Crimes Enforcement Network of the
Department of the Treasury.
(ii) Institution-affiliated party means
any institution-affiliated party as that
term is defined in sections 3(u) and
8(b)(9) of the Federal Deposit Insurance
Act (12 U.S.C. 1813(u) and 1818(b)(9)).
(iii) SAR means a Suspicious Activity
Report on the form prescribed by the
FDIC.
(3) SARs required. A State savings
association shall file a SAR with the
appropriate Federal law enforcement
agencies and the Department of the
Treasury in accordance with the form’s
instructions, by sending a completed
SAR to FinCEN in the following
circumstances:
(i) Insider abuse involving any
amount. Whenever the State savings
association detects any known or
suspected Federal criminal violation, or
pattern of criminal violations,
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committed or attempted against the
State savings association or involving a
transaction or transactions conducted
through the State savings association
where the State savings association
believes that it was either an actual or
potential victim of a criminal violation,
or series of criminal violations, or that
it was used to facilitate a criminal
transaction, and it has a substantial
basis for identifying one of its directors,
officers, employees, agents or other
institution-affiliated parties as having
committed or aided in the commission
of a criminal act, regardless of the
amount involved in the violation.
(ii) Violations aggregating $5,000 or
more where a suspect can be identified.
Whenever the State savings association
detects any known or suspected Federal
criminal violation, or pattern of criminal
violations, committed or attempted
against the State savings association
involving a transaction or transactions
conducted through the State savings
association and involving or aggregating
$5,000 or more in funds or other assets,
where the State savings association
believes that it was either an actual or
potential victim of a criminal violation
or series of criminal violations, or that
it was used to facilitate a criminal
transaction, and it has a substantial
basis for identifying a possible suspect
or group of suspects. If it is determined
prior to filing this report that the
identified suspect or group of suspects
has used an alias, then information
regarding the true identity of the suspect
or group of suspects, as well as alias
identifiers, such as drivers’ license or
social security numbers, addresses and
telephone numbers, must be reported.
(iii) Violations aggregating $25,000 or
more regardless of potential suspects.
Whenever the State savings association
detects any known or suspected Federal
criminal violation, or pattern of criminal
violations, committed or attempted
against the State savings association
involving a transaction or transactions
conducted through the State savings
association and involving or aggregating
$25,000 or more in funds or other assets,
where the State savings association
believes that it was either an actual or
potential victim of a criminal violation
or series of criminal violations, or that
it was used to facilitate a criminal
transaction, even though there is no
substantial basis for identifying a
possible suspect or group of suspects.
(iv) Transactions aggregating $5,000
or more that involve potential money
laundering or violations of the Bank
Secrecy Act. Any transaction (which for
purposes of this paragraph (d)(3)(iv)
means a deposit, withdrawal, transfer
between accounts, exchange of
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currency, loan, extension of credit,
purchase or sale of any stock, bond,
certificate of deposit, or other monetary
instrument or investment security, or
any other payment, transfer, or delivery
by, through, or to a financial institution,
by whatever means effected) conducted
or attempted by, at or through the State
savings association involving or
aggregating $5,000 or more in funds or
other assets, if the State savings
association knows, suspects, or has
reason to suspect that:
(A) The transaction involves funds
derived from illegal activities or is
intended or conducted in order to hide
or disguise funds or assets derived from
illegal activities (including, without
limitation, the ownership, nature,
source, location, or control of such
funds or assets) as part of a plan to
violate or evade any law or regulation or
to avoid any transaction reporting
requirement under Federal law;
(B) The transaction is designed to
evade any regulations promulgated
under the Bank Secrecy Act; or
(C) The transaction has no business or
apparent lawful purpose or is not the
sort in which the particular customer
would normally be expected to engage,
and the institution knows of no
reasonable explanation for the
transaction after examining the available
facts, including the background and
possible purpose of the transaction.
(4) [Reserved].
(5) Time for reporting. A State savings
association is required to file a SAR no
later than 30 calendar days after the date
of initial detection of facts that may
constitute a basis for filing a SAR. If no
suspect was identified on the date of
detection of the incident requiring the
filing, a State savings association may
delay filing a SAR for an additional 30
calendar days to identify a suspect. In
no case shall reporting be delayed more
than 60 calendar days after the date of
initial detection of a reportable
transaction. In situations involving
violations requiring immediate
attention, such as when a reportable
violation is ongoing, the State savings
association shall immediately notify, by
telephone, an appropriate law
enforcement authority and the FDIC in
addition to filing a timely SAR.
(6) Reports to state and local
authorities. A State savings association
is encouraged to file a copy of the SAR
with state and local law enforcement
agencies where appropriate.
(7) Exception. A State savings
association need not file a SAR for a
robbery or burglary committed or
attempted that is reported to appropriate
law enforcement authorities.
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(8) Retention of records. A State
savings association shall maintain a
copy of any SAR filed and the original
or business record equivalent of any
supporting documentation for a period
of five years from the date of the filing
of the SAR. Supporting documentation
shall be identified and maintained by
the State savings association as such,
and shall be deemed to have been filed
with the SAR. A State savings
association shall make all supporting
documentation available to appropriate
law enforcement agencies upon request.
(9) Notification to board of directors—
(i) Generally. Whenever a State savings
association files a SAR pursuant to this
paragraph (d), the management of the
State savings association shall promptly
notify its board of directors, or a
committee of directors or executive
officers designated by the board of
directors to receive notice.
(ii) Suspect is a director or executive
officer. If the State savings association
files a SAR pursuant to this paragraph
(d) and the suspect is a director or
executive officer, the State savings
association may not notify the suspect,
pursuant to 31 U.S.C. 5318(g)(2), but
shall notify all directors who are not
suspects.
(10) Compliance. Failure to file a SAR
in accordance with this section and the
instructions may subject the State
savings association, its directors,
officers, employees, agents, or other
institution-affiliated parties to
supervisory action.
(11) Obtaining SARs. A State savings
association may obtain SARs and the
instructions from the appropriate FDIC
region as defined in § 303.2 of this
chapter.
(12) Confidentiality of SARs. SARs are
confidential. Any institution or person
subpoenaed or otherwise requested to
disclose a SAR or the information
contained in a SAR shall decline to
produce the SAR or to provide any
information that would disclose that a
SAR has been prepared or filed, citing
this paragraph (d), applicable law (e.g.,
31 U.S.C. 5318(g)), or both, and shall
notify the FDIC.
(13) Safe harbor. The safe harbor
provision of 31 U.S.C. 5318(g), which
exempts any financial institution that
makes a disclosure of any possible
violation of law or regulation from
liability under any law or regulation of
the United States, or any constitution,
law or regulation of any state or political
subdivision, covers all reports of
suspected or known criminal violations
and suspicious activities to law
enforcement and financial institution
supervisory authorities, including
supporting documentation, regardless of
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whether such reports are filed pursuant
to this paragraph (d), or are filed on a
voluntary basis.
(e) Adjustable-rate mortgage indices—
(1) Reporting obligation. Upon the
request of a Federal Home Loan Bank,
all State savings associations within the
jurisdiction of that Federal Home Loan
Bank shall report the data items set forth
in paragraph (e)(2) of this section for the
Federal Home Loan Bank to use in
calculating and publishing an
adjustable-rate mortgage index.
(2) Data to be reported. For purposes
of paragraph (e)(1) of this section, the
term ‘‘data items’’ means the data items
previously collected from the monthly
Thrift Financial Report or Consolidated
Reports of Condition or Income (‘‘Call
Report’’), as applicable, and such data
items as may be altered, amended, or
substituted by the requesting Federal
Home Loan Bank.
(3) Applicable indices. For the
purpose of this reporting requirement,
the term ‘‘adjustable-rate mortgage
index’’ means any of the adjustable-rate
mortgage indices calculated and
published by a Federal Home Loan Bank
or the Federal Home Loan Bank Board
on or before August 9, 1989.
mstockstill on DSK4VPTVN1PROD with RULES2
§ 390.356 Bonds for directors, officers,
employees, and agents; form of and amount
of bonds.
(a) Each State savings association
shall maintain fidelity bond coverage.
The bond shall cover each director,
officer, employee, and agent who has
control over or access to cash, securities,
or other property of the State savings
association.
(b) The amount of coverage to be
required for each State savings
association shall be determined by the
association’s management, based on its
assessment of the level that would be
safe and sound in view of the
association’s potential exposure to risk;
provided, such determination shall be
subject to approval by the association’s
board of directors.
(c) Each State savings association may
maintain bond coverage in addition to
that provided by the insurance
underwriter industry’s standard forms,
through the use of endorsements, riders,
or other forms of supplemental
coverage, if, in the judgment of the State
savings association’s board of directors,
additional coverage is warranted.
(d) The board of directors of each
State savings association shall formally
approve the State savings association’s
bond coverage. In deciding whether to
approve the bond coverage, the board
shall review the adequacy of the
standard coverage and the need for
supplemental coverage. Documentation
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of the board’s approval shall be
included as a part of the minutes of the
meeting at which the board approves
coverage. Additionally, the board of
directors shall review the State savings
association’s bond coverage at least
annually to assess the continuing
adequacy of coverage.
§ 390.357
Bonds for agents.
In lieu of the bond provided in
§ 390.356 in the case of agents
appointed by a State savings
association, a fidelity bond may be
provided in an amount at least twice the
average monthly collections of such
agents, provided such agents shall be
required to make settlement with the
State savings association at least
monthly, and provided such bond is
approved by the board of directors of
the State savings association. No bond
need be obtained for any agent that is
a financial institution insured by the
FDIC.
§ 390.358
Conflicts of interest.
If you are a director, officer, or
employee of a State savings association,
or have the power to direct its
management or policies, or otherwise
owe a fiduciary duty to a State savings
association:
(a) You must not advance your own
personal or business interests, or those
of others with whom you have a
personal or business relationship, at the
expense of the State savings association;
and
(b) You must, if you have an interest
in a matter or transaction before the
board of directors:
(1) Disclose to the board all material
nonprivileged information relevant to
the board’s decision on the matter or
transaction, including:
(i) The existence, nature and extent of
your interests; and
(ii) The facts known to you as to the
matter or transaction under
consideration;
(2) Refrain from participating in the
board’s discussion of the matter or
transaction; and
(3) Recuse yourself from voting on the
matter or transaction (if you are a
director).
§ 390.359
Corporate opportunity.
(a) If you are a director or officer of
a State savings association, or have the
power to direct its management or
policies, or otherwise owe a fiduciary
duty to a State savings association, you
must not take advantage of corporate
opportunities belonging to the State
savings association.
(b) A corporate opportunity belongs to
a State savings association if:
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(1) The opportunity is within the
corporate powers of the State savings
association or a subsidiary of the State
savings association; and
(2) The opportunity is of present or
potential practical advantage to the
State savings association, either directly
or through its subsidiary.
(c) The FDIC will not deem you to
have taken advantage of a corporate
opportunity belonging to the State
savings association if a disinterested
and independent majority of the State
savings association’s board of directors,
after receiving a full and fair
presentation of the matter, rejected the
opportunity as a matter of sound
business judgment.
§ 390.360 Change of director or senior
executive officer.
Sections 390.360 through 390.368
implement 12 U.S.C. 1831i, which
requires certain State savings
associations to notify the FDIC before
appointing or employing directors and
senior executive officers.
§ 390.361
Applicable definitions.
The following definitions apply to
§§ 390.360 through 390.368:
Director means an individual who
serves on the board of directors of a
State savings association. This term
does not include an advisory director
who:
(1) Is not elected by the shareholders;
(2) Is not authorized to vote on any
matters before the board of directors or
any committee of the board of directors;
(3) Provides only general policy
advice to the board of directors or any
committee of the board of directors; and
(4) Has not been identified by the
FDIC in writing as an individual who
performs the functions of a director, or
who exercises significant influence
over, or participates in, major
policymaking decisions of the board of
directors.
Senior executive officer means an
individual who holds the title or
performs the function of one or more of
the following positions (without regard
to title, salary, or compensation):
president, chief executive officer, chief
operating officer, chief financial officer,
chief lending officer, or chief
investment officer. Senior executive
officer also includes any other person
identified by the FDIC in writing as an
individual who exercises significant
influence over, or participates in, major
policymaking decisions, whether or not
hired as an employee.
Troubled condition means:
(1) A State savings association that
has a composite rating of 4 or 5, as
composite rating is defined in
§ 390.101(c).
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(2) [Reserved].
(3) A State savings association that is
subject to a capital directive, a ceaseand-desist order, a consent order, a
formal written agreement, or a prompt
corrective action directive relating to the
safety and soundness or financial
viability of the State savings association,
unless otherwise informed in writing by
the FDIC; or
(4) A State savings association that is
informed in writing by the FDIC that it
is in troubled condition based on
information available to the FDIC.
§ 390.362
Who must give prior notice?
(a) State savings association. Except
as provided under § 390.368, you must
notify the FDIC at least 30 days before
adding or replacing any member of your
board of directors, employing any
person as a senior executive officer, or
changing the responsibilities of any
senior executive officer so that the
person would assume a different senior
executive position if:
(1) You are a State savings association
and at least one of the following
circumstances apply:
(i) You do not comply with all
minimum capital requirements under
subpart Z;
(ii) You are in troubled condition; or
(iii) The FDIC has notified you, in
connection with its review of a capital
restoration plan required under section
38 of the Federal Deposit Insurance Act
or subpart Y or otherwise, that a notice
is required under §§ 390.360 through
390.368; or
(2) [Reserved].
(b) Notice by individual. If you are an
individual seeking election to the board
of directors of a State savings
association described in paragraph (a) of
this section, and have not been
nominated by management, you must
either provide the prior notice required
under paragraph (a) of this section or
follow the process under § 390.368(b).
§ 390.363 What procedures govern the
filing of my notice?
The procedures found in §§ 390.103
through 390.110 govern the filing of
your notice under § 390.362.
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§ 390.364 What information must I include
in my notice?
(a) Content requirements. Your notice
must include:
(1) The information required under 12
U.S.C. 1817(j)(6)(A), and the
information prescribed in the
Interagency Notice of Change in Director
or Senior Executive Officer and the
Interagency Biographical and Financial
Report which are available from the
appropriate FDIC regions as defined in
§ 303.2 of this chapter;
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(2) Legible fingerprints of the
proposed director or senior executive
officer. You are not required to file
fingerprints if, within three years prior
to the date of submission of the notice,
the proposed director or senior
executive officer provided legible
fingerprints as part of a notice filed with
the FDIC under 12 U.S.C. 1831i; and
(3) Such other information required
by the FDIC.
(b) Modification of content
requirements. The FDIC may require or
accept other information in place of the
content requirements in paragraph (a) of
this section.
§ 390.365 What procedures govern the
FDIC’s review of my notice for
completeness?
(2) The FDIC extends the 30-day
period for an additional period not to
exceed 60 days. If the FDIC extends the
30-day period, it will notify you in
writing that the period has been
extended, and will state the reason for
the extension. The proposed director or
senior executive officer may begin
service upon expiration of the extended
period, unless the FDIC notifies you that
it has disapproved the notice during the
extended period.
(b) Notwithstanding paragraph (a) of
this section, a proposed or senior
executive officer may begin service after
the FDIC notifies you, in writing, of its
intention not to disapprove the notice.
§ 390.368 When will the FDIC waive the
prior notice requirement?
The FDIC will first review your notice
to determine whether it is complete.
(a) If your notice is complete, the
FDIC will notify you in writing of the
date that the FDIC received the
complete notice.
(b) If your notice is not complete, the
FDIC will notify you in writing what
additional information you need to
submit, why we need the information,
and when you must submit it. You
must, within the specified time period,
provide additional information or
request that the FDIC suspend
processing of the notice. If you fail to act
within the specified time period, the
FDIC may treat the notice as withdrawn
or may review the application based on
the information provided.
§ 390.366 What standards and procedures
will govern the FDIC review of the
substance of my notice?
The FDIC will disapprove a notice if,
pursuant to the standard set forth in 12
U.S.C. 1831i(e), the FDIC finds that the
competence, experience, character, or
integrity of the proposed FDIC or senior
executive officer indicates that it would
not be in the best interests of the
depositors of the State savings
association or of the public to permit the
individual to be employed by, or
associated with, the State savings
association. If the FDIC disapproves a
notice, it will issue a written notice that
explains why the FDIC disapproved the
notice. The FDIC will send the notice to
the State savings association and the
individual.
§ 390.367 When may a proposed director
or senior executive officer begin service?
(a) A proposed director or senior
executive officer may begin service 30
days after the date the FDIC receives all
required information, unless:
(1) The FDIC notifies you that it has
disapproved the notice; or
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(a) Waiver request. (1) An individual
may serve as a director or senior
executive officer before filing a notice as
described in §§ 390.360 through 390.368
if the FDIC issues a written finding that:
(i) Delay would threaten the safety or
soundness of the State savings
association;
(ii) Delay would not be in the public
interest; or
(iii) Other extraordinary
circumstances exist that justify waiver
of prior notice.
(2) If the FDIC grants a waiver, you
must file a notice as described in
§§ 390.360–390.368 within the time
period specified by the FDIC.
(b) Automatic waiver. An individual
may serve as a director before filing a
notice as described in §§ 390.360
through 390.368, if the individual was
not nominated by management and the
individual submits a notice as described
in §§ 390.360 through 390.368 within
seven days after election as a director.
(c) Subsequent FDIC action. The FDIC
may disapprove a notice within 30 days
after the FDIC issues a waiver under
paragraph (a) of this section or within
30 days after the election of an
individual who has filed a notice and is
serving pursuant to an automatic waiver
under paragraph (b) of this section.
Subpart T—Accounting Requirements
§ 390.380 Form and content of financial
statements.
(a) This section states the
requirements as to form and content of
financial statements included by a State
savings association in the following
documents. However, the FDIC’s
regulations governing the applicable
documents specify the actual financial
statements that are to be included in
that document.
(1) Any proxy statement or offering
circular required to be used in
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connection with a conversion under 12
CFR part 192.
(2) Any offering circular or nonpublic
offering materials required to be used in
connection with an offer or sale of
securities under subpart W.
(3) Any filing under the Securities
Exchange Act of 1934, 15 U.S.C. 78a et
seq., made pursuant to the requirements
of subpart U.
(b) Except as otherwise provided by
the FDIC by rule, regulation, or order
made specifically applicable to financial
statements governed by this section,
financial statements shall:
(1) Be prepared and presented in
accordance with generally accepted
accounting principles;
(2) Comply with § 390.384;
(3) Consistent with the provisions of
this subpart, comply with articles 1, 2,
3, 4, 10, and 11 of Regulation S–X
adopted by the Securities and Exchange
Commission (17 CFR 210.l through
210.4, 210.10, and 210.11).
(4) Be audited, when required, by an
independent auditor in accordance with
the standards imposed by the American
Institute of Certified Public
Accountants.
(c) The term ‘‘financial statements’’
includes all notes to the statements and
related schedules.
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§ 390.381
Definitions.
(See also 17 CFR 210.1–02.)
(a) Registrant. The term ‘‘registrant’’
means an applicant, a State savings
association, or any other person
required to prepare financial statements
in accordance with this subpart.
(b) Significant subsidiary. The term
‘‘significant subsidiary’’ means a
subsidiary, including its subsidiaries,
which meets any of the following
conditions:
(1) The State savings association’s and
its other subsidiaries’ investments in
and advances to the subsidiary exceed
10 percent of the total assets of the
association and its subsidiaries
consolidated as of the end of the most
recently completed fiscal year (for
purposes of determining whether
financial statements of a business
acquired or to be acquired in a business
combination accounted for as a pooling
of interests are required pursuant to 17
CFR 210.3–05, this condition is also met
when the number of common shares
exchanged by the State savings
association exceeds 10 percent of its
total common shares outstanding at the
date the combination is initiated); or
(2) The State savings association’s and
its other subsidiaries’ proportionate
share of the total assets (after
intercompany eliminations) of the
subsidiary exceeds 10 percent of the
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total assets of the State savings
association and its subsidiaries
consolidated as of the end of the most
recently completed fiscal year; or
(3) The State savings association’s and
its other subsidiaries’ equity in the
income from continuing operations
before income taxes, extraordinary
items, and cumulative effect of a change
in accounting principle of the
subsidiary exceeds 10 percent of such
income of the State savings association
and its subsidiaries consolidated for the
most recently completed fiscal year.
(4) Computational note: For purposes
of making the prescribed income test the
following guidance should be applied:
(i) When a loss has been incurred by
either the parent or its consolidated
subsidiaries or the tested subsidiary, but
not both, the equity in the income or
loss of the tested subsidiary should be
excluded from the income of the State
savings association and its subsidiaries
consolidated for purposes of the
computation.
(ii) If income of the State savings
association and its subsidiaries
consolidated for the most recent fiscal
year is at least 10 percent lower than the
average of the income for the last five
fiscal years, such average income should
be substituted for purposes of the
computation. Any loss years should be
omitted for purposes of computing
average income.
§ 390.382 Qualification of public
accountant.
(See also 17 CFR 210.2–01.)
The term ‘‘qualified public
accountant’’ means a certified public
accountant or licensed public
accountant certified or licensed by a
regulatory authority of a State or other
political subdivision of the United
States who is in good standing as such
under the laws of the jurisdiction where
the home office of the registrant to be
audited is located. Any person or firm
who is suspended from practice before
the Securities and Exchange
Commission or other governmental
agency is not a ‘‘qualified public
accountant’’ for purposes of this section.
§ 390.383 Condensed financial information
[Parent only].
(a) The information prescribed by
Schedule III required by section IV of
the appendix to § 390.384 shall be
presented in a note to the financial
statements when the restricted net
assets (17 CFR 210.4–08(e)(3)) of
consolidated subsidiaries exceed 25
percent of consolidated net assets as of
the end of the most recently completed
fiscal year. The investment in and
indebtedness of and to State savings
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47733
association subsidiaries shall be stated
separately in the condensed balance
sheet from amounts for other
subsidiaries; and the amount of cash
dividends paid to the parent State
savings association for each of the last
three years by the State savings
association subsidiaries shall be stated
separately in the condensed income
statement from amounts for other
subsidiaries.
(b) For purposes of the above test,
restricted net assets of consolidated
subsidiaries shall mean that amount of
the State savings association’s
proportionate share of net assets of
consolidated subsidiaries (after
intercompany eliminations) which as of
the end of the most recent year may not
be transferred to the parent company by
subsidiaries in the form of loans,
advances, or cash dividends without the
consent of a third party (i.e., lender,
regulatory agency, foreign government,
etc.).
(c) Where restrictions on the amount
of funds which may be loaned or
advanced differ from the amount
restricted as to transfer in the form of
cash dividends, the amount least
restrictive to the subsidiary shall be
used. Redeemable preferred stocks (See
item I (22) in the appendix to § 390.384)
and minority interest (See item I (21) in
the appendix to § 390.384) shall be
deducted in computing net assets for
purposes of this test.
§ 390.384 Financial statements for
conversions, SEC filings, and offering
circulars.
This section and its appendix pertain
to the form and content of financial
statements included as part of:
(a) A conversion application under 12
CFR part 192 including financial
statements in proxy statements and
offering circulars,
(b) A filing under the Securities
Exchange Act of 1934, 15 U.S.C. 78a et
seq., and
(c) Any offering circular required to
be used in connection with the issuance
of mutual capital certificates under 12
CFR 163.74 and debt securities under
§ 390.341.
Appendix to § 390.384—Financial
Statement Presentation.
This appendix specifies the various line
items which should appear on the face of the
financial statements governed by § 390.384
and additional disclosures which should be
included with the financial statements in
related notes.
I. Balance Sheet
Balance sheets shall comply with the
following provisions:
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Assets
1. Cash and amounts due from depository
institutions. (a) The amounts in this caption
should include noninterest-bearing deposits
with depository institutions.
(b) State in a note the amount and terms
of any deposits in depository institutions
held as compensating balances against longor short-term borrowing arrangements. This
disclosure should include the provisions of
any restrictions as to withdrawal or usage.
Restrictions may include legally restricted
deposits held as compensating balances
against short-term borrowing arrangements,
contracts entered into with others, or
company statements of intention with regard
to particular deposits; however, time deposits
and short-term certificates of deposits are not
generally included in legally restricted
deposits. In cases where compensating
balance arrangements exist but are not
agreements which legally restrict the use of
cash amounts shown on the balance sheet,
describe in the notes to the financial
statements these arrangements and the
amount involved, if determinable, for the
most recent audited balance sheet required
and for any subsequent unaudited balance
sheet required. Compensating balances that
are maintained under an agreement to ensure
future credit availability shall be disclosed in
the notes to the financial statements along
with the amount and terms of the agreement.
(c) Checks outstanding in excess of an
applicant’s book balance in a demand deposit
account shall be shown as a liability.
2. Interest-bearing deposits in other banks.
3. Federal funds sold and securities
purchased under resale agreements or
similar arrangements. These amounts should
be presented, i.e., gross and not netted
against Federal funds purchased and
securities sold under agreement to
repurchase, as reported in caption 15.
4. Trading account assets. Include
securities considered to be held for trading
purposes.
5. Other short-term investments.
6. Investment securities. (a) Include
securities considered to be held for
investment purposes. Disclose the aggregate
book value of investment securities as the
line item on the balance sheet; and also show
on the face of the balance sheet the aggregate
market value at the balance sheet date. The
aggregate amounts should include securities
pledged, loaned, or sold under repurchase
agreements and similar arrangements.
Borrowed securities and securities purchased
under resale agreements or similar
arrangements should be excluded.
(b) Disclose in a note the carrying value
and market value of securities of (i) the U.S.
Treasury and other U.S. Government
agencies and corporations; (ii) states of the
U.S. and political subdivisions thereof; and
(iii) other securities.
7. Assets held for sale. Investments in
assets considered to be held for sale purposes
should be reported separately in the
statement of financial condition.
8. Loans. (a) Disclose separately: (i) Total
loans (including financing type leases), (ii)
allowance for loan losses, (iii) unearned
income on installment loans, (iv) discount on
loans purchased, and (v) loans in process.
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(b) State on the balance sheet or in a note
the amount of loans in each of the following
categories: (i) Real estate mortgage; (ii) real
estate construction; (iii) installment; and (iv)
commercial, financial, and agricultural.
(c)(i) Include under the real estate mortgage
category loans payable in monthly, quarterly,
or other periodic installments and secured by
developed income property and/or personal
residences.
(ii) Include under the real estate
construction category loans secured by real
estate which are made for the purpose of
financing construction of real estate and land
development projects.
(iii) Include under the installment category
loans to individuals generally repayable in
monthly installments. This category shall
include, but not be limited to, credit card and
related activities, individual automobile
loans, other installment loans, mobile home
loans, and residential repair and
modernization loans.
(iv) Include under the commercial,
financial, and agricultural category all loans
not included in another category. This
category shall include, but not be limited to,
loans to real estate investment trusts,
mortgage companies, banks, and other
financial institutions; loans for carrying
securities; and loans for agricultural
purposes. Do not include loans secured
primarily by developed real estate.
(d) State separately any other loan category
regardless of relative size if necessary to
reflect any unusual risk concentration.
(e) Unearned income on installment loans
shall be shown and deducted separately from
total loans.
(f) Unamortized discounts on purchased
loans shall be deducted separately from total
loans.
(g) Loans in process shall be deducted
separately from total loans.
(h) A series of categories other than those
specified in item (b) of paragraph 8. may be
used to present details of loans if considered
a more appropriate presentation. The
categories specified in item (b) of paragraph
8. should be considered the minimum
categories that may be presented.
(i) For each period for which an income
statement is presented, disclose in a note the
total dollar amount of loans being serviced by
the State savings association for the benefit
of others.
(j)(i)(A) As of each balance sheet date,
disclose in a note the aggregate dollar amount
of loans (exclusive of loans to any such
persons which in the aggregate do not exceed
$60,000 during the last year) made by the
State savings association or any of its
subsidiaries to directors, executive officers,
or principal holders of equity securities (17
CFR 210.1–02) of the State savings
association or any of its significant
subsidiaries (17 CFR 210.1–02) or to any
associate of such persons. For the latest fiscal
year, an analysis of activity with respect to
such aggregate loans to related parties should
be provided. The analysis should include at
the beginning of the period new loans,
repayments, and other changes. (Other
changes, if significant, should be explained.)
(B) This disclosure need not be furnished
when the aggregate amount of such loans at
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the balance sheet date (or with respect to the
latest fiscal year, the maximum amount
outstanding during the period) does not
exceed 5 percent of stockholders’ equity at
the balance sheet date.
(ii) If a significant portion of the aggregate
amount of loans outstanding at the end of the
fiscal year disclosed pursuant to item (i)(A)
of this paragraph (j) relates to nonaccrual,
past due, restructured, and potential problem
loans (see Securities and Exchange
Commission’s Securities Act Industry Guide
3, section III.C.), so state and disclose the
aggregate amount of such loans along with
such other information necessary to an
understanding of the effects of the
transactions on the financial statements.
(iii) Notwithstanding the aggregate
disclosure called for by paragraph (j)(i) of this
balance sheet caption 8, if any loans were not
made in the ordinary course of business
during any period for which an income
statement is required to be filed, provide an
appropriate description of each such loan
(see 17 CFR 210.9–03.7(e)(3)).
(iv) For purposes only of Balance Sheet
item 8(j), the following definitions shall
apply:
(A) Associate used to indicate a
relationship with any person means (1) any
corporation, venture, or organization of
which such person is a general partner or is,
directly or indirectly, the beneficial owner of
10 percent or more of any class of equity
securities; (2) any trust or other estate in
which such person has a substantial
beneficial interest or for which such person
serves as trustee or in a similar capacity; and
(3) any member of the immediate family of
any of the foregoing persons.
(B) Executive officer means the president,
any vice president in charge of a principal
business unit, division, or function (such as
loans, investments, operations,
administration, or finance), and any other
officer or person who performs similar
policy-making functions.
(C) Immediate family with regard to a
person means such person’s spouse, parents,
children, siblings, mother- and father-in-law,
sons- and daughters-in-law, and brothersand sisters-in-law.
(D) Ordinary course of business with
regard to loans means those loans which
were made on substantially the same terms,
including interest rate and collateral, as those
prevailing at the same time for comparable
transactions with unrelated persons and did
not involve more than the normal risk of
collectibility or present other unfavorable
features.
(k) For each period for which an income
statement is presented, furnish in a note a
statement of changes in the allowance for
loan losses, showing balances at beginning
and end of the period, provision charged to
income, recoveries of amounts previously
charged off, and losses charged to the
allowance.
9. Premises and equipment.
10. Real estate owned. State,
parenthetically or otherwise:
(a) The amount of real estate owned by
class as described in item (b) of paragraph 10.
and the basis for determining that amount;
and
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(b) A description of each class of real estate
owned (i) acquired by foreclosure or by deed
in lieu of foreclosure, (ii) in judgment and
subject to redemption, or (iii) acquired for
development or resale. Show separately any
accumulated depreciation or valuation
allowances. Disclose the policies regarding,
and amounts of, capitalized costs, including
interest.
11. Investment in joint ventures. In a note,
present summarized aggregate financial
statements for investments in real estate or
other joint ventures which individually (a)
are 20 percent or more owned by the State
savings association or any of its subsidiaries,
or (b) have liabilities (including contingent
liabilities) to the parent exceeding 10 percent
of the parent’s regulatory capital. If an
allowance for real estate losses subsequent to
acquisition is maintained, the amount shall
be disclosed, deducted from the other real
estate owned, and a statement of changes in
the allowance showing balances at beginning
and end of period should be included.
Provision charged to income and losses
charged to the allowance account shall be
furnished for each period for which an
income statement is filed.
12. Other assets. (a) Disclose separately on
the balance sheet or in a note thereto any of
the following assets or any other asset the
amount of which exceeds 30 percent of
stockholders’ equity. The remaining assets
may be shown as one amount.
(i) Accrued interest receivable. State
separately those amounts relating to loans
and those amounts relating to investments.
(ii) Excess of cost over assets acquired (net
of amortization).
(b) State in a note (i) amounts representing
investments in affiliates and investments in
other persons which are accounted for by the
equity method, and (ii) indebtedness of
affiliates and other persons, the investments
in which are accounted for by the equity
method. State the basis of determining the
amounts reported under paragraph (b)(i).
13. Total assets.
Liabilities, and Stockholders’ Equity
14. Deposits. (a) Disclose separately on the
balance sheet or in a note the amounts in the
following categories of interest-bearing and
noninterest-bearing deposits: (i) NOW
account and MMDA deposits, (ii) savings
deposits, and (iii) time deposits.
(b) Include under the savings-deposits
category interest-bearing deposits without
specified maturity or contractual provisions
requiring advance notice of intention to
withdraw funds. Include deposits for which
a State savings association may require at its
option written notice of intended withdrawal
not less than 14 days in advance.
(c) Include under the time-deposits
category deposits subject to provisions
specifying maturity or other withdrawal
conditions such as time certificates of
deposits, open account time deposits, and
deposits accumulated for the payment of
personal loans.
(d) Include accrued interest or dividends,
if appropriate.
15. Short-term borrowings. (a) State
separately, here or in a note, the amounts
payable for (i) Federal funds purchased and
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securities sold under agreements to
repurchase, (ii) commercial paper, and (iii)
other short-term borrowings.
(b) Federal funds purchased and sales of
securities under repurchase agreements shall
be reported gross and not netted against sales
of Federal funds and purchase of securities
under resale agreements.
(c) Include as securities sold under
agreements to repurchase all transactions of
this type regardless of (i) whether they are
called simultaneous purchases and sales,
buy-backs, turnarounds, overnight
transactions, delayed deliveries, or other
terms signifying the same substantive
transaction, and (ii) whether the transactions
are with the same or different institutions, if
the purpose of the transactions is to
repurchase identical or similar securities.
(d) The amount and terms (including
commitment fees and the conditions under
which lines may be withdrawn) of unused
lines of credit for short-term financing shall
be disclosed, if significant, in the notes to the
financial statements. The amount of these
lines of credit which support a commercial
paper borrowing arrangement or similar
arrangements shall be separately identified.
16. Advance payments by borrowers for
taxes and insurance.
17. Other liabilities. Disclose separately on
the balance sheet or in a note any of the
following liabilities or any other items which
are individually in excess of 30 percent of
stockholders’ equity (except that amounts in
excess of 5 percent of stockholders’ equity
should be disclosed with respect to item (d)).
The remaining items may be shown as one
amount.
(a) Income taxes payable.
(b) Deferred income taxes.
(c) Indebtedness to affiliate and other
persons the investment in which is
accounted for by the equity method.
(d) Indebtedness to directors, executive
officers, and principal holders of equity
securities of the registrant or any of its
significant subsidiaries. (The guidance in
balance sheet caption ‘‘8(j)’’ shall be used to
identify related parties for purposes of this
disclosure.)
18. Bonds, mortgages, and similar debt. (a)
Include bonds, Federal Home Loan Bank
advances, capital notes, debentures,
mortgages, and similar debt.
(b) For each issue or type of obligation state
in a note:
(i) The general character of each type of
debt, including: (A) The rate of interest, (B)
the date of maturity, or, if maturing serially,
a brief indication of the serial maturities,
such as ‘‘maturing serially from 1980 to
1990,’’ (C) if the payment of principal or
interest is contingent, an appropriate
indication of such contingency, (D) a brief
indication of priority, and (E) if convertible,
the basis. For amounts owed to related
parties see 17 CFR 210.4–08(k).
(ii) The amount and terms (including
commitment fees and the conditions under
which commitments may be withdrawn) of
unused commitments for long-term financing
arrangements that, if used, would be
disclosed under this caption shall be
disclosed in the notes to the financial
statements, if significant.
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(c) State in the notes with appropriate
explanations (i) the title and amount of each
issue of debt of a subsidiary included in item
(a) of paragraph 18 which has not been
assumed or guaranteed by the State savings
association, and (ii) any liens on premises of
a subsidiary or its consolidated subsidiaries
which have not been assumed by the
subsidiary or its consolidated subsidiaries.
19. Deferred credits. State separately those
items which exceed 30 percent of
stockholders’ equity.
20. Commitments and contingent
liabilities. Total commitments to fund loans
should be disclosed. The dollar amounts and
terms of other than floating market-rate
commitments should also be disclosed.
21. Minority interest in consolidated
subsidiaries.
22. Preferred stock subject to mandatory
redemption requirements or the redemption
of which is outside the control of the issuer.
(a) Include under this caption amounts
applicable to any class of stock which has
any of the following characteristics: (i) It is
redeemable at a fixed or determinable price
on a fixed or determinable date or dates,
whether by operation of a sinking fund or
otherwise; (ii) it is redeemable at the option
of the holder; or (iii) it has conditions for
redemption which are not solely within the
control of the issuer, such as stock which
must be redeemed out of future earnings.
Amounts attributable to preferred stock
which is not redeemable or is redeemable
solely at the option of the issuer shall be
included under caption 23 unless it meets
one or more of the above criteria.
(b) State on the face of the balance sheet
the title, carrying amount, and redemption
amount of each issue. (If there is more than
one issue, these amounts may be aggregated
on the face of the balance sheet and details
concerning each issue may be presented in
the note required by item (c) of paragraph
22.) Show also the dollar amount of any
shares subscribed for but unissued, and show
the deduction of subscriptions receivable
therefrom. If the carrying value is different
from the redemption amount, describe the
accounting treatment for such difference in
the note required by item (c) of paragraph 22.
Also state in this note or on the face of the
balance sheet, for each issue, the number of
shares authorized and the number of shares
issued or outstanding, as appropriate. (See 17
CFR 210.4–07.)
(c) State in a separate note captioned
‘‘Redeemable Preferred Stock’’ (i) a general
description of each issue, including its
redemption features (e.g., sinking fund, at
option of holders, out of future earnings) and
the rights, if any, of holders in the event of
default, including the effect, if any, on junior
securities in the event a required dividend,
sinking fund, or other redemption payment(s)
is not made, (ii) the combined aggregate
amount of redemption requirements for all
issues each year for the five years following
the date of the latest balance sheet, and (iii)
the changes in each issue for each period for
which an income statement is required to be
presented. (See also 17 CFR 210.4–08(d).)
(d) Securities reported under this caption
are not to be included under a general
heading ‘‘stockholders’ equity’’ or combined
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in a total with items described in captions 23,
24 or 25, which follow.
23. Preferred stock which is not
redeemable or is redeemed solely at the
option of the issuer. State on the face of the
balance sheet, or, if more than one issue is
outstanding, state in a note, the title of each
issue and the dollar amount thereof. Show
also the dollar amount of any shares
subscribed for but unissued, and show the
deduction of subscriptions receivable. State
on the face of the balance sheet or in a note,
for each issue, the number of shares
authorized and the number of shares issued
or outstanding, as appropriate. (See 17 CFR
210.4–07.) Show in a note or separate
statement the changes in each class of
preferred shares reported under this caption
for each period for which an income
statement is required to be presented. (See
also 17 CFR 210.4–08(d).)
24. Common stock. For each class of
common shares state, on the face of the
balance sheet, the number of shares issued or
outstanding, as appropriate (see 17 CFR
210.4–07), and the dollar amount thereof. If
convertible, this fact should be indicated on
the face of the balance sheet. For each class
of common stock state, on the face of the
balance sheet or in a note, the title of the
issue, the number of shares authorized, and,
if convertible, the basis for conversion (see
also 17 CFR 210.4–08(d).) Show also the
dollar amount of any common stock
subscribed for but unissued, and show the
deduction of subscriptions receivable. Show
in a note or statement the changes in each
class of common stock for each period for
which an income statement is required to be
presented.
25. Other stockholders’ equity. (a) Separate
captions shall be shown on the face of the
balance sheet for (i) additional paid-in
capital, (ii) other additional capital, and (iii)
retained earnings, both (A) restricted and (B)
unrestricted. (See 17 CFR 210.4–08(e).)
Additional paid-in capital and other
additional capital may be combined with the
stock caption to which it applies, if
appropriate. State whether or not the State
savings association is in compliance with the
Federal regulatory capital requirements (and
state requirements where applicable). Also
include the dollar amount of those regulatory
capital requirements and the amount by
which the State savings association exceeds
or fails to meet those requirements.
(b) For a period of at least 10 years
subsequent to the effective date of a quasireorganization, any description of retained
earnings shall indicate the point in time from
which the new retained earnings dates, and
for a period of at least three years shall
indicate, on the face of the balance sheet, the
total amount of the deficit eliminated.
(c) Changes in stockholders’ equity shall be
disclosed in accordance with the
requirements of 17 CFR 210.3–04.
26. Total liabilities and stockholders’
equity.
II. Income Statement
Income statements shall comply with the
following provisions:
1. Interest and fees on loans. (a) Include
interest, service charges, and fees which are
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related to or are an adjustment of the loan
interest yield.
(b) Current amortization of premiums on
mortgages or other loans shall be deducted
from interest on loans, and current accretion
of discount on such items shall be added to
interest on loans.
(c) Discounts and other deferred amounts
which are related to or are an adjustment of
the loan interest yield shall be amortized into
income using the interest (level yield)
method.
2. Interest and dividends on investment
securities. Include accretion of discount on
securities and deduct amortization of
premiums on securities.
3. Trading account interest. Include
interest from securities carried in a dealer
trading account or accounts that are held
principally for resale to customers.
4. Other interest income. Include interest
on short-term investments (Federal funds
sold and securities purchased under
agreements to resell) and interest on bank
deposits.
5. Total interest income.
6. Interest on deposits. Include interest on
all deposits. On the income statement or in
a note, state separately, in the same
categories as those specified for deposits at
balance sheet caption 14(a), the interest on
those deposits. Early withdrawal penalties
should be netted against interest on deposits
and, if material, disclosed on the income
statement.
7. Interest on short-term borrowings.
Include interest on borrowed funds,
including Federal funds purchased,
securities sold under agreements to
repurchase, commercial paper, and other
short-term borrowings.
8. Interest on long-term borrowings.
Include interest on bonds, capital notes,
debentures, mortgages on State savings
association premises, capitalized leases, and
similar debt.
9. Total interest expense.
10. Net interest income.
11. Provision for loan losses.
12. Net interest income after provision for
loan losses.
13. Other income. Disclose separately any
of the following amounts, or any other item
of other income, which exceeds 1 percent of
the aggregate of total interest income and
other income. The remaining amount may be
shown as one amount, except for investment
securities gains or losses which shall be
shown separately regardless of size.
(a) Commissions and fees from fiduciary
activities.
(b) Fees for other services to customers.
(c) Commissions, fees, and markups on
securities underwriting and other securities
activities.
(d) Profit or loss on transactions in
investment securities.
(e) Equity in earnings of unconsolidated
subsidiaries and 50-percent- or less-owned
persons.
(f) Gains or losses on disposition of
investments in securities of subsidiaries and
50-percent- or less-owned persons.
(g) Profit or loss from real estate operations.
(h) Other fees related to loan originations
or commitments not included in income
statement caption 1.
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The remaining other income may be shown
in one amount.
(i) Investment securities gains or losses.
The method followed in determining the cost
of investments sold (e.g., ‘‘average cost,’’
‘‘first-in, first-out,’’ or ‘‘identified certificate’’)
and related income taxes shall be disclosed.
14. Other expenses. Disclose separately any
of the following amounts, or any other item
of other expense, which exceeds 1 percent of
the aggregate of total interest income and
other income. The remaining amounts may
be shown as one amount.
(a) Salaries and employee benefits.
(b) Net occupancy expense of premises.
(c) Net cost of operations of other real
estate (including provisions for real estate
losses, rental income, and gains and losses on
sales of real estate).
(d) Minority interest in income of
consolidated subsidiaries.
(e) Goodwill amortization.
15. Other income and expenses. State
separately material events or transactions
that are unusual in nature or occur
infrequently, but not both, and therefore do
not meet both criteria for classification as an
extraordinary item. Examples of items which
would be reported separately are gain or loss
from the sale of premises and equipment,
provision for loss on real estate owned, or
provision for gain or loss on the sale of loans.
16. Income or losses before income tax
expense.
17. Income tax expense. The information
required by 17 CFR 210.4–08(h) should be
disclosed.
18. Income or loss before extraordinary
items effects of changes in accounting
principles.
19. Extraordinary items, less applicable
tax.
20. Cumulative effects of changes in
accounting principles.
21. Net income or loss.
22. Earnings-per-share data.
23. Conversion footnote. If the State
savings association is an applicant for
conversion from a mutual to a stock
association or has converted within the last
three years, describe in a note the general
terms of the conversion and restrictions on
the operations of the State savings
association imposed by the conversion. Also,
state the amount of net proceeds received
from the conversion and costs associated
with the conversion.
24. Mergers and acquisitions. For the
period in which a business combination
occurs and is accounted for by the purchase
method of accounting, in addition to those
disclosures required by Accounting
Principles Board Opinion No. 16, the State
savings association shall make those
disclosures as noted below for all
combinations involving significant
acquisitions. (A significant acquisition is
defined for this purpose to be one in which
the assets of the acquired State savings
association, or group of State savings
associations, exceed 10 percent of the assets
of the consolidated State savings association
at the end of the most recent period being
reported upon).
(a) Amounts and descriptions of discounts
and premiums related to recording the
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aggregate interest-bearing assets and
liabilities at their fair market value. The
disclosure should also include the methods
of amortization or accretion and the
estimated remaining lives.
(b) The net effect on net income before
taxes of the amortization and accretion of
discounts, premiums, and intangible assets
related to the purchase accounting
transaction(s). For subsequent periods, the
State savings association shall disclose the
remaining total unamortized or unaccreted
amounts of discounts, premiums, and
intangible assets as of the date of the most
recent balance sheet presented. In addition,
the State savings association shall disclose
the net effect on net income before taxes of
the amortization and accretion of discounts,
premiums, and intangible assets related to
prior business combinations accounted for by
the purchase method of accounting. Such
disclosures need not be made if the total
amounts of discounts, premiums, or
intangible assets do not exceed 30 percent of
stockholders’ equity as of the date of the most
recent balance sheet presented.
Additional guidance may be found in the
FASB’s Statement of Financial Accounting
Standards No. 95 Statement of Cash Flows.
III. Statement of Cash Flows
The amounts shown in this statement
should be those items which materially
enhance the reader’s understanding of the
State savings association’s business. For
example, gains from sales of loans should be
segregated from sales of mortgage-backed
securities and other securities, if material,
proceeds from principal repayments and
maturities from loans and mortgage-backed
securities should be segregated from
proceeds from sales of loans and mortgagebacked securities, purchases of loans,
mortgage-backed securities and other
securities should be segregated, if material.
The following schedules, which should be
examined by an independent accountant,
shall be filed unless the required information
is not applicable or is presented in the
related financial statements:
(1) Schedule I—Indebtedness of and to
related parties—Not Current. For each period
for which an income statement is required,
the following schedule should be filed in
support of the amounts required to be
reported by balance sheet items 8(j) and 17(c)
unless such aggregate amount does not
exceed 5 percent of stockholders’ equity at
either the beginning or the end of the period:
IV. Schedules Required To Be Filed
INDEBTEDNESS OF AND TO RELATED PARTIES—NOT CURRENT
Indebtedness of—
Name of person 1
Balance at beginning
Additions 2
Deductions 3
Balance at end
A
B
C
D
E
INDEBTEDNESS OF AND TO RELATED PARTIES—NOT CURRENT
Indebtedness to—
Name of
person 1
Balance at beginning
Additions 2
Deductions 3
Balance at end
F
G
H
I
A
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(2) Schedule II—Guarantees of securities of
other issuers. The following schedule should
be filed as of the date of the most recently
audited balance sheet with respect to any
guarantees of securities of other issuers by
the person for which the statements are being
filed:
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1 The
persons named shall be grouped as in the
related schedule required for investments in related
parties. The information called for shall be shown
separately for any persons whose investments were
shown separately in such related schedule.
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2 For each person named in column A, explain in
a note the nature and purpose of any increase
during the period that is in excess of 10 percent of
the related balance at either the beginning or end
of the period.
3 If deduction was other than a receipt or
disbursement of cash, explain.
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GUARANTEES OF SECURITIES OF OTHER ISSUERS 4
Col. A. Name of issuer of securities guaranteed by person for
which statement is filed
Col. B. Title of issue of each class
of securities guaranteed
Col. C. Total amount guaranteed
and outstanding 5
Col. D. Amount owned by person
or persons for which statement is
filed
GUARANTEES OF SECURITIES OF OTHER ISSUERS 4
Col. A. Name of issuer of securities guaranteed by person for
which statement is filed
Col. E. Amount in treasury of
issuer of securities guaranteed
(3) Schedule III—Condensed financial
information. The following schedule shall be
filed as of the dates and for the periods
specified in the schedule.
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Condensed Financial Information
[Parent only]
[The State savings association may
determine disclosure based on information
provided in footnotes below]
(a) Provide condensed financial
information as to financial position, changes
in financial position, and results of
operations of the State savings association as
of the same dates and for the same periods
for which audited consolidated financial
statements are required. The financial
information required need not be presented
in greater detail than is required for
condensed statement by 17 CFR 210.10–01(a)
(2), (3), (4). Detailed footnote disclosure
which would normally be included with
complete financial statements may be
omitted with the exception of disclosure
regarding material contingencies, long-term
obligations, and guarantees. Description of
significant provisions of the state savings
association’s long-term obligations,
mandatory dividend, or redemption
requirements of redeemable stocks, and
guarantees of the State savings association
shall be provided along with a 5-year
schedule of maturities of debt. If the material
contingencies, long-term obligations,
redeemable stock requirements, and
guarantees of the State savings association
have been separately disclosed in the
4 Indicate in a note to the most recent schedule
being filed for a particular person or group any
significant changes since the date of the related
balance sheet. If this schedule is filed in support of
consolidated or combined statements, there shall be
set forth guarantees by any person included in the
consolidation or combination, except that such
guarantees of securities which are included in the
consolidated or combined balance sheet need not be
set forth.
5 Indicate any amounts included in column C
which are included also in column D or E.
6 There need be made only a brief statement of the
nature of the guarantee, such as ‘‘Guarantee of
principal and interest,’’ or ‘‘Guarantee of
dividends.’’ If the guarantee is of interest or
dividends, state the annual aggregate amount of
interest or dividends so guaranteed.
7 Only a brief statement as to any such defaults
need be made.
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Col. F. Nature of
consolidated statements, they need not be
repeated in this schedule.
(b) Disclose separately the amount of cash
dividends paid to the State savings
association for each of the last three fiscal
years by consolidated subsidiaries,
unconsolidated subsidiaries, and 50-percentor less-owned persons accounted for by the
equity method, respectively.
Subpart U—Securities of State Savings
Associations
§ 390.390 Requirements under certain
sections of the Securities Exchange Act of
1934.
In respect to any securities issued by
State savings associations, the powers,
functions, and duties vested in the
Securities and Exchange Commission
(the ‘‘Commission’’) to administer and
enforce sections 10A(m), 12, 13, 14(a),
14(c), 14(d), 14(f), and 16 of the
Securities Exchange Act of 1934, as
amended (the ‘‘Act’’) (15 U.S.C. 78l,
78m, 78n(a), 78n(c), 78n(d), 78n(f), and
78p), and sections 302, 303, 304, 306,
401(b), 404, 406, and 407 of the
Sarbanes-Oxley Act of 2002 (15 U.S.C.
7241, 7242, 7243, 7244, 7261, 7262,
7264, and 7265) are vested in the FDIC.
The rules, regulations and forms
prescribed by the Commission pursuant
to those sections or applicable in
connection with obligations imposed by
those sections, shall apply to securities
issued by State savings associations,
except as otherwise provided. The term
‘‘Commission’’ as used in those rules
and regulations shall, with respect to
securities issued by State savings
associations, be deemed to refer to the
FDIC unless the context otherwise
requires. All filings with respect to
securities issued by State savings
associations required by those rules and
regulations to be made with the
Commission shall be made with the
FDIC, ATTN: Accounting and Securities
Disclosure Section, 550 17th Street, NW,
Washington, DC 20429, by submitting
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Col. G. Nature of any default by
issue of securities guaranteed in
principal, interest, sinking fund or
redemption provisions, or payment
of dividends 7
guarantee 6
such filings to the above address, except
as noted in § 390.391.
§ 390.391
[Reserved].
§ 390.392 Liability for certain statements
by State savings associations.
This section replaces adherence to 17
CFR 240.3b–6 and applies as follows:
(a) A statement within the coverage of
paragraph (b) of this section which is
made by or on behalf of an issuer or by
an outside reviewer retained by the
issuer shall be deemed not to be a
fraudulent statement (as defined in
paragraph (d) of this section), unless it
is shown that such statement was made
or reaffirmed without a reasonable basis
or was disclosed other than in good
faith.
(b) This section applies to the
following statements:
(1) A forward-looking statement (as
defined in paragraph (c) of this section)
made in a proxy statement or offering
circular filed with the OCC under 12
CFR part 192; in a registration statement
filed with the FDIC under the Act on
Form 10 (17 CFR 249.210); in part I of
a quarterly report filed with the FDIC on
Form 10–Q (17 CFR 249.308a); in an
annual report to shareholders meeting
the requirements of § 390.390,
particularly 17 CFR 240.14a–3(b) and (c)
or 17 CFR 240.14c–3(a) and (b) under
the Act; in a statement reaffirming such
forward-looking statement subsequent
to the date the document was filed or
the annual report was made publicly
available; or a forward-looking
statement made prior to the date the
document was filed or the date the
annual report was made publicly
available if such statement is reaffirmed
in a filed document or annual report
made publicly available within a
reasonable time after the making of such
forward-looking statement: Provided,
that
(i) At the time such statements are
made or reaffirmed, either:
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(A) The issuer is subject to the
reporting requirements of section 13(a)
or 15(d) of the Act and has complied
with the requirements of 17 CFR
240.13a–1 or 240.15d–1 thereunder, if
applicable, to file its most recent annual
report on Form 10–K; or
(B) If the issuer is not subject to the
reporting requirements of section 13(a)
or 15(d) of the Act, the statements are
made either in a registration statement
filed under the Securities Act of 1933 or
pursuant to section 12(b) or (g) of the
Act, or in a proxy statement or offering
circular filed with the OCC under 12
CFR Part 192 if such statements are
reaffirmed in a registration statement
under the Act on Form 10, filed with the
FDIC within 180 days of the State
savings association’s conversion, and
(ii) The statements are not made by or
on behalf of an issuer that is an
investment company registered under
the Investment Company Act of 1940;
(2) Information—
(i) Relating to the effects of changing
prices on the business enterprise
presented voluntarily or pursuant to
item 303 of Regulation S–K (17 CFR
229.303), management’s discussion and
analysis of financial condition and
results of operations, or item 302 of
Regulation S–K (17 CFR 229.302),
supplementary financial information;
and
(ii) Disclosed in a document filed
with the FDIC or in an annual report to
shareholders meeting the requirements
of 17 CFR 240.14a–3(b) and (c) or 17
CFR 240.14c–3(a) and (b) under the Act:
Provided, that such information
included in a proxy statement or
offering circular filed pursuant to 12
CFR Part 192 shall be reaffirmed in a
registration statement under the Act on
Form 10 filed with the OCC within 180
days of the association’s conversion.
(c) For purposes of this section, the
term ‘‘forward-looking statement’’ shall
mean and shall be limited to:
(1) A statement containing a
projection of revenues, income (loss),
earnings (loss) per share, capital
expenditures, dividends, capital
structure, or other financial items;
(2) A statement of management’s
plans and objectives for future
operations;
(3) A statement of future economic
performance contained in management’s
discussion and analysis of financial
condition and results of operations
pursuant to item 303 of Regulation S–
K; or
(4) A statement of the assumptions
underlying or relating to any of the
statements described in paragraph (c)(1),
(2), or (3) of this section.
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(d) For purposes of this section, the
term ‘‘fraudulent statement’’ shall mean
a statement which is an untrue
statement of a material fact, a statement
false or misleading with respect to any
material fact, an omission to state a
material fact necessary to make a
statement not misleading, or which
constitutes the employment of a
manipulative, deceptive, or fraudulent
device, contrivance, scheme,
transaction, act, practice, course of
business, or an artifice to defraud, as
those terms are used in the Securities
Act of 1933 or the rules or regulations
promulgated thereunder.
§ 390.393 Form and content of financial
statements.
The financial statements required to
be contained in filings with the FDIC
under the Act are as set out in the
applicable form and Regulation S–X, 17
CFR part 210. Those financial
statements, however, shall conform as to
form and content to the requirements of
§ 390.380.
§ 390.394
filings.
Interpretations related to SEC
Sections 390.394 and 390.395 contain
interpretations pertaining to the
requirements of the Act and the rules
and regulations thereunder as applied to
State savings associations by the FDIC.
§ 390.395
Description of business.
(a) This section applies to the
description-of-business portion of:
(1) Registration statements filed on
Form 10 (item 1) (17 CFR 249.210),
(2) Proxy and information statements
relating to mergers, consolidations,
acquisitions, and similar matters (item
14 of Schedule 14A and item 1 of
Schedule 14C) (17 CFR 240.14a–101 and
240.14c–101), and
(3) Annual reports filed on Form 10–
K (item 7) (17 CFR 249.310).
(b) The description of business should
conform to the description of business
required by item 7 of Form PS under 12
CFR part 192.
(c) No repetitive disclosure is required
by virtue of similar requirements in item
7 of Form PS and items 301 and 303 of
Regulation S–K (17 CFR 229.301, 303).
However, there should be included
appropriate disclosure which arises by
virtue of the registrant being a State
savings association that is organized in
stock form. For example, the table
regarding return on equity and assets,
item 7(d)(5), should include a line item
for ‘‘dividend payout ratio (dividends
declared per share divided by net
income per share).’’
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47739
Subpart V—Management Official
Interlocks
§ 390.400
Authority, purpose, and scope.
(a) Authority. This subpart is issued
under the provisions of the Federal
Deposit Insurance Act, 12 U.S.C. 1819
(Tenth) and the Depository Institution
Management Interlocks Act (Interlocks
Act) (12 U.S.C. 3201 et seq.), as
amended.
(b) Purpose. The purpose of the
Interlocks Act and this subpart is to
foster competition by generally
prohibiting a management official from
serving two nonaffiliated depository
organizations in situations where the
management interlock likely would
have an anticompetitive effect.
(c) Scope. This part applies to
management officials of State savings
associations and their affiliates.
§ 390.401
Definitions.
For purposes of this subpart, the
following definitions apply:
(a) Affiliate. (1) The term affiliate has
the meaning given in section 202 of the
Interlocks Act (12 U.S.C. 3201). For
purposes of that section 202, shares held
by an individual include shares held by
members of his or her immediate family.
‘‘Immediate family’’ means spouse,
mother, father, child, grandchild, sister,
brother, or any of their spouses, whether
or not any of their shares are held in
trust.
(2) For purposes of section 202(3)(B)
of the Interlocks Act (12 U.S.C.
3201(3)(B)), an affiliate relationship
involving a State savings association
based on common ownership does not
exist if the FDIC determines, after giving
the affected persons the opportunity to
respond, that the asserted affiliation was
established in order to avoid the
prohibitions of the Interlocks Act and
does not represent a true commonality
of interest between the depository
organizations. In making this
determination, the FDIC considers,
among other things, whether a person,
including members of his or her
immediate family, whose shares are
necessary to constitute the group owns
a nominal percentage of the shares of
one of the organizations and the
percentage is substantially
disproportionate to that person’s
ownership of shares in the other
organization.
(b) Area median income means:
(1) The median family income for the
metropolitan statistical area (MSA), if a
depository organization is located in an
MSA; or
(2) The statewide nonmetropolitan
median family income, if a depository
organization is located outside an MSA.
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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations
(c) Community means a city, town, or
village, and contiguous or adjacent
cities, towns, or villages.
(d) Contiguous or adjacent cities,
towns, or villages means cities, towns,
or villages whose borders touch each
other or whose borders are within 10
road miles of each other at their closest
points. The property line of an office
located in an unincorporated city, town,
or village is the boundary line of that
city, town, or village for the purpose of
this definition.
(e) Depository holding company
means a bank holding company or a
savings and loan holding company (as
more fully defined in section 202 of the
Interlocks Act (12 U.S.C. 3201)) having
its principal office located in the United
States.
(f) Depository institution means a
commercial bank (including a private
bank), a savings bank, a trust company,
a State savings association, a building
and loan association, a homestead
association, a cooperative bank, an
industrial bank, or a credit union,
chartered under the laws of the United
States and having a principal office
located in the United States.
Additionally, a United States office,
including a branch or agency, of a
foreign commercial bank is a depository
institution.
(g) Depository institution affiliate
means a depository institution that is an
affiliate of a depository organization.
(h) Depository organization means a
depository institution or a depository
holding company.
(i) Low- and moderate-income areas
means census tracts (or, if an area is not
in a census tract, block numbering areas
delineated by the United States Bureau
of the Census) where the median family
income is less than 100 percent of the
area median income.
(j) Management official. (1) The term
management official means:
(i) A director;
(ii) An advisory or honorary director
of a depository institution with total
assets of $100 million or more;
(iii) A senior executive officer as that
term is defined in § 390.361;
(iv) A branch manager;
(v) A trustee of a depository
organization under the control of
trustees; and
(vi) Any person who has a
representative or nominee serving in
any of the capacities in this paragraph
(j)(1).
(2) The term management official
does not include:
(i) A person whose management
functions relate exclusively to the
business of retail merchandising or
manufacturing;
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(ii) A person whose management
functions relate principally to the
business outside the United States of a
foreign commercial bank; or
(iii) A person described in the
provisos of section 202(4) of the
Interlocks Act (12 U.S.C. 3201(4))
(referring to an officer of a Statechartered savings bank, cooperative
bank, or trust company that neither
makes real estate mortgage loans nor
accepts savings).
(k) Office means a principal or branch
office of a depository institution located
in the United States. Office does not
include a representative office of a
foreign commercial bank, an electronic
terminal, or a loan production office.
(l) Person means a natural person,
corporation, or other business entity.
(m) Relevant metropolitan statistical
area (RMSA) means an MSA, a primary
MSA, or a consolidated MSA that is not
comprised of designated Primary MSAs
to the extent that these terms are
defined and applied by the Office of
Management and Budget.
(n) Representative or nominee means
a natural person who serves as a
management official and has an
obligation to act on behalf of another
person with respect to management
responsibilities. The FDIC will find that
a person has an obligation to act on
behalf of another person only if the first
person has an agreement, express or
implied, to act on behalf of the second
person with respect to management
responsibilities. The FDIC will
determine, after giving the affected
persons an opportunity to respond,
whether a person is a representative or
nominee.
(o) State savings association means:
(1) [Reserved]
(2) Any State savings association (as
defined in section 3(b)(3) of the Federal
Deposit Insurance Act (12 U.S.C.
1813(b)(3)) the deposits of which are
insured by the Federal Deposit
Insurance Corporation; and
(3) Any corporation (other than a bank
as defined in section 3(a)(1) of the
Federal Deposit Insurance Act (12
U.S.C. 1813(a)(1)) the deposits of which
are insured by the Federal Deposit
Insurance Corporation, that the Board of
Directors of the Federal Deposit
Insurance Corporation determines to be
operating in substantially the same
manner as a State savings association.
(p) Total assets. (1) The term total
assets means assets measured on a
consolidated basis and reported in the
most recent fiscal year-end Consolidated
Report of Condition and Income.
(2) The term total assets does not
include:
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(i) Assets of a diversified savings and
loan holding company as defined by
section 10(a)(1)(F) of the Home Owners’
Loan Act (12 U.S.C. 1467a(a)(1)(F))
other than the assets of its depository
institution affiliate;
(ii) Assets of a bank holding company
that is exempt from the prohibitions of
section 4 of the Bank Holding Company
Act of 1956 pursuant to an order issued
under section 4(d) of that Act (12 U.S.C.
1843(d)) other than the assets of its
depository institution affiliate; or
(iii) Assets of offices of a foreign
commercial bank other than the assets
of its United States branch or agency.
(q) United States means the United
States of America, any State or territory
of the United States of America, the
District of Columbia, Puerto Rico,
Guam, American Samoa, and the Virgin
Islands.
§ 390.402
Prohibitions.
(a) Community. A management
official of a depository organization may
not serve at the same time as a
management official of an unaffiliated
depository organization if the
depository organizations in question (or
a depository institution affiliate thereof)
have offices in the same community.
(b) RMSA. A management official of a
depository organization may not serve at
the same time as a management official
of an unaffiliated depository
organization if the depository
organizations in question (or a
depository institution affiliate thereof)
have offices in the same RMSA and each
depository organization has total assets
of $50 million or more.
(c) Major assets. A management
official of a depository organization
with total assets exceeding $2.5 billion
(or any affiliate of such an organization)
may not serve at the same time as a
management official of an unaffiliated
depository organization with total assets
exceeding $1.5 billion (or any affiliate of
such an organization), regardless of the
location of the two depository
organizations. The FDIC will adjust
these thresholds, as necessary, based on
the year-to-year change in the average of
the Consumer Price Index for the Urban
Wage Earners and Clerical Workers, not
seasonally adjusted, with rounding to
the nearest $100 million. The FDIC will
announce the revised thresholds by
publishing a final rule without notice
and comment in the Federal Register.
§ 390.403 Interlocking relationships
permitted by statute.
The prohibitions of § 390.402 do not
apply in the case of any one or more of
the following organizations or to a
subsidiary thereof:
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(a) A depository organization that has
been placed formally in liquidation, or
which is in the hands of a receiver,
conservator, or other official exercising
a similar function;
(b) A corporation operating under
section 25 or section 25A of the Federal
Reserve Act (12 U.S.C. 601 et seq. and
12 U.S.C. 611 et seq., respectively) (Edge
Corporations and Agreement
Corporations);
(c) A credit union being served by a
management official of another credit
union;
(d) A depository organization that
does not do business within the United
States except as an incident to its
activities outside the United States;
(e) A State-chartered savings and loan
guaranty corporation;
(f) A Federal Home Loan Bank or any
other bank organized solely to serve
depository institutions (a bankers’ bank)
or solely for the purpose of providing
securities clearing services and services
related thereto for depository
institutions and securities companies;
(g) A depository organization that is
closed or is in danger of closing as
determined by the appropriate Federal
depository institutions regulatory
agency and is acquired by another
depository organization. This exemption
lasts for five years, beginning on the
date the depository organization is
acquired;
(h)(1) A diversified savings and loan
holding company (as defined in section
10(a)(1)(F) of the Home Owners’ Loan
Act (12 U.S.C. 1467a(a)(1)(F)) with
respect to the service of a director of
such company who also is a director of
an unaffiliated depository organization
if:
(i) Both the diversified savings and
loan holding company and the
unaffiliated depository organization
notify their appropriate Federal
depository institutions regulatory
agency at least 60 days before the dual
service is proposed to begin; and
(ii) The appropriate regulatory agency
does not disapprove the dual service
before the end of the 60-day period.
(2) The FDIC may disapprove a notice
of proposed service if it finds that:
(i) The service cannot be structured or
limited so as to preclude an
anticompetitive effect in financial
services in any part of the United States;
(ii) The service would lead to
substantial conflicts of interest or unsafe
or unsound practices; or
(iii) The notificant failed to furnish all
the information required by the FDIC.
(3) The FDIC may require that any
interlock permitted under this
paragraph (h) be terminated if a change
in circumstances occurs with respect to
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one of the interlocked depository
organizations that would have provided
a basis for disapproval of the interlock
during the notice period; and
(i) Any State savings association
which has issued stock in connection
with a qualified stock issuance pursuant
to section 10(q) of the Home Owners’
Loan Act, except that this paragraph (i)
shall apply only with regard to service
as a single management official of such
State savings association or any
subsidiary of such State savings
association by a single management
official of a savings and loan holding
company which purchased the stock
issued in connection with such
qualified stock issuance, and shall apply
only when the FDIC has determined that
such service is consistent with the
purposes of the Interlocks Act and the
Home Owners’ Loan Act.
§ 390.404
Small market share exemption.
(a) Exemption. A management
interlock that is prohibited by § 390.402
is permissible, if:
(1) The interlock is not prohibited by
§ 390.402(c); and
(2) The depository organizations (and
their depository institution affiliates)
hold, in the aggregate, no more than 20
percent of the deposits in each RMSA or
community in which both depository
organizations (or their depository
institution affiliates) have offices. The
amount of deposits shall be determined
by reference to the most recent annual
Summary of Deposits published by the
FDIC for the RMSA or community.
(b) Confirmation and records. Each
depository organization must maintain
records sufficient to support its
determination of eligibility for the
exemption under paragraph (a) of this
section, and must reconfirm that
determination on an annual basis.
§ 390.405
General exemption.
(a) Exemption. The FDIC may exempt
an interlock from the prohibitions in
§ 390.402 if the FDIC finds that the
interlock would not result in a
monopoly or substantial lessening of
competition and would not present
safety and soundness concerns. A
depository organization may apply to
FDIC for an exemption under §§ 390.126
through 390.135.
(b) Presumptions. In reviewing an
application for an exemption under this
section, the FDIC will apply a rebuttable
presumption that an interlock will not
result in a monopoly or substantial
lessening of competition if the
depository organization seeking to add a
management official:
(1) Primarily serves low- and
moderate-income areas;
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47741
(2) Is controlled or managed by
persons who are members of a minority
group, or women;
(3) Is a depository institution that or
has been chartered for less than two
years; or
(4) Is deemed to be in ‘‘troubled
condition’’ as defined in § 390.361.
(c) Duration. Unless a shorter
expiration period is provided in the
FDIC approval, an exemption permitted
by paragraph (a) of this section may
continue so long as it does not result in
a monopoly or substantial lessening of
competition, or is unsafe or unsound. If
the FDIC grants an interlock exemption
in reliance upon a presumption under
paragraph (b) of this section, the
interlock may continue for three years,
unless otherwise provided by the FDIC
in writing.
§ 390.406
Change in circumstances.
(a) Termination. A management
official shall terminate his or her service
or apply for an exemption if a change
in circumstances causes the service to
become prohibited. A change in
circumstances may include an increase
in asset size of an organization, a change
in the delineation of the RMSA or
community, the establishment of an
office, an increase in the aggregate
deposits of the depository organization,
or an acquisition, merger, consolidation,
or reorganization of the ownership
structure of a depository organization
that causes a previously permissible
interlock to become prohibited.
(b) Transition period. A management
official described in paragraph (a) of this
section may continue to serve the
depository organization involved in the
interlock for 15 months following the
date of the change in circumstances.
The FDIC may shorten this period under
appropriate circumstances.
§ 390.407
Enforcement.
Except as provided in this section, the
FDIC administers and enforces the
Interlocks Act with respect to State
savings associations and its affiliates,
and may refer any case of a prohibited
interlocking relationship involving
these entities to the Attorney General of
the United States to enforce compliance
with the Interlocks Act and this subpart.
If an affiliate of a State savings
association is subject to the primary
regulation of another Federal depository
organization supervisory agency, then
the FDIC does not administer and
enforce the Interlocks Act with respect
to that affiliate.
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§ 390.408 Interlocking relationships
permitted pursuant to Federal Deposit
Insurance Act.
A management official or prospective
management official of a depository
organization may enter into an
otherwise prohibited interlocking
relationship with another depository
organization for a period of up to 10
years if such relationship is approved by
the Federal Deposit Insurance
Corporation pursuant to section
13(k)(1)(A)(v) of the Federal Deposit
Insurance Act, as amended (12 U.S.C.
1823(k)(1)(A)(v)).
Subpart W—Securities Offerings
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§ 390.410
Definitions.
(a) For purposes of this subpart, the
following definitions apply:
(1) Accredited investor means the
same as in Commission Rule 501(a) (17
CFR 230.501(a)) under the Securities
Act, and includes any State savings
association.
(2) Commission means the Securities
and Exchange Commission.
(3) Dividend or interest reinvestment
plan means a plan which is offered
solely to existing security holders of the
State savings association which allows
such persons to reinvest dividends or
interest paid to them on securities
issued by the State savings association,
and which also may allow additional
cash amounts to be contributed by the
participants in the plan, provided that
the securities to be issued are newly
issued, or are purchased for the account
of plan participants, at prices not in
excess of current market prices at the
time of purchase, or at prices not in
excess of an amount determined in
accordance with a pricing formula
specified in the plan and based upon
average or current market prices at the
time of purchase.
(4) Employee benefit plan means any
purchase, savings, option, rights, bonus,
ownership, appreciation, profit sharing,
thrift, incentive, pension or similar plan
solely for officers, directors or
employees.
(5) Exchange Act means the Securities
Exchange Act of 1934 (15 U.S.C. 78a–
78jj).
(6) Filing date means the date on
which a document is actually received
during business hours, 9 a.m. to 5 p.m.
Eastern Standard Time, by the FDIC,
550 17th Street, NW., Washington, DC
20429. However if the last date on
which a document can be accepted falls
on a Saturday, Sunday, or holiday, such
document may be filed on the next
business day.
(7) Issuer means a State savings
association which issues or proposes to
issue any security.
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(8) Offer; Sale or sell. For purposes of
this subpart, the term offer, offer to sell,
or offer for sale shall include every
attempt or offer to dispose of, or
solicitation of an offer to buy, a security
or interest in a security, for value.
However, these terms shall not include
preliminary negotiations or agreements
between an issuer and any underwriter
or among underwriters who are or are to
be in privity of contract with the issuer.
Sale and sell includes every contract to
sell or otherwise dispose of a security or
interest in a security for value. Every
offer or sale of a warrant or right to
purchase or subscribe to another
security of the same or another issuer,
as well as every sale or offer of a
security which gives the holder a
present or future right or privilege to
convert the security into another
security of the same or another issuer,
includes an offer and sale of the other
security only at the time of the offer or
sale of the warrant or right or
convertible security; but neither the
exercise of the right to purchase or
subscribe or to convert nor the issuance
of securities pursuant thereto is an offer
or sale.
(9) Person means the same as in 12
CFR 192.25, and includes a State
savings association.
(10) Purchase and buy mean the same
as in 12 CFR 192.25.
(11) State savings association means
the same as in section 3(b) of the
Federal Deposit Insurance Act (12
U.S.C. 1813(b)), and includes a statechartered savings association in
organization which is granted
conditional approval of insurance of
accounts by the Federal Deposit
Insurance Corporation. In addition, for
purposes of § 390.411, State savings
association includes any underwriter
participating in the distribution of
securities of a State savings association.
(12) Securities Act means the
Securities Act of 1933 (15 U.S.C. 77a–
77aa).
(13) Security means any nonwithdrawable account, note, stock,
treasury stock, bond, debenture,
evidence of indebtedness, certificate of
interest or participation in any profitsharing agreement, collateral-trust
certificate, preorganization or
subscription, transferable share,
investment contract, voting trust
certificate or, in general, any interest or
instrument commonly known as a
security, or any certificate of interest or
participation in, temporary or interim
certificate for, receipt for, guarantee of,
or warrant or right to subscribe to or
purchase any of the foregoing, except
that a security shall not include an
account insured, in whole or in part, by
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the Federal Deposit Insurance
Corporation.
(14) Underwriter means any person
who has purchased from an issuer with
a view to, or offers or sells for an issuer
in connection with, the distribution of
any security, or participates or has a
participation in the direct or indirect
underwriting of any such undertaking;
but such term shall not include a person
whose interest is limited to a
commission from an underwriter or
dealer not in excess of the usual and
customary distributors’ or sellers’
commission and such term shall also
not include any person who has
continually held the securities being
transferred for a period of two (2)
consecutive years provided that the
securities sold in any one (1) transaction
shall be less than ten percent (10%) of
the issued and outstanding securities of
the same class. The following shall
apply for the purpose of determining the
period securities have been held:
(i) Stock dividends, splits and
recapitalizations. Securities acquired
from the issuer as a dividend or
pursuant to a stock split, reverse split or
recapitalization shall be deemed to have
been acquired at the same time as the
securities on which the dividend or, if
more than one, the initial dividend was
paid, the securities involved in the split
or reverse split, or the securities
surrendered in connection with the
recapitalization.
(ii) Conversions. If the securities sold
were acquired from the issuer for
consideration consisting solely of other
securities of the same issuer
surrendered for conversion, the
securities so acquired shall be deemed
to have been acquired at the same time
as the securities surrendered for
conversion.
(iii) Contingent issuance of securities.
Securities acquired as a contingent
payment of the purchase price of an
equity interest in a business, or the
assets of a business, sold to the issuer
or an affiliate of the issuer shall be
deemed to have been acquired at the
time of such sale if the issuer was then
committed to issue the securities subject
only to conditions other than the
payment of further consideration for
such securities. An agreement entered
into in connection with any such
purchase to remain in the employment
of, or not to compete with, the issuer or
affiliate or the rendering of services
pursuant to such agreement shall not be
deemed to be the payment of further
consideration for such securities.
(iv) Pledged securities. Securities
which are bona fide pledged by any
person other than the issuer when sold
by the pledgee, or by a purchaser, after
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a default in the obligation secured by
the pledge, shall be deemed to have
been acquired when they were acquired
by the pledgor, except that if the
securities were pledged without
recourse they shall be deemed to have
been acquired by the pledgee at the time
of the pledge or by the purchaser at the
time of purchase.
(v) Gifts of securities. Securities
acquired from any person, other than
the issuer, by gift shall be deemed to
have been acquired by the donee when
they were acquired by the donor.
(vi) Trusts. Securities acquired from
the settler of a trust by the trust or
acquired from the trust by the
beneficiaries thereof shall be deemed to
have been acquired when they were
acquired by the settler.
(vii) Estates. Securities held by the
estate of a deceased person or acquired
from such an estate by the beneficiaries
thereof shall be deemed to have been
acquired when they were acquired by
the deceased person, except that no
holding period is required if the estate
is not an affiliate of the issuer or if the
securities are sold by a beneficiary of
the estate who is not such an affiliate.
(viii) Exchange transactions. A person
receiving securities in a transaction
involving an exchange of the securities
of one issuer for securities of another
issuer shall be deemed to have acquired
the securities received when such
person acquired the securities
exchanged.
(b) A term not defined in this subpart
but defined elsewhere in this part, when
used in subpart, shall have the
meanings given elsewhere in this part,
unless the context otherwise requires.
(c) When used in the rules,
regulations, or forms of the Commission
referred to in this subpart, the term
Commission shall be deemed to refer to
the FDIC, the term registrant shall be
deemed to refer to an issuer defined in
this subpart, and the term registration
statement or prospectus shall be
deemed to refer to an offering circular
filed under this subpart, unless the
context otherwise requires.
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§ 390.411
Offering circular requirement.
(a) General. No State savings
association shall offer or sell, directly or
indirectly, any security issued by it
unless:
(1) The offer or sale is accompanied
or preceded by an offering circular
which includes the information
required by this subpart and which has
been filed and declared effective
pursuant to this subpart; or
(2) An exemption is available under
this subpart.
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(b) Communications not deemed an
offer. The following communications
shall not be deemed an offer under this
subpart:
(1) Prior to filing an offering circular,
any notice of a proposed offering which
satisfies the requirements of
Commission Rule 135 (17 CFR 230.135)
under the Securities Act;
(2) Subsequent to filing an offering
circular, any notice circular,
advertisement, letter, or other
communication published or
transmitted to any person which
satisfies the requirements of
Commission Rule 134 (17 CFR 230.134)
under the Securities Act; and
(3) Oral offers of securities covered by
an offering circular made after filing the
offering circular with the FDIC.
(c) Preliminary offering circular.
Notwithstanding paragraph (a) of this
section, a preliminary offering circular
may be used for an offer of any security
prior to the effective date of the offering
circular if:
(1) The preliminary offering circular
has been filed pursuant to this subpart;
(2) The preliminary offering circular
includes the information required by
this subpart, except for the omission of
information relating to offering price,
discounts or commissions, amount of
proceeds, conversion rates, call prices,
or other matters dependent on the
offering price; and
(3) The offering circular declared
effective by the FDIC is furnished to the
purchaser prior to, or simultaneously
with, the sale of any such security.
§ 390.412
Exemptions.
The offering circular requirement of
§ 390.411 shall not apply to an issuer’s
offer or sale of securities:
(a) [Reserved]
(b) Exempt from registration under
either section 3(a) or section 4 of the
Securities Act, but only by reason of an
exemption other than section 3(a)(5) (for
regulated State savings associations),
and section 3(a)(11) (for intrastate
offerings) of the Securities Act;
(c) In a conversion from the mutual to
the stock form of organization pursuant
to12 CFR part 192, except for a
supervisory conversion undertaken
pursuant to subpart C of 12 CFR part
192;
(d) In a non-public offering which
satisfies the requirements of § 390.413;
(e) That are debt securities issued in
denominations of $100,000 or more,
which are fully collateralized by cash,
any security issued, or guaranteed as to
principal and interest, by the United
States, the Federal Home Loan Mortgage
Corporation, Federal National Mortgage
Association, Government National
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47743
Mortgage Association or by interests in
mortgage notes secured by real property;
(f) Distributed exclusively abroad to
foreign nationals: Provided, That—
(1) The offering is made subject to
safeguards reasonably designed to
preclude distribution or redistribution
of the securities within, or to nationals
of, the United States; and
(2) Such safeguards include, without
limitation, measures that would be
sufficient to ensure that registration of
the securities would not be required if
the securities were not exempt under
the Securities Act; or
(g) To its officers, directors or
employees pursuant to an employee
benefit plan or a dividend or interest
reinvestment plan, and provided that
any such plan has been approved by the
majority of shareholders present in
person or by proxy at an annual or
special meeting of the shareholders of
the State savings association.
§ 390.413
Non-public offering.
Offers and sales of securities by an
issuer that satisfy the conditions of
paragraph (a) or (b) of this section and
the requirements of paragraphs (c) and
(d) of this section shall be deemed to be
transactions not involving any public
offering within the meaning of section
4(2) of the Securities Act and
§§ 390.412(b) and 390.412(d). However,
an issuer shall not be deemed to be not
in compliance with the provisions of
this subpart solely by reason of making
an untimely filing of the notice required
to be filed by paragraph (c) of this
section so long as the notice is actually
filed and all other conditions and
requirements of this subpart are
satisfied.
(a) Regulation D. The offer and sale of
all securities in the transaction satisfies
the Commission’s Regulation D (17 CFR
230.501–230.506), except for the notice
requirements of Commission Rule 503
(17 CFR 230.503) and the limitations on
resale in Commission Rule 502(d) (17
CFR 230.502(d)).
(b) Sales to 35 persons. The offer and
sale of all securities in the transaction
satisfies each of the following
conditions:
(1) Sales of the security are not made
to more than 35 persons during the
offering period, as determined under the
integration provisions of Commission
Rule 502(a) (17 CFR 230.502(a)). The
number of purchasers referred to above
is exclusive of any accredited investor,
officer, director or affiliate of the issuer.
For purposes of paragraph (b) of this
section, a husband and wife (together
with any custodian or trustee acting for
the account of their minor children) are
counted as one person and a
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partnership, corporation or other
organization which was not specifically
formed for the purpose of purchasing
the security offered in reliance upon
this exemption, is counted as one
person.
(2) All purchasers either have a
preexisting personal or business
relationship with the issuer or any of its
officers, directors or controlling persons,
or by reason of their business or
financial experience or the business or
financial experience of their
professional advisors who are
unaffiliated with and who are not
compensated by the issuer or any
affiliate or selling agent of the issuer,
directly or indirectly, could reasonably
be assumed to have the capacity to
protect their own interests in
connection with the transaction.
(3) Each purchaser represents that the
purchaser is purchasing for the
purchaser’s own account (or a trust
account if the purchaser is a trustee) and
not with a view to or for sale in
connection with any distribution of the
security.
(4) The offer and sale of the security
is not accomplished by the publication
of any advertisement.
(c) Filing of notice of sales. Within 30
days after the first sale of the securities,
every six months after the first sale of
the securities and not later than 30 days
after the last sale of securities in an
offering pursuant to this subpart, the
issuer, shall file with the FDIC a report
describing the results of the sale of
securities as required by § 390.421(b).
(d) Limitation on resale. The issuer
shall exercise reasonable care to assure
that the purchasers of the securities are
not underwriters within the meaning of
§ 390.410(a)(14), which reasonable care
shall include, but not be limited to, the
following:
(1) Reasonable inquiry to determine if
the purchaser is acquiring the securities
for the purchaser or for other persons;
(2) Written disclosure to each
purchaser prior to the sale that the
securities are not offered by an offering
circular filed with, and declared
effective by, the FDIC pursuant to
§ 390.411, but instead are being sold in
reliance upon the exemption from the
offering circular requirement provided
for by this subpart; and
(3) Placement of a legend on the
certificate, or other document
evidencing the securities, indicating
that the securities have not been offered
by an offering circular filed with, and
declared effective by, the FDIC and that
due care should be taken to ensure that
the seller of the securities is not an
underwriter within the meaning of
§ 390.410(a)(14).
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§ 390.414 Filing and signature
requirements.
(a) Procedures. An offering circular,
amendment, notice, report, or other
document required by this subpart shall,
unless otherwise indicated, be filed in
accordance with the requirements of 12
CFR 192.115(a), 192.150(a)(6), 192.155,
192.180(b), and Form AC, General
Instruction B, of this subpart.
(b) Number of copies. (1) Unless
otherwise required, any filing under this
subpart shall include nine copies of the
document to be filed with the FDIC, as
follows:
(i) Seven copies, which shall include
one manually signed copy with exhibits,
three conformed copies with exhibits,
and three conformed copies without
exhibits, to the FDIC, ATTN:
Accounting and Securities Disclosure
Section, 550 17th Street NW,
Washington, DC 20429; and
(ii) Two copies, which shall include
one manually signed copy with exhibits
and one conformed copy, without
exhibits, to the appropriate regional
director.
(2) Within five days after the effective
date of an offering circular or the
commencement of a public offering after
the effective date, whichever occurs
later, nine copies of the offering circular
used shall be filed with the FDIC as
follows: Seven copies to the FDIC, 550
17th Street NW., ATTN: Accounting and
Securities Disclosure Section,
Washington, DC, and two copies to the
appropriate Regional Director.
(3) After the effective date of an
offering circular, an offering circular
which varies from the form previously
filed shall not be used, unless it
includes only non-material
supplemental or additional information
and until 10 copies have been filed with
the FDIC in the manner required.
(c) Signature. (1) Any offering
circular, amendment, or consent filed
with the FDIC pursuant to this subpart
shall include an attached manually
signed signature page which authorizes
the filing and has been signed by:
(i) The issuer, by its duly authorized
representative;
(ii) The issuer’s principal executive
officer;
(iii) The issuer’s principal financial
officer;
(iv) The issuer’s principal accounting
officer; and
(v) At least a majority of the issuer’s
directors.
(2) Any other document filed
pursuant to this subpart shall be signed
by a person authorized to do so.
(3) At least one copy of every
document filed pursuant to this subpart
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shall be manually signed, and every
copy of a document filed shall:
(i) Have the name of each person who
signs typed or printed beneath the
signature;
(ii) State the capacity or capacities in
which the signature is provided;
(iii) Provide the name of each director
of the issuer, if a majority of directors
is required to sign the document; and
(iv) With regard to any copies not
manually signed, bear typed or printed
signatures.
§ 390.415
Effective date.
(a) Except as provided for in
paragraph (d) of this section, an offering
circular filed by a State savings
association shall be deemed to be
automatically declared effective by the
FDIC on the twentieth day after filing or
on such earlier date as the FDIC may
determine for good cause shown.
(b) If any amendment is filed prior to
the effective date, the offering circular
shall be deemed to have been filed
when such amendment was filed.
(c) The period until automatic
effectiveness under this subpart shall be
stated at the bottom of the facing page
of the Form OC or any amendment.
(d) The effectiveness will be delayed
if a duly authorized amendment,
telegram confirmed in writing, or letter
states that the effective date is delayed
until a further amendment is filed
specifically stating that the offering
circular will become effective in
accordance with this subpart.
(e) An amendment filed after the
effective date of the offering circular
shall become effective on such date as
the FDIC may determine.
(f) If it appears to the FDIC at any time
that the offering circular includes any
untrue statement of a material fact or
omits to state any material fact required
to be stated therein or necessary to make
the statements therein not misleading,
then the FDIC may pursue any remedy
it is authorized to pursue under section
8 of the Federal Deposit Insurance Act,
as amended (12 U.S.C. 1818), including,
but not limited to, institution of ceaseand-desist proceedings.
§ 390.416
Form, content, and accounting.
(a) Form and content. Any offering
circular or amendment filed pursuant to
this subpart shall:
(1) Be filed under cover of Form OC,
which is under 12 CFR part 192;
(2) Comply with the requirements of
Items 3 and 4 of Form OC and the
requirements of all items of the form for
registration (17 CFR part 239) that the
issuer would be eligible to use were it
required to register the securities under
the Securities Act;
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(3) Comply with all item requirements
of the Form S–1 (17 CFR part 239) for
registration under the Securities Act, if
the association issuing the securities is
not in compliance with the FDIC’s
regulatory capital requirements during
the time the offering is made;
(4) Where a form specifies that the
information required by an item in the
Commission’s Regulation S–K (17 CFR
part 229) should be furnished, include
such information and all of the
information required by Item 7 of Form
PS, which is under 12 CFR part 192;
(5) Include after the facing page of the
Form OC a cross-reference sheet listing
each item requirement of the form for
registration under the Securities Act and
indicate for each item the applicable
heading or subheading in the offering
circular under which the required
information is disclosed;
(6) Include in part II of the Form OC
the applicable undertakings required by
the form for registration under the
Securities Act;
(7) If the issuer has not previously
been required to file reports pursuant to
section 13(a) of the Exchange Act or
§ 390.427, include in part II of Form OC
the following undertaking: ‘‘The issuer
hereby undertakes, in connection with
any distribution of the offering circular,
to have a preliminary or effective
offering circular including the
information required by this subpart
distributed to all persons expected to be
mailed confirmations of sale not less
than 48 hours prior to the time such
confirmations are expected to be
mailed;’’
(8) In offerings involving the issuance
of options, warrants, subscription rights
or conversion rights within the meaning
of § 390.410(a)(8), include in part II of
Form OC an undertaking to provide a
copy of the issuer’s most recent audited
financial statements to persons
exercising such options, warrants or
rights promptly upon receiving written
notification of the exercise thereof;
(9) Include as supplemental
information and not as part of the Form
OC and only with respect to de novo
offerings, a copy of the application for
insurance of accounts as submitted to
the Federal Deposit Insurance
Corporation for state-chartered savings
associations; and
(10) In addition to the information
expressly required to be included by
this subpart, there shall be added such
further material information, if any, as
may be necessary to make the required
statements, in light of the circumstances
under which they are made, not
misleading.
(b) Accounting requirements. To be
declared effective an offering circular or
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amendment shall satisfy the accounting
requirements in subpart T.
§ 390.417
Use of the offering circular.
(a) An offering circular or amendment
declared effective by the FDIC shall not
be used more than nine months after the
effective date, unless the information
contained therein is as of a date not
more than 16 months prior to such use.
(b) An offering circular filed under
§ 390.414(b)(3) shall not extend the
period for which an effective offering
circular or amendment may be used
under paragraph (c) of this section.
(c) If any event arises, or change in
fact occurs, after the effective date and
such event or change in fact,
individually or in the aggregate, results
in the offering circular containing any
untrue statement of material fact, or
omitting to state a material fact
necessary in order to make statements
made in the offering circular not
misleading under the circumstances,
then no offering circular, which has
been declared effective under this
subpart, shall be used until an
amendment reflecting such event or
change in fact has been filed with, and
declared effective by, the FDIC.
§ 390.418
Escrow requirement.
(a) Any funds received in an offering
which is offered and sold on a best
efforts all-or-none condition or with a
minimum-maximum amount to be sold
shall be held in an escrow or similar
separate account until such time as all
of the securities are sold with respect to
a best efforts all-or-none offering or the
stated minimum amount of securities
are sold in a minimum-maximum
offering.
(b) If the amount of securities required
to be sold under escrow conditions in
paragraph (a) of this section are not sold
within the time period for the offering
as disclosed in the offering circular, all
funds in the escrow account shall be
promptly refunded unless the FDIC
otherwise approves an extension of the
offering period upon a showing of good
cause and provided that the extension is
consistent with the public interest and
the protection of investors.
§ 390.419
Unsafe or unsound practices.
(a) No person shall directly or
indirectly,
(1) Employ any device, scheme or
artifice to defraud,
(2) Make any untrue statement of a
material fact or omit to state a material
fact necessary in order to make
statements made, in light of the
circumstances under which they were
made, not misleading, or
(3) Engage in any act, practice, or
course of business which operates as a
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47745
fraud or deceit upon any person, in
connection with the purchase or sale of
any security of a State savings
association.
(b) Violations of this subpart shall
constitute an unsafe or unsound
practice within the meaning of section
8 of the Federal Deposit Insurance Act,
as amended, 12 U.S.C. 1818.
(c) Nothing in this subpart shall be
construed as a limitation on the
applicability of section 10(b) of the
Exchange Act (15 U.S.C. 78j(b)) or Rule
10b–5 promulgated thereunder (17 CFR
240.10b–5).
§ 390.420
Withdrawal or abandonment.
(a) Any offering circular, amendment,
or exhibit may be withdrawn prior to
the effective date. A withdrawal shall be
signed and state the grounds upon
which it is made. Any document
withdrawn will not be removed from
the files of the FDIC, but will be marked
‘‘Withdrawn upon the request of the
issuer on (date).’’
(b) When an offering circular or
amendment has been on file with the
FDIC for a period of nine months and
has not become effective, the FDIC may,
in its discretion, determine whether the
filing has been abandoned, after
notifying the issuer that the filing is out
of date and must either be amended to
comply with the applicable
requirements of this subpart or be
withdrawn within 30 days after the date
of such notice. When a filing is
abandoned, the filing will not be
removed from the files of the FDIC, but
will be marked ‘‘Declared abandoned by
the FDIC on (date).’’
§ 390.421
Securities sale report.
(a) Within 30 days after the first sale
of the securities, every six months after
such 30 day period and not later than
30 days after the later of the last sale of
securities in an offering pursuant to
§ 390.411 or the application of the
proceeds therefrom, the issuer shall file
with the FDIC a report describing the
results of the sale of the securities and
the application of the proceeds, which
shall include all of the information
required by Form G–12 set forth at
§ 390.429 and shall also include the
following:
(1) The name, address, and docket
number of the issuer;
(2) The title, number, aggregate and
per-unit offering price of the securities
sold;
(3) The aggregate and per-unit dollar
amounts of actual itemized expenses,
discounts or commissions, and other
fees;
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(4) The aggregate and per-unit dollar
amounts of the net proceeds raised, and
the use of proceeds therefrom; and
(5) The number of purchasers of each
class of securities sold and the number
of owners of record of each class of the
issuer’s equity securities after the
issuance of the securities or termination
of the offer.
(b) Within 30 days after the first sale
of the securities, every six months after
the first sale of the securities and not
later than 30 days after the last sale of
securities in an offering pursuant to
§ 390.413, the issuer shall file with the
FDIC a report describing the results of
the sale of securities, which shall
include all of the information required
by Form G–12 set forth at § 390.429, and
shall also include the following:
(1) All of the information required by
paragraph (a) of this section; and
(2) A detailed statement of the factual
and legal grounds for the exemption
claimed.
§ 390.422 Public disclosure and
confidential treatment.
(a) Any offering circular, amendment,
exhibit, notice, or report filed pursuant
to this subpart will be publicly
available. Any other related documents
will be treated in accordance with the
provisions of the Freedom of
Information Act (5 U.S.C. 552), the
Privacy Act of 1974 (5 U.S.C. 552a), and
parts 309 and 310 of this chapter.
(b) Any requests for confidential
treatment of information in a document
required to be filed under this subpart
shall be made as required under
Commission Rule 24b–2 (17 CFR
240.24b–2) under the Exchange Act.
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§ 390.423
Waiver.
(a) The FDIC may waive any
requirement of this subpart, or any
required information:
(1) Determined to be unnecessary by
the FDIC;
(2) In connection with a transaction
approved by the FDIC for supervisory
reasons, or
(3) Where a provision of this subpart
conflicts with a requirement of
applicable state law.
(b) Any condition, stipulation or
provision binding any person acquiring
a security issued by a State savings
association which seeks to waive
compliance with any provision of this
subpart shall be void, unless approved
by the FDIC.
§ 390.424 Requests for interpretive advice
or waiver.
Any requests to the FDIC for
interpretive advice or a waiver with
respect to any provision of this subpart
shall satisfy the following requirements:
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(a) A copy of the request, including
any attachments, shall be filed with the
FDIC;
(b) The provisions of this subpart to
which the request relates, the
participants in the proposed transaction,
and the reasons for the request, shall be
specifically identified or described; and
(c) The request shall include a legal
opinion as to each legal issue raised and
an accounting opinion as to each
accounting issue raised.
§ 390.425 Delayed or continuous offering
and sale of securities.
Any offer or sale of securities under
§ 390.411 may be made on a continuous
or delayed basis in the future, if:
(a) The securities would satisfy all of
the eligibility requirements of the
Commission’s Rule 415, 17 CFR
230.415; and
(b) The association issuing the
securities is in compliance with the
FDIC’s regulatory capital requirements
during the time the offering is made.
Commission’s registration statement on
Form 10 or Form 8–A or 8–B as
applicable.
§ 390.428
Approval of the security.
Any securities of a State savings
association which are not exempt under
this subpart and are offered or sold
pursuant to an offering circular which
becomes effective under this subpart,
are deemed to be approved as to form
and terms for purposes of this subpart.
§ 390.429
Form for securities sale report.
FDIC, 550 17th Street, NW.,
Washington, DC 20429
[Form G–12]
Securities Sale Report Pursuant to
§ 390.12
FDIC No. llllllllllllllll
Issuer’s Name: llllllllllllll
Address: llllllllllllllll
If in organization, state the date of
FDIC certification of insurance of
accounts: ll
State the title, number, aggregate and
§ 390.426 Sales of securities at an office of
per-unit offering price of the securities
a State savings association.
sold: llll
Sales of securities of a State savings
State the aggregate and per-unit dollar
association or its affiliates at an office of
amounts of actual itemized offering
a State savings association may only be
expenses, discounts, commissions, and
made in accordance with the provisions
other fees: llll
of § 390.340.
State the aggregate and per-unit dollar
amounts of the net proceeds raised:
§ 390.427 Current and periodic reports.
llll
(a) Each State savings association
Describe the use of proceeds. If
which files an offering circular which
unknown, provide reasonable estimates
becomes effective pursuant to this
of the dollar amount allocated to each
subpart, after such effective date, shall
purpose for which the proceeds will be
file with the FDIC periodic and current
used: llll
reports on Forms 8–K, 10–Q and 10–K
State the number of purchasers of
as may be required by section 13 of the
each class of securities sold and the
Exchange Act (15 U.S.C. 78m) as if the
number of owners of record of each
securities sold by such offering circular
class of the issuer’s equity securities at
were securities registered pursuant to
the close or termination of the offering:
section 12 of the Exchange Act (15
llll
U.S.C. 78l). The duty to file periodic and
For a non-public offering, also state
current reports under this subpart shall
the factual and legal grounds for the
be automatically suspended if and so
exemption claimed (attach additional
long as any issue of securities of the
pages if necessary): llll
State savings association is registered
For a non-public offering, all offering
pursuant to section 12 of the Exchange
materials used should be listed:
Act (15 U.S.C. 78l). The duty to file
llll
under this subpart shall also be
automatically suspended as to any fiscal Person to Contact: llllllllllll
Telephone No.: lllllllllllll
year, other than the fiscal year within
This issuer has duly caused this
which such offering circular became
securities sale report to be signed on its
effective, if, at the beginning of such
behalf by the undersigned person.
fiscal year, the securities of each class
to which the offering circular relates are Date of securities sale report lllllll
Issuer: lllllllllllllllll
held of record by less than three
Signature: llllllllllllllll
hundred persons and upon the filing of
Name: lllllllllllllllll
a Form 15.
Title: llllllllllllllllll
(b) For purposes of registering
securities under section 12(b) or 12(g) of
Instruction: Print the name and title of
the Exchange Act, an issuer subject to
the signing representative under his or
the reporting requirements of paragraph her signature. Ten copies of the
(a) of this section may use the
securities sale report should be filed,
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including one copy manually signed, as
required under 12 CFR 390.414.
Attention
Intentional misstatements or
omissions of fact constitute violations of
Federal law (See 18 U.S.C. 1001 and
§ 390.355(b)).
§ 390.430 Filing of copies of offering
circulars in certain exempt offerings.
A copy of the offering circular, or
similar document, if any, used in
connection with an offering exempt
from the offering circular requirement of
§ 390.411 by reason of § 390.412(e) or
§ 390.413 shall be mailed to the FDIC
within 30 days after the first sale of such
securities. Such copy of the offering
circular, or similar document, is solely
for the information of the FDIC and
shall not be deemed to be ‘‘filed’’ with
the FDIC pursuant to § 390.411. The
mailing to the FDIC of such offering
circular, or similar document, shall not
be a pre-condition of the applicable
exemption from the offering circular
requirements of § 390.411.
Subpart X—Appraisals
mstockstill on DSK4VPTVN1PROD with RULES2
§ 390.440
Authority, purpose, and scope.
(a) Authority. This subpart is issued
by the FDIC under title XI of the
Financial Institutions Reform, Recovery,
and Enforcement Act of 1989
(‘‘FIRREA’’) (Pub. L. 101–73, 103 Stat.
183, 511 (1989)), 12 U.S.C. 3301 et seq.,
and portions of the Home Owners’ Loan
Act (‘‘HOLA’’), 12 U.S.C. 1461 et seq.,
as amended by FIRREA.
(b) Purpose and scope. (1) Title XI
provides protection for federal financial
and public policy interests in real estate
related transactions by requiring real
estate appraisals used in connection
with federally related transactions to be
performed in writing, in accordance
with uniform standards, by appraisers
whose competency has been
demonstrated and whose professional
conduct will be subject to effective
supervision. This subpart implements
the requirements of title XI and applies
to all federally related transactions
entered into by the FDIC or by
institutions regulated by the FDIC
(‘‘regulated institutions’’).
(2) This subpart:
(i) Identifies which real estate related
financial transactions require the
services of an appraiser;
(ii) Prescribes which categories of
federally related transactions shall be
appraised by a State certified appraiser
and which by a State licensed appraiser;
and
(iii) Prescribes minimum standards
for the performance of real estate
appraisals in connection with federally
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related transactions under the
jurisdiction of the FDIC.
§ 390.441
Definitions.
Appraisal means a written statement
independently and impartially prepared
by a qualified appraiser setting forth an
opinion as to the market value of an
adequately described property as of a
specific date(s), supported by the
presentation and analysis of relevant
market information.
Appraisal Foundation means the
Appraisal Foundation established on
November 30, 1987, as a not-for-profit
corporation under the laws of Illinois.
Appraisal Subcommittee means the
Appraisal Subcommittee of the Federal
Financial Institution Examination
Council.
Business loan means a loan or
extension of credit to any corporation,
general or limited partnership, business
trust, joint venture, pool, syndicate, sole
proprietorship, or other business entity.
Complex 1-to-4 family residential
property appraisal means one in which
the property to be appraised, the form
of ownership, or market conditions are
atypical.
Federally related transaction means
any real estate-related financial
transaction entered into on or after
August 9, 1990, that:
(1) The FDIC or any regulated
institution engages in or contracts for;
and
(2) Requires the services of an
appraiser.
Market value means the most
probable price which a property should
bring in a competitive and open market
under all conditions requisite to a fair
sale, the buyer and seller each acting
prudently and knowledgeably, and
assuming the price is not affected by
undue stimulus. Implicit in this
definition is the consummation of a sale
as of a specified date and the passing of
title from seller to buyer under
conditions whereby:
(1) Buyer and seller are typically
motivated;
(2) Both parties are well informed or
well advised, and acting in what they
consider their own best interests;
(3) A reasonable time is allowed for
exposure in the open market;
(4) Payment is made in terms of cash
in U.S. dollars or in terms of financial
arrangements comparable thereto; and
(5) The price represents the normal
consideration for the property sold
unaffected by special or creative
financing or sales concessions granted
by anyone associated with the sale.
Real estate or real property means an
identified parcel or tract of land, with
improvements, and includes easements,
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47747
rights of way, undivided or future
interests, or similar rights in a tract of
land, but does not include mineral
rights, timber rights, growing crops,
water rights, or similar interests
severable from the land when the
transaction does not involve the
associated parcel or tract of land.
Real estate-related financial
transaction means any transaction
involving:
(1) The sale, lease, purchase,
investment in or exchange of real
property, including interests in
property, or the financing thereof; or
(2) The refinancing of real property or
interests in real property; or
(3) The use of real property or
interests in property as security for a
loan or investment, including mortgagebacked securities.
State certified appraiser means any
individual who has satisfied the
requirements for certification in a State
or territory whose criteria for
certification as a real estate appraiser
currently meet the minimum criteria for
certification issued by the Appraiser
Qualifications Board of the Appraisal
Foundation. No individual shall be a
State certified appraiser unless such
individual has achieved a passing grade
upon a suitable examination
administered by a State or territory that
is consistent with and equivalent to the
Uniform State Certification Examination
issued or endorsed by the Appraiser
Qualifications Board of the National
Foundation. In addition, the Appraisal
Subcommittee must not have issued a
finding that the policies, practices, or
procedures of the State or territory are
inconsistent with title XI of FIRREA.
The FDIC may, from time to time,
impose additional qualification criteria
for certified appraisers performing
appraisals in connection with federally
related transactions within its
jurisdiction.
State licensed appraiser means any
individual who has satisfied the
requirements for licensing in a State or
territory where the licensing procedures
comply with title XI of FIRREA and
where the Appraisal Subcommittee has
not issued a finding that the policies,
practices, or procedures of the State or
territory are inconsistent with title XI.
The FDIC may, from time to time,
impose additional qualification criteria
for licensed appraisers performing
appraisals in connection with federally
related transactions within its
jurisdiction.
Tract development means a project of
five units or more that is constructed or
is to be constructed as a single
development.
Transaction value means:
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(1) For loans or other extensions of
credit, the amount of the loan or
extension of credit;
(2) For sales, leases, purchases, and
investments in or exchanges of real
property, the market value of the real
property interest involved; and
(3) For the pooling of loans or
interests in real property for resale or
purchase, the amount of the loan or
market value of the real property
calculated with respect to each such
loan or interest in real property.
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§ 390.442 Appraisals required;
transactions requiring a State certified or
licensed appraiser.
(a) Appraisals required. An appraisal
performed by a State certified or
licensed appraiser is required for all real
estate-related financial transactions
except those in which:
(1) The transaction value is $250,000
or less;
(2) A lien on real estate has been
taken as collateral in an abundance of
caution;
(3) The transaction is not secured by
real estate;
(4) A lien on real estate has been
taken for purposes other than the real
estate’s value;
(5) The transaction is a business loan
that:
(i) Has a transaction value of $1
million or less; and
(ii) Is not dependent on the sale of, or
rental income derived from, real estate
as the primary source of repayment;
(6) A lease of real estate is entered
into, unless the lease is the economic
equivalent of a purchase or sale of the
leased real estate;
(7) The transaction involves an
existing extension of credit at the
lending institution, provided that:
(i) There has been no obvious and
material change in market conditions or
physical aspects of the property that
threatens the adequacy of the
institution’s real estate collateral
protection after the transaction, even
with the advancement of new monies;
or
(ii) There is no advancement of new
monies, other than funds necessary to
cover reasonable closing costs;
(8) The transaction involves the
purchase, sale, investment in, exchange
of, or extension of credit secured by, a
loan or interest in a loan, pooled loans,
or interests in real property, including
mortgaged-backed securities, and each
loan or interest in a loan, pooled loan,
or real property interest met the FDIC’s
regulatory requirements for appraisals at
the time of origination;
(9) The transaction is wholly or
partially insured or guaranteed by a
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United States government agency or
United States government sponsored
agency;
(10) The transaction either:
(i) Qualifies for sale to a United States
government agency or United States
government sponsored agency; or
(ii) Involves a residential real estate
transaction in which the appraisal
conforms to the Federal National
Mortgage Association or Federal Home
Loan Mortgage Corporation appraisal
standards applicable to that category of
real estate;
(11) The regulated institution is acting
in a fiduciary capacity and is not
required to obtain an appraisal under
other law; or
(12) The FDIC determines that the
services of an appraiser are not
necessary in order to protect Federal
financial and public policy interests in
real estate-related financial transactions
or to protect the safety and soundness
of the institution.
(b) Evaluations required. For a
transaction that does not require the
services of a State certified or licensed
appraiser under paragraph (a)(1), (5), or
(7) of this section, the institution shall
obtain an appropriate evaluation of real
property collateral that is consistent
with safe and sound banking practices.
(c) Appraisals to address safety and
soundness concerns. The FDIC reserves
the right to require an appraisal under
this subpart whenever the agency
believes it is necessary to address safety
and soundness concerns.
(d) Transactions requiring a State
certified appraiser—(1) All transactions
of $1,000,000 or more. All federally
related transactions having a transaction
value of $1,000,000 or more shall
require an appraisal prepared by a State
certified appraiser.
(2) Nonresidential and residential
(other than 1-to-4 family) transactions of
$250,000 or more. All federally related
transactions having a transaction value
of $250,000 or more, other than those
involving appraisals of 1-to-4 family
residential properties, shall require an
appraisal prepared by a State certified
appraiser.
(3) Complex residential transactions
of $250,000 or more. All complex 1-to4 family residential property appraisals
rendered in connection with federally
related transactions shall require a State
certified appraiser if the transaction
value is $250,000 or more. A regulated
institution may presume that appraisals
of 1-to-4 family residential properties
are not complex, unless the institution
has readily available information that a
given appraisal will be complex. The
regulated institution shall be
responsible for making the final
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determination of whether the appraisal
is complex. If during the course of the
appraisal a licensed appraiser identifies
factors that would result in the property,
form of ownership, or market conditions
being considered atypical, then either:
(i) The regulated institution may ask
the licensed appraiser to complete the
appraisal and have a certified appraiser
approve and co-sign the appraisal; or
(ii) The institution may engage a
certified appraiser to complete the
appraisal.
(e) Transactions requiring either a
State certified or licensed appraiser. All
appraisals for federally related
transactions not requiring the services of
a State certified appraiser shall be
prepared by either a State certified
appraiser or a State licensed appraiser.
(f) Effective date. State savings
associations are required to use State
certified or licensed appraisers as set
forth in this subpart no later than
December 31, 1992.
§ 390.443
Minimum appraisal standards.
For federally related transactions, all
appraisals shall, at a minimum:
(a) Conform to generally accepted
appraisal standards as evidenced by the
Uniform Standards of Professional
Appraisal Practice (USPAP)
promulgated by the Appraisal Standards
Board of the Appraisal Foundation,
1029 Vermont Ave., NW., Washington,
DC 20005, unless principles of safe and
sound banking require compliance with
stricter standards;
(b) Be written and contain sufficient
information and analysis to support the
institution’s decision to engage in the
transaction;
(c) Analyze and report appropriate
deductions and discounts for proposed
construction or renovation, partially
leased buildings, non-market lease
terms, and tract developments with
unsold units;
(d) Be based upon the definition of
market value as set forth in this subpart;
and
(e) Be performed by State licensed or
certified appraisers in accordance with
requirements set forth in this subpart.
§ 390.444
Appraiser independence.
(a) Staff appraisers. If an appraisal is
prepared by a staff appraiser, that
appraiser must be independent of the
lending, investment, and collection
functions and not involved, except as an
appraiser, in the federally related
transaction, and have no direct or
indirect interest, financial or otherwise,
in the property. If the only qualified
persons available to perform an
appraisal are involved in the lending,
investment, or collection functions of
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the regulated institution, the regulated
institution shall take appropriate steps
to ensure that the appraisers exercise
independent judgment and that the
appraisal is adequate. Such steps
include, but are not limited to,
prohibiting an individual from
performing an appraisal in connection
with federally related transactions in
which the appraiser is otherwise
involved and prohibiting directors and
officers from participating in any vote or
approval involving assets on which they
performed an appraisal.
(b) Fee appraisers. (1) If an appraisal
is prepared by a fee appraiser, the
appraiser shall be engaged directly by
the regulated institution or its agent,
and have no direct or indirect interest,
financial or otherwise, in the property
or the transaction.
(2) A regulated institution also may
accept an appraisal that was prepared
by an appraiser engaged directly by
another financial services institution, if:
(i) The appraiser has no direct or
indirect interest, financial or otherwise,
in the property or the transaction; and
(ii) The regulated institution
determines that the appraisal conforms
to the requirements of this subpart and
is otherwise acceptable.
§ 390.445 Professional association
membership; competency.
(a) Membership in appraisal
organizations. A State certified
appraiser or a State licensed appraiser
may not be excluded from consideration
for an assignment for a federally related
transaction solely by virtue of
membership or lack of membership in
any particular appraisal organization.
(b) Competency. All staff and fee
appraisers performing appraisals in
connection with federally related
transactions must be State certified or
licensed, as appropriate. However, a
State certified or licensed appraiser may
not be considered competent solely by
virtue of being certified or licensed. Any
determination of competency shall be
based upon the individual’s experience
and educational background as they
relate to the particular appraisal
assignment for which he or she is being
considered.
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§ 390.446
Enforcement.
Institutions and institution-affiliated
parties, including staff appraisers and
fee appraisers, who violate this subpart
may be subject to removal and/or
prohibition orders, cease and desist
orders, and the imposition of civil
money penalties pursuant to the Federal
Deposit Insurance Act, 12 U.S.C. 1811 et
seq., as amended, or other applicable
law.
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§ 390.447 Appraisal policies and practices
of State savings associations and
subsidiaries.
(a) Introduction. The soundness of a
State savings association’s mortgage
loans and real estate investments, and
those of its subsidiary(ies), depends to
a great extent upon the adequacy of the
loan underwriting used to support these
transactions. An appraisal standard is
one of several critical components of a
sound underwriting policy because
appraisal reports contain estimates of
the value of collateral held or assets
owned. This section sets forth the
responsibilities of management to
develop, implement, and maintain
appraisal standards in determining
compliance with the appraisal
requirements of § 390.350.
(b) Definition. For purposes of this
section, management means: the
directors and officers of a State savings
association or subsidiary(ies) of such
State savings association as those terms
are defined in §§ 390.291 and 390.302,
respectively.
(c) Responsibilities of management.
An appraisal is a critical component of
the loan underwriting or real estate
investment decision. Therefore,
management shall develop, implement,
and maintain appraisal policies to
ensure that appraisals reflect
professional competence and to
facilitate the reporting of estimates of
market value upon which State savings
associations may rely to make lending
decisions. To achieve these results:
(1) Management shall develop written
appraisal policies, subject to formal
adoption by the State savings
association’s board of directors, that it
shall implement in consultation with
other appropriate personnel. These
policies shall ensure that adequate
appraisals are obtained and proper
appraisal procedures are followed
consistent with the requirements of this
subpart.
(2) Management shall develop and
adopt guidelines and institute
procedures pertaining to the hiring of
appraisers to perform appraisal services
for the State savings association
consistent with the requirements of this
subpart. These guidelines shall set forth
specific factors to be considered by
management including, but not limited
to, an appraiser’s State certification or
licensing, professional education, and
type of experience. An appraiser’s
membership in professional appraisal
organizations may be considered
consistent with the requirements of
subpart X.
(3) Management shall review on an
annual basis the performance of all
approved appraisers used within the
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47749
preceding 12-month period for
compliance with:
(i) The State savings association’s
appraisal policies and procedures; and
(ii) The reasonableness of the value
estimates reported.
(d) Exemptions. The requirements of
§ 390.443(b) through (d) shall not apply
with respect to appraisals on
nonresidential properties prepared on
form reports approved by the FDIC and
completed in accordance with the
applicable instructional booklet.
Subpart Y—Prompt Corrective Action
§ 390.450 Authority, purpose, scope, other
supervisory authority, and disclosure of
capital categories.
(a) Authority. This subpart is issued
by the FDIC pursuant to section 38 of
the Federal Deposit Insurance Act (FDI
Act) as added by section 131 of the
Federal Deposit Insurance Corporation
Improvement Act of 1991 (Pub. L. 102–
242, 105 Stat. 2236 (1991)) (12 U.S.C.
1831o).
(b) Purpose. Section 38 of the FDI Act
establishes a framework of supervisory
actions for insured depository
institutions that are not adequately
capitalized. The principal purpose of
this subpart is to define, for State
savings associations, the capital
measures and capital levels that are
used for determining the supervisory
actions authorized under section 38 of
the FDI Act. This subpart also
establishes procedures for submission
and review of capital restoration plans
and for issuance and review of
directives and orders pursuant to
section 38.
(c) Scope. This subpart implements
the provisions of section 38 of the FDI
Act as they apply to State savings
associations. Certain of these provisions
also apply to officers, directors and
employees of State savings associations.
(d) Other supervisory authority.
Neither section 38 nor this subpart in
any way limits the authority of the FDIC
under any other provision of law to take
supervisory actions to address unsafe or
unsound practices, deficient capital
levels, violations of law, unsafe or
unsound conditions, or other practices.
Action under section 38 of the FDI Act
and this subpart may be taken
independently of, in conjunction with,
or in addition to any other enforcement
action available to the FDIC, including
issuance of cease and desist orders,
capital directives, approval or denial of
applications or notices, assessment of
civil money penalties, or any other
actions authorized by law.
(e) Disclosure of capital categories.
The assignment of a State savings
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association under this subpart within a
particular capital category is for
purposes of implementing and applying
the provisions of section 38. Unless
permitted by the FDIC or otherwise
required by law, no State savings
association may state in any
advertisement or promotional material
its capital category under this subpart or
that the FDIC or any other federal
banking agency has assigned the State
savings association to a particular
category.
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§ 390.451
Definitions.
For purposes of this subpart, except as
modified in this section or unless the
context otherwise requires, the terms
used in this subpart have the same
meanings as set forth in sections 38 and
3 of the FDI Act.
(a)(1) Control has the same meaning
assigned to it in section 2 of the Bank
Holding Company Act (12 U.S.C. 1841),
and the term ‘‘controlled’’ shall be
construed consistently with the term
‘‘control.’’
(2) Exclusion for fiduciary ownership.
No insured depository institution or
company controls another insured
depository institution or company by
virtue of its ownership or control of
shares in a fiduciary capacity. Shares
shall not be deemed to have been
acquired in a fiduciary capacity if the
acquiring insured depository institution
or company has sole discretionary
authority to exercise voting rights with
respect thereto.
(3) Exclusion for debts previously
contracted. No insured depository
institution or company controls another
insured depository institution or
company by virtue of its ownership or
control of shares acquired in securing or
collecting a debt previously contracted
in good faith, until two years after the
date of acquisition. The two-year period
may be extended at the discretion of the
appropriate federal banking agency for
up to three one-year periods.
(b) Controlling person means any
person having control of an insured
depository institution and any company
controlled by that person.
(c) Leverage ratio means the ratio of
Tier 1 capital to adjusted total assets, as
calculated in accordance with subpart
Z.
(d) Management fee means any
payment of money or provision of any
other thing of value to a company or
individual for the provision of
management services or advice to the
State savings association or related
overhead expenses, including payments
related to supervisory, executive,
managerial or policymaking functions,
other than compensation to an
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individual in the individual’s capacity
as an officer or employee of the State
savings association.
(e) Risk-weighted assets means total
risk-weighted assets, as calculated in
accordance with subpart Z.
(f) Tangible equity means the amount
of a State savings association’s core
capital as computed in subpart Z plus
the amount of its outstanding
cumulative perpetual preferred stock
(including related surplus), minus
intangible assets as defined in § 390.461,
except mortgage servicing assets to the
extent they are includable under
§ 390.471. Non-mortgage servicing
assets that have not been previously
deducted in calculating core capital are
deducted.
(g) Tier 1 capital means the amount of
core capital as defined in subpart Z.
(h) Tier 1 risk-based capital ratio
means the ratio of Tier 1 capital to riskweighted assets, as calculated in
accordance with subpart Z.
(i) Total assets, for purposes of
§ 390.453(b)(5), means adjusted total
assets as calculated in accordance with
subpart Z, minus intangible assets as
provided in the definition of tangible
equity.
(j) Total risk-based capital ratio
means the ratio of total capital to riskweighted assets, as calculated in
accordance with subpart Z.
§ 390.452
Notice of capital category.
(a) Effective date of determination of
capital category. A State savings
association shall be deemed to be within
a given capital category for purposes of
section 38 of the FDI Act and this
subpart as of the date the State savings
association is notified of, or is deemed
to have notice of, its capital category,
pursuant to paragraph (b) of this section.
(b) Notice of capital category. A State
savings association shall be deemed to
have been notified of its capital levels
and its capital category as of the most
recent date:
(1) A Thrift Financial Report (TFR) or
Consolidated Reports of Condition or
Income (‘‘Call Report’’), as applicable, is
required to be filed with the FDIC;
(2) A final report of examination is
delivered to the State savings
association; or
(3) Written notice is provided by the
FDIC to the State savings association of
its capital category for purposes of
section 38 of the FDI Act and this
subpart or that the State savings
association’s capital category has
changed as provided in paragraph (c) of
this section or § 390.453(c).
(c) Adjustments to reported capital
levels and category —(1) Notice of
adjustment by State savings association.
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A State savings association shall
provide the FDIC with written notice
that an adjustment to the State savings
association’s capital category may have
occurred no later than 15 calendar days
following the date that any material
event has occurred that would cause the
State savings association to be placed in
a lower capital category from the
category assigned to the State savings
association for purposes of section 38
and this section on the basis of the State
savings association’s most recent report
of examination.
(2) Determination by the FDIC to
change capital category. After receiving
notice pursuant to paragraph (c)(1) of
this section, the FDIC shall determine
whether to change the capital category
of the State savings association and
shall notify the State savings association
of the FDIC’s determination.
§ 390.453 Capital measures and capital
category definitions.
(a) Capital measures. For purposes of
section 38 and this subpart, the relevant
capital measures shall be:
(1) The total risk-based capital ratio;
(2) The Tier 1 risk-based capital ratio;
and
(3) The leverage ratio.
(b) Capital categories. For purposes of
section 38 and this subpart, a State
savings association shall be deemed to
be:
(1) Well capitalized if the State
savings association:
(i) Has a total risk-based capital ratio
of 10.0 percent or greater; and
(ii) Has a Tier 1 risk-based capital
ratio of 6.0 percent or greater; and
(iii) Has a leverage ratio of 5.0 percent
or greater; and
(iv) Is not subject to any written
agreement, order, capital directive, or
prompt corrective action directive
issued by FDIC under section 8 of the
FDI Act, the International Lending
Supervision Act of 1983 (12 U.S.C.
3907), the Home Owners’ Loan Act (12
U.S.C. 1464(t)(6)), or section 38 of the
FDI Act, or any regulation thereunder,
to meet and maintain a specific capital
level for any capital measure.
(2) Adequately capitalized if the State
savings association:
(i) Has a total risk-based capital ratio
of 8.0 percent or greater; and
(ii) Has a Tier 1 risk-based capital
ratio of 4.0 percent or greater; and
(iii) Has:
(A) A leverage ratio of 4.0 percent or
greater; or
(B) A leverage ratio of 3.0 percent or
greater if the State savings association is
assigned a composite rating of 1, as
composite rating is defined in
§ 390.101(c); and
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(iv) Does not meet the definition of a
well capitalized State savings
association.
(3) Undercapitalized if the State
savings association:
(i) Has a total risk-based capital ratio
that is less than 8.0 percent; or
(ii) Has a Tier 1 risk-based capital
ratio that is less than 4.0 percent; or
(iii) (A) Except as provided in
paragraph (b)(3)(iii)(B) of this section,
has a leverage ratio that is less than 4.0
percent; or
(B) Has a leverage ratio that is less
than 3.0 percent if the State savings
association is assigned a composite
rating of 1, as composite rating is
defined in § 390.101(c).
(4) Significantly undercapitalized if
the State savings association has:
(i) A total risk-based capital ratio that
is less than 6.0 percent; or
(ii) A Tier 1 risk-based capital ratio
that is less than 3.0 percent; or
(iii) A leverage ratio that is less than
3.0 percent.
(5) Critically undercapitalized if the
State savings association has a ratio of
tangible equity to total assets that is
equal to or less than 2.0 percent.
(c) Reclassification based on
supervisory criteria other than capital.
The FDIC may reclassify a well
capitalized State savings association as
adequately capitalized and may require
an adequately capitalized or
undercapitalized State savings
association to comply with certain
mandatory or discretionary supervisory
actions as if the State savings
association were in the next lower
capital category (except that the FDIC
may not reclassify a significantly
undercapitalized State savings
association as critically
undercapitalized) (each of these actions
are hereinafter referred to generally as
‘‘reclassifications’’) in the following
circumstances:
(1) Unsafe or unsound condition. The
FDIC has determined, after notice and
opportunity for hearing pursuant to
§ 390.457(a), that the State savings
association is in an unsafe or unsound
condition; or
(2) Unsafe or unsound practice. The
FDIC has determined, after notice and
an opportunity for hearing pursuant to
§ 390.457(a) that the State savings
association received a less-thansatisfactory rating for any rating
category (other than in a rating category
specifically addressing capital
adequacy) under the Uniform Financial
Institutions Rating System,1 or an
equivalent rating under a comparable
1 Copies are available at the address specified in
§ 390.108.
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rating system adopted by the FDIC; and
has not corrected the conditions that
served as the basis for the less than
satisfactory rating. Ratings under this
paragraph (c)(2) refer to the most recent
ratings (as determined either on-site or
off-site by the most recent examination)
of which the State savings association
has been notified in writing.
§ 390.454
Capital restoration plans.
(a) Schedule for filing plan—(1) In
general. A State savings association
shall file a written capital restoration
plan with the appropriate Regional
Office within 45 days of the date that
the State savings association receives
notice or is deemed to have notice that
the State savings association is
undercapitalized, significantly
undercapitalized, or critically
undercapitalized, unless the FDIC
notifies the State savings association in
writing that the plan is to be filed
within a different period. An adequately
capitalized State savings association
that has been required pursuant to
§ 390.453(c) to comply with supervisory
actions as if the State savings
association were undercapitalized is not
required to submit a capital restoration
plan solely by virtue of the
reclassification.
(2) Additional capital restoration
plans. Notwithstanding paragraph (a)(1)
of this section, a State savings
association that has already submitted
and is operating under a capital
restoration plan approved under section
38 and this subpart is not required to
submit an additional capital restoration
plan based on a revised calculation of
its capital measures or a reclassification
of the institution under § 390.453(c)
unless the FDIC notifies the State
savings association that it must submit
a new or revised capital plan. A State
savings association that is notified that
it must submit a new or revised capital
restoration plan shall file the plan in
writing with the appropriate Regional
Office within 45 days of receiving such
notice, unless the FDIC notifies the State
savings association in writing that the
plan is to be filed within a different
period.
(b) Contents of plan. All financial data
submitted in connection with a capital
restoration plan shall be prepared in
accordance with the instructions
provided on the TFR, or Consolidated
Reports of Condition or Income (‘‘Call
Report’’), as applicable, unless the FDIC
instructs otherwise. The capital
restoration plan shall include all of the
information required to be filed under
section 38(e)(2) of the FDI Act. A State
savings association that is required to
submit a capital restoration plan as the
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47751
result of a reclassification of the State
savings association pursuant to
§ 390.453(c) shall include a description
of the steps the State savings association
will take to correct the unsafe or
unsound condition or practice. No plan
shall be accepted unless it includes any
performance guarantee described in
section 38(e)(2)(C) of the FDI Act by
each company that controls the State
savings association.
(c) Review of capital restoration plans.
Within 60 days after receiving a capital
restoration plan under this subpart, the
FDIC shall provide written notice to the
State savings association of whether the
plan has been approved. The FDIC may
extend the time within which notice
regarding approval of a plan shall be
provided.
(d) Disapproval of capital plan. If a
capital restoration plan is not approved
by the FDIC, the State savings
association shall submit a revised
capital restoration plan, when directed
to do so, within the time specified by
the FDIC. Upon receiving notice that its
capital restoration plan has not been
approved, any undercapitalized State
savings association (as defined in
§ 390.453(b)(3)) shall be subject to all of
the provisions of section 38 and this
section applicable to significantly
undercapitalized institutions. These
provisions shall be applicable until such
time as a new or revised capital
restoration plan submitted by the State
savings association has been approved
by the FDIC.
(e) Failure to submit a capital
restoration plan. A State savings
association that is undercapitalized (as
defined in § 390.453(b)(3)) and that fails
to submit a written capital restoration
plan within the period provided in this
section shall, upon the expiration of that
period, be subject to all of the
provisions of section 38 and this subpart
applicable to significantly
undercapitalized institutions.
(f) Failure to implement a capital
restoration plan. Any undercapitalized
State savings association that fails in
any material respect to implement a
capital restoration plan shall be subject
to all of the provisions of section 38 and
this subpart applicable to significantly
undercapitalized institutions.
(g) Amendment of capital plan. A
State savings association that has filed
an approved capital restoration plan
may, after prior written notice to and
approval by the FDIC, amend the plan
to reflect a change in circumstance.
Until such time as a proposed
amendment has been approved, the
State savings association shall
implement the capital restoration plan
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as approved prior to the proposed
amendment.
(h) [Reserved]
(i) Performance guarantee by
companies that control a State savings
association—(1) Limitation on
liability—(i) Amount limitation. The
aggregate liability under the guarantee
provided under section 38 and this
subpart for all companies that control a
specific State savings association that is
required to submit a capital restoration
plan under this subpart shall be limited
to the lesser of:
(A) An amount equal to 5.0 percent of
the State savings association’s total
assets at the time the State savings
association was notified or deemed to
have notice that the State savings
association was undercapitalized; or
(B) The amount necessary to restore
the relevant capital measures of the
State savings association to the levels
required for the State savings
association to be classified as
adequately capitalized, as those capital
measures and levels are defined at the
time that the State savings association
initially fails to comply with a capital
restoration plan under this subpart.
(ii) Limit on duration. The guarantee
and limit of liability under section 38
and this subpart shall expire after the
FDIC notifies the State savings
association that it has remained
adequately capitalized for each of four
consecutive calendar quarters. The
expiration or fulfillment by a company
of a guarantee of a capital restoration
plan shall not limit the liability of the
company under any guarantee required
or provided in connection with any
capital restoration plan filed by the
same State savings association after
expiration of the first guarantee.
(iii) Collection on guarantee. Each
company that controls a given State
savings association shall be jointly and
severally liable for the guarantee for
such State savings association as
required under section 38 and this
subpart, and the FDIC may require and
collect payment of the full amount of
that guarantee from any or all of the
companies issuing the guarantee.
(2) Failure to provide guarantee. In
the event that a State savings association
that is controlled by any company
submits a capital restoration plan that
does not contain the guarantee required
under section 38(e)(2) of the FDI Act,
the State savings association shall, upon
submission of the plan, be subject to the
provisions of section 38 and this subpart
are applicable to State savings
associations that have not submitted an
acceptable capital restoration plan.
(3) Failure to perform guarantee.
Failure by any company that controls a
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State savings association to perform
fully its guarantee of any capital plan
shall constitute a material failure to
implement the plan for purposes of
section 38(f) of the FDI Act. Upon such
failure, the State savings association
shall be subject to the provisions of
section 38 and this subpart that are
applicable to State savings associations
that have failed in a material respect to
implement a capital restoration plan.
§ 390.455 Mandatory and discretionary
supervisory actions under section 38.
(a) Mandatory supervisory actions—
(1) Provisions applicable to all State
savings associations. All State savings
associations are subject to the
restrictions contained in section 38(d) of
the FDI Act on payment of capital
distributions and management fees.
(2) Provisions applicable to
undercapitalized, significantly
undercapitalized, and critically
undercapitalized State savings
associations. Immediately upon
receiving notice or being deemed to
have notice, as provided in § 390.452 or
§ 390.454, that the State savings
association is undercapitalized,
significantly undercapitalized, or
critically undercapitalized, the State
savings association shall become subject
to the provisions of section 38 of the FDI
Act:
(i) Restricting payment of capital
distributions and management fees
(section 38(d));
(ii) Requiring that the FDIC monitor
the condition of the State savings
association (section 38(e)(1));
(iii) Requiring submission of a capital
restoration plan within the schedule
established in this subpart (section
38(e)(2));
(iv) Restricting the growth of the State
savings association’s assets (section
38(e)(3)); and
(v) Requiring prior approval of certain
expansion proposals (section 38(e)(4)).
(3) Additional provisions applicable
to significantly undercapitalized, and
critically undercapitalized State savings
associations. In addition to the
provisions of section 38 of the FDI Act
described in paragraph (a)(2) of this
section, immediately upon receiving
notice or being deemed to have notice,
as provided in § 390.452 or § 390.454,
that the State savings association is
significantly undercapitalized, or
critically undercapitalized, or that the
State savings association is subject to
the provisions applicable to institutions
that are significantly undercapitalized
because the State savings association
failed to submit or implement in any
material respect an acceptable capital
restoration plan, the State savings
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association shall become subject to the
provisions of section 38 of the FDI Act
that restrict compensation paid to senior
executive officers of the institution
(section 38(f)(4)).
(4) Additional provisions applicable
to critically undercapitalized State
savings associations. In addition to the
provisions of section 38 of the FDI Act
described in paragraphs (a)(2) and (a)(3)
of this section, immediately upon
receiving notice or being deemed to
have notice, as provided in § 390.452
that the State savings association is
critically undercapitalized, the State
savings association shall become subject
to the provisions of section 38 of the FDI
Act:
(i) Restricting the activities of the
State savings association (section
38(h)(1)); and
(ii) Restricting payments on
subordinated debt of the State savings
association (section 38(h)(2)).
(b) Discretionary supervisory actions.
In taking any action under section 38
that is within the FDIC’s discretion to
take in connection with: A State savings
association that is deemed to be
undercapitalized, significantly
undercapitalized or critically
undercapitalized, or has been
reclassified as undercapitalized, or
significantly undercapitalized; an officer
or director of such State savings
association; or a company that controls
such State savings association, the FDIC
shall follow the procedures for issuing
directives under §§ 390.456 and 390.458
unless otherwise provided in section 38
or this subpart.
§ 390.456 Directives to take prompt
corrective action.
(a) Notice of intent to issue a
directive—(1) In general. The FDIC shall
provide an undercapitalized,
significantly undercapitalized, or
critically undercapitalized State savings
association or, where appropriate, any
company that controls the State savings
association, prior written notice of the
FDIC’s intention to issue a directive
requiring such State savings association
or company to take actions or to follow
proscriptions described in section 38
that are within the FDIC’s discretion to
require or impose under section 38 of
the FDI Act, including sections 38(e)(5),
(f)(2), (f)(3), or (f)(5). The State savings
association shall have such time to
respond to a proposed directive as
provided by the FDIC under paragraph
(c) of this section.
(2) Immediate issuance of final
directive. If the FDIC finds it necessary
in order to carry out the purposes of
section 38 of the FDI Act, the FDIC may,
without providing the notice prescribed
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in paragraph (a)(1) of this section, issue
a directive requiring a State savings
association or any company that
controls a State savings association
immediately to take actions or to follow
proscriptions described in section 38
that are within the FDIC’s discretion to
require or impose under section 38 of
the FDI Act, including section 38(e)(5),
(f)(2), (f)(3), or (f)(5). A State savings
association or company that is subject to
such an immediately effective directive
may submit a written appeal of the
directive to the FDIC. Such an appeal
must be received by the FDIC within 14
calendar days of the issuance of the
directive, unless the FDIC permits a
longer period. The FDIC shall consider
any such appeal, if filed in a timely
matter, within 60 days of receiving the
appeal. During such period of review,
the directive shall remain in effect
unless the FDIC, in its sole discretion,
stays the effectiveness of the directive.
(b) Contents of notice. A notice of
intention to issue a directive shall
include:
(1) A statement of the State savings
association’s capital measures and
capital levels;
(2) A description of the restrictions,
prohibitions or affirmative actions that
the FDIC proposes to impose or require;
(3) The proposed date when such
restrictions or prohibitions would be
effective or the proposed date for
completion of such affirmative actions;
and
(4) The date by which the State
savings association or company subject
to the directive may file with the FDIC
a written response to the notice.
(c) Response to notice—(1) Time for
response. A State savings association or
company may file a written response to
a notice of intent to issue a directive
within the time period set by the FDIC.
The date shall be at least 14 calendar
days from the date of the notice unless
the FDIC determines that a shorter
period is appropriate in light of the
financial condition of the State savings
association or other relevant
circumstances.
(2) Content of response. The response
should include:
(i) An explanation why the action
proposed by the FDIC is not an
appropriate exercise of discretion under
section 38;
(ii) Any recommended modification
of the proposed directive; and
(iii) Any other relevant information,
mitigating circumstances,
documentation, or other evidence in
support of the position of the State
savings association or company
regarding the proposed directive.
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(d) FDIC consideration of response.
After considering the response, the FDIC
may:
(1) Issue the directive as proposed or
in modified form;
(2) Determine not to issue the
directive and so notify the State savings
association or company; or
(3) Seek additional information or
clarification of the response from the
State savings association or company, or
any other relevant source.
(e) Failure to file response. Failure by
a State savings association or company
to file with the FDIC, within the
specified time period, a written
response to a proposed directive shall
constitute a waiver of the opportunity to
respond and shall constitute consent to
the issuance of the directive.
(f) Request for modification or
rescission of directive. Any State savings
association or company that is subject to
a directive under this subpart, upon a
change in circumstances, request in
writing that the FDIC reconsider the
terms of the directive, and may propose
that the directive be rescinded or
modified. Unless otherwise ordered by
the FDIC, the directive shall continue in
place while such request is pending
before the FDIC.
§ 390.457 Procedures for reclassifying a
State savings association based on criteria
other than capital.
(a) Reclassification based on unsafe or
unsound condition or practice—(1)
Issuance of notice of proposed
reclassification—(i) Grounds for
reclassification. (A) Pursuant to
§ 390.453(c), the FDIC may reclassify a
well capitalized State savings
association as adequately capitalized or
subject an adequately capitalized or
undercapitalized institution to the
supervisory actions applicable to the
next lower capital category if:
(1) The FDIC determines that the State
savings association is in unsafe or
unsound condition; or
(2) The FDIC deems the State savings
association to be engaged in an unsafe
or unsound practice and not to have
corrected the deficiency.
(B) Any action pursuant to this
paragraph (a)(1)(i) shall hereinafter be
referred to as ‘‘reclassification.’’
(ii) Prior notice to institution. Prior to
taking action pursuant to
§ 390.453(c)(1), the FDIC shall issue and
serve on the State savings association a
written notice of the FDIC’s intention to
reclassify the State savings association.
(2) Contents of notice. A notice of
intention to reclassify a State savings
association based on unsafe or unsound
condition shall include:
(i) A statement of the State savings
association’s capital measures and
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capital levels and the category to which
the State savings association would be
reclassified;
(ii) The reasons for reclassification of
the State savings association;
(iii) The date by which the State
savings association subject to the notice
of reclassification may file with the
FDIC a written appeal of the proposed
reclassification and a request for a
hearing, which shall be at least 14
calendar days from the date of service
of the notice unless the FDIC determines
that a shorter period is appropriate in
light of the financial condition of the
State savings association or other
relevant circumstances.
(3) Response to notice of proposed
reclassification. A State savings
association may file a written response
to a notice of proposed reclassification
within the time period set by the FDIC.
The response should include:
(i) An explanation of why the State
savings association is not in unsafe or
unsound condition or otherwise should
not be reclassified; and
(ii) Any other relevant information,
mitigating circumstances,
documentation, or other evidence in
support of the position of the State
savings association or company
regarding the reclassification.
(4) Failure to file response. Failure by
a State savings association to file, within
the specified time period, a written
response with the FDIC to a notice of
proposed reclassification shall
constitute a waiver of the opportunity to
respond and shall constitute consent to
the reclassification.
(5) Request for hearing and
presentation of oral testimony or
witnesses. The response may include a
request for an informal hearing before
the FDIC or its designee under this
section. If the State savings association
desires to present oral testimony or
witnesses at the hearing, the State
savings association shall include a
request to do so with the request for an
informal hearing. A request to present
oral testimony or witnesses shall specify
the names of the witnesses and the
general nature of their expected
testimony. Failure to request a hearing
shall constitute a waiver of any right to
a hearing, and failure to request the
opportunity to present oral testimony or
witnesses shall constitute a waiver of
any right to present oral testimony or
witnesses.
(6) Order for informal hearing. Upon
receipt of a timely written request that
includes a request for a hearing, the
FDIC shall issue an order directing an
informal hearing to commence no later
than 30 days after receipt of the request,
unless the FDIC allows further time at
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the request of the State savings
association. The hearing shall be held in
Washington, DC or at such other place
as may be designated by the FDIC,
before a presiding officer(s) designated
by the FDIC to conduct the hearing.
(7) Hearing procedures. (i) The State
savings association shall have the right
to introduce relevant written materials
and to present oral argument at the
hearing. The State savings association
may introduce oral testimony and
present witnesses only if expressly
authorized by the FDIC or the presiding
officer(s). Neither the provisions of the
Administrative Procedure Act (5 U.S.C.
554–557) governing adjudications
required by statute to be determined on
the record nor subpart C apply to an
informal hearing under this section
unless the FDIC orders that such
procedures shall apply.
(ii) The informal hearing shall be
recorded and a transcript furnished to
the State savings association upon
request and payment of the cost thereof.
Witnesses need not be sworn, unless
specifically requested by a party or the
presiding officer(s). The presiding
officer(s) may ask questions of any
witness.
(iii) The presiding officer(s) may order
that the hearing be continued for a
reasonable period (normally five
business days) following completion of
oral testimony or argument to allow
additional written submissions to the
hearing record.
(8) Recommendation of presiding
officers. Within 20 calendar days
following the date the hearing and the
record on the proceeding are closed, the
presiding officer(s) shall make a
recommendation to the FDIC on the
reclassification.
(9) Time for decision. Not later than
60 calendar days after the date the
record is closed or the date of the
response in a case where no hearing was
requested, the FDIC will decide whether
to reclassify the State savings
association and notify the State savings
association of the FDIC’s decision.
(b) Request for rescission of
reclassification. Any State savings
association that has been reclassified
under this section, may, upon a change
in circumstances, request in writing that
the FDIC reconsider the reclassification,
and may propose that the
reclassification be rescinded and that
any directives issued in connection with
the reclassification be modified,
rescinded, or removed. Unless
otherwise ordered by the FDIC, the State
savings association shall remain subject
to the reclassification and to any
directives issued in connection with
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that reclassification while such request
is pending before the FDIC.
§ 390.458 Order to dismiss a director or
senior executive officer.
(a) Service of notice. When the FDIC
issues and serves a directive on a State
savings association pursuant to
§ 390.456 requiring the State savings
association to dismiss any director or
senior executive officer under section
38(f)(2)(F)(ii) of the FDI Act, the FDIC
shall also serve a copy of the directive,
or the relevant portions of the directive
where appropriate, upon the person to
be dismissed.
(b) Response to directive—(1) Request
for reinstatement. A director or senior
executive officer who has been served
with a directive under paragraph (a) of
this section (Respondent) may file a
written request for reinstatement. The
request for reinstatement shall be filed
within 10 calendar days of the receipt
of the directive by the Respondent,
unless further time is allowed by the
FDIC at the request of the Respondent.
(2) Contents of request; informal
hearing. The request for reinstatement
should include reasons why the
Respondent should be reinstated, and
may include a request for an informal
hearing before the FDIC or its designee
under this section. If the Respondent
desires to present oral testimony or
witnesses at the hearing, the
Respondent shall include a request to
do so with the request for an informal
hearing. The request to present oral
testimony or witnesses shall specify the
names of the witnesses and the general
nature of their expected testimony.
Failure to request a hearing shall
constitute a waiver of any right to a
hearing and failure to request the
opportunity to present oral testimony or
witnesses shall constitute a waiver of
any right or opportunity to present oral
testimony or witnesses.
(3) Effective date. Unless otherwise
ordered by the FDIC, the dismissal shall
remain in effect while a request for
reinstatement is pending.
(c) Order for informal hearing. Upon
receipt of a timely written request from
a Respondent for an informal hearing on
the portion of a directive requiring a
State savings association to dismiss
from office any director or senior
executive officer, the FDIC shall issue
an order directing an informal hearing
to commence no later than 30 days after
receipt of the request, unless the
Respondent requests a later date. The
hearing shall be held in Washington,
DC, or at such other place as may be
designated by the FDIC, before a
presiding officer(s) designated by the
FDIC to conduct the hearing.
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(d) Hearing procedures. (1) A
Respondent may appear at the hearing
personally or through counsel. A
Respondent shall have the right to
introduce relevant written materials and
to present oral argument. A Respondent
may introduce oral testimony and
present witnesses only if expressly
authorized by the FDIC or the presiding
officer(s). Neither the provisions of the
Administrative Procedure Act governing
adjudications required by statute to be
determined on the record nor subpart C
apply to an informal hearing under this
section unless the FDIC orders that such
procedures shall apply.
(2) The informal hearing shall be
recorded and a transcript furnished to
the Respondent upon request and
payment of the cost thereof. Witnesses
need not be sworn, unless specifically
requested by a party or the presiding
officer(s). The presiding officer(s) may
ask questions of any witness.
(3) The presiding officer(s) may order
that the hearing be continued for a
reasonable period (normally five
business days) following completion of
oral testimony or argument to allow
additional written submissions to the
hearing record.
(e) Standard for review. A Respondent
shall bear the burden of demonstrating
that his or her continued employment
by or service with the State savings
association would materially strengthen
the State savings association’s ability:
(1) To become adequately capitalized,
to the extent that the directive was
issued as a result of the State savings
association’s capital level or failure to
submit or implement a capital
restoration plan; and
(2) To correct the unsafe or unsound
condition or unsafe or unsound
practice, to the extent that the directive
was issued as a result of classification
of the State savings association based on
supervisory criteria other than capital,
pursuant to section 38(g) of the FDI Act.
(f) Recommendation of presiding
officers. Within 20 calendar days
following the date the hearing and the
record on the proceeding are closed, the
presiding officer(s) shall make a
recommendation to the FDIC concerning
the Respondent’s request for
reinstatement with the State savings
association.
(g) Time for decision. Not later than
60 calendar days after the date the
record is closed or the date of the
response in a case where no hearing has
been requested, the FDIC shall grant or
deny the request for reinstatement and
notify the Respondent of the FDIC’s
decision. If the FDIC denies the request
for reinstatement, the FDIC shall set
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forth in the notification the reasons for
the FDIC’s action.
§ 390.459
Enforcement of directives.
(a) Judicial remedies. Whenever a
State savings association or company
that controls a State savings association
fails to comply with a directive issued
under section 38, the FDIC may seek
enforcement of the directive in the
appropriate United States district court
pursuant to section 8(i)(1) of the FDI
Act.
(b) Administrative remedies—(1)
Failure to comply with directive.
Pursuant to section 8(i)(2)(A) of the FDI
Act, the FDIC may assess a civil money
penalty against any State savings
association or company that controls a
State savings association that violates or
otherwise fails to comply with any final
directive issued under section 38 and
against any institution-affiliated party
who participates in such violation or
noncompliance.
(2) Failure to implement capital
restoration plan. The failure of a State
savings association to implement a
capital restoration plan required under
section 38, or this subpart, or the failure
of a company having control of a State
savings association to fulfill a guarantee
of a capital restoration plan made
pursuant to section 38(e)(2) of the FDI
Act shall subject the State savings
association or company to the
assessment of civil money penalties
pursuant to section 8(i)(2)(A) of the FDI
Act.
(c) Other enforcement action. In
addition to the actions described in
paragraphs (a) and (b) of this section,
the FDIC may seek enforcement of the
provisions of section 38 or this subpart
through any other judicial or
administrative proceeding authorized by
law.
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§ 390.460
Scope.
(a) This subpart prescribes the
minimum regulatory capital
requirements for State savings
associations. The subpart applies to
State savings associations, except as
described in paragraph (b) of this
section.
(b)(1) A State savings association that
uses Appendix A must comply with the
minimum qualifying criteria for internal
risk measurement and management
processes for calculating risk-based
capital requirements, utilize the
methodologies for calculating risk-based
capital requirements, and make the
required disclosures described in that
appendix.
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(2) Sections 390.461 through 390.471
do not apply to the computation of riskbased capital requirements by a State
savings association that uses Appendix
A of this subpart. However, these State
savings associations:
(i) Must compute the components of
capital under § 390.465, subject to the
modifications in sections 11 and 12 of
Appendix A of this subpart.
(ii) Must meet the leverage ratio
requirement at §§ 390.462(a)(2) and
390.467 with tier 1 capital, as computed
under sections 11 and 12 of Appendix
A of this subpart.
(iii) Must meet the tangible capital
requirement described at
§§ 390.462(a)(3) and 390.468.
(iv) Are subject to §§ 390.463
(individual minimum capital
requirement), 390.464 (capital
directives); and 390.469 (consequences
of failure to meet capital requirements).
(v) Are subject to the reservations of
authority at § 390.470, which
supplement the reservations of authority
at section 1 of Appendix A of this
subpart.
§ 390.461
Definitions.
For the purposes of this subpart:
Adjusted total assets. The term
adjusted total assets means:
(1) A State savings association’s total
assets as that term is defined in this
section;
(2) Plus
(i) The prorated assets of any
includable subsidiary in which the State
savings association has a minority
ownership interest that is not
consolidated under generally accepted
accounting principles; and
(ii) The remaining goodwill (FSLIC
Capital Contributions) resulting from
prior regulatory accounting practices as
provided in the definition of qualifying
supervisory goodwill in this section;
(3) Minus
(i) Assets not included in the
applicable capital standard except for
those subject to paragraphs (3)(ii) and
(3)(iii) of this definition;
(ii) Investments in any includable
subsidiary in which a State savings
association has a minority interest;
(iii) Investments in any subsidiary
subject to consolidation under
paragraph (2)(ii) of this definition; and
(iv) For purposes of determining core
capital, qualifying supervisory goodwill.
Asset-backed commercial paper
program. The term asset-backed
commercial paper program (ABCP
program) means a program that
primarily issues commercial paper that
has received a credit rating from an
NRSRO and that is backed by assets or
other exposures held in a bankruptcy-
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remote special purpose entity. The term
sponsor of an ABCP program means a
State savings association that:
(1) Establishes an ABCP program;
(2) Approves the sellers permitted to
participate in an ABCP program;
(3) Approves the asset pools to be
purchased by an ABCP program; or
(4) Administers the ABCP program by
monitoring the assets, arranging for debt
placement, compiling monthly reports,
or ensuring compliance with the
program documents and with the
program’s credit and investment policy.
Cash items in the process of
collection. The term cash items in the
process of collection means checks or
drafts in the process of collection that
are drawn on another depository
institution, including a central bank,
and that are payable immediately upon
presentation; U.S. Government checks
that are drawn on the United States
Treasury or any other U.S. Government
or Government-sponsored agency and
that are payable immediately upon
presentation; broker’s security drafts
and commodity or bill-of-lading drafts
payable immediately upon presentation;
and unposted debits.
Commitment. The term commitment
means any arrangement that obligates a
State savings association to:
(1) Purchase loans or securities;
(2) Extend credit in the form of loans
or leases, participations in loans or
leases, overdraft facilities, revolving
credit facilities, home equity lines of
credit, eligible ABCP liquidity facilities,
or similar transactions.
Common stockholders’ equity. The
term common stockholders’ equity
means common stock, common stock
surplus, retained earnings, and
adjustments for the cumulative effect of
foreign currency translation, less net
unrealized losses on available-for-sale
equity securities with readily
determinable fair values.
Conditional guarantee. The term
conditional guarantee means a
contingent obligation of the United
States Government or its agencies, the
validity of which to the beneficiary is
dependent upon some affirmative
action—e.g., servicing requirements—on
the part of the beneficiary of the
guarantee or a third party.
Credit derivative. The term credit
derivative means a contract that allows
one party (the protection purchaser) to
transfer the credit risk of an asset or offbalance sheet credit exposure to another
party (the protection provider). The
value of a credit derivative is
dependent, at least in part, on the credit
performance of a ‘‘referenced asset.’’
Credit-enhancing interest-only strip.
(1) The term credit-enhancing interest-
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only strip means an on-balance sheet
asset that, in form or in substance:
(i) Represents the contractual right to
receive some or all of the interest due
on transferred assets; and
(ii) Exposes the State savings
association to credit risk directly or
indirectly associated with the
transferred assets that exceeds its pro
rata share of the State savings
association’s claim on the assets
whether through subordination
provisions or other credit enhancement
techniques.
(2) The FDIC reserves the right to
identify other cash flows or related
interests as a credit-enhancing interestonly strip. In determining whether a
particular interest cash flow functions
as a credit-enhancing interest-only strip,
the FDIC will consider the economic
substance of the transaction.
Credit-enhancing representations and
warranties. (1) The term creditenhancing representations and
warranties means representations and
warranties that are made or assumed in
connection with a transfer of assets
(including loan servicing assets) and
that obligate a State savings association
to protect investors from losses arising
from credit risk in the assets transferred
or loans serviced.
(2) Credit-enhancing representations
and warranties include promises to
protect a party from losses resulting
from the default or nonperformance of
another party or from an insufficiency
in the value of the collateral.
(3) Credit-enhancing representations
and warranties do not include:
(i) Early-default clauses and similar
warranties that permit the return of, or
premium refund clauses covering,
qualifying mortgage loans for a period
not to exceed 120 days from the date of
transfer. These warranties may cover
only those loans that were originated
within one year of the date of the
transfer;
(ii) Premium refund clauses covering
assets guaranteed, in whole or in part,
by the United States government, a
United States government agency, or a
United States government-sponsored
enterprise, provided the premium
refund clause is for a period not to
exceed 120 days from the date of
transfer; or
(iii) Warranties that permit the return
of assets in instances of fraud,
misrepresentation or incomplete
documentation.
Depository institution. The term
domestic depository institution means a
financial institution that engages in the
business of banking; that is recognized
as a bank by the bank supervisory or
monetary authorities of the country of
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its incorporation and the country of its
principal banking operations; that
receives deposits to a substantial extent
in the regular course of business; and
that has the power to accept demand
deposits. In the United States, this
definition encompasses all federally
insured offices of commercial banks,
mutual and stock savings banks, savings
or building and loan associations (stock
and mutual), cooperative banks, credit
unions, and international banking
facilities of domestic depository
institutions. Bank holding companies
and savings and loan holding
companies are excluded from this
definition. For the purposes of assigning
risk weights, the differentiation between
OECD depository institutions and nonOECD depository institutions is based
on the country of incorporation. Claims
on branches and agencies of foreign
banks located in the United States are to
be categorized on the basis of the parent
bank’s country of incorporation.
Direct credit substitute. The term
direct credit substitute means an
arrangement in which a State savings
association assumes, in form or in
substance, credit risk associated with an
on- or off-balance sheet asset or
exposure that was not previously owned
by the State savings association (thirdparty asset) and the risk assumed by the
State savings association exceeds the
pro rata share of the State savings
association’s interest in the third-party
asset. If a State savings association has
no claim on the third-party asset, then
the State savings association’s
assumption of any credit risk is a direct
credit substitute. Direct credit
substitutes include:
(1) Financial standby letters of credit
that support financial claims on a third
party that exceed a State savings
association’s pro rata share in the
financial claim;
(2) Guarantees, surety arrangements,
credit derivatives, and similar
instruments backing financial claims
that exceed a State savings association’s
pro rata share in the financial claim;
(3) Purchased subordinated interests
that absorb more than their pro rata
share of losses from the underlying
assets;
(4) Credit derivative contracts under
which the State savings association
assumes more than its pro rata share of
credit risk on a third-party asset or
exposure;
(5) Loans or lines of credit that
provide credit enhancement for the
financial obligations of a third party;
(6) Purchased loan servicing assets if
the servicer is responsible for credit
losses or if the servicer makes or
assumes credit-enhancing
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representations and warranties with
respect to the loans serviced. Servicer
cash advances as defined in this section
are not direct credit substitutes;
(7) Clean-up calls on third party
assets. However, clean-up calls that are
10 percent or less of the original pool
balance and that are exercisable at the
option of the State savings association
are not direct credit substitutes; and
(8) Liquidity facilities that provide
support to asset-backed commercial
paper (other than eligible ABCP
liquidity facilities).
Eligible ABCP liquidity facility. The
term eligible ABCP liquidity facility
means a liquidity facility that supports
asset-backed commercial paper, in form
or in substance, and that meets the
following criteria:
(1)(i) At the time of the draw, the
liquidity facility must be subject to an
asset quality test that precludes funding
against assets that are 90 days or more
past due or in default; and
(ii) If the assets that the liquidity
facility is required to fund against are
assets or exposures that have received a
credit rating by a NRSRO at the time the
inception of the facility, the facility can
be used to fund only those assets or
exposures that are rated investment
grade by an NRSRO at the time of
funding; or
(2) If the assets that are funded under
the liquidity facility do not meet the
criteria described in paragraph (1) of
this definition, the assets must be
guaranteed, conditionally or
unconditionally, by the United States
Government, its agencies, or the central
government of an OECD country.
Eligible State savings association.
(1) The term eligible State savings
association means a State savings
association with respect to which the
FDIC has determined, on the basis of
information available at the time, that:
(i) The State savings association’s
management appears to be competent;
(ii) The State savings association, as
certified by its Board of Directors, is in
substantial compliance with all
applicable statutes, regulations, orders
and written agreements and directives;
and
(iii) The State savings association’s
management, as certified by its Board of
Directors, has not engaged in insider
dealing, speculative practices, or any
other activities that have or may
jeopardize the association’s safety and
soundness or contributed to impairing
the association’s capital.
(2) State savings associations, for
purposes of this paragraph, will be
deemed to be eligible unless the FDIC
makes a determination otherwise or
notifies the State savings association of
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its intent to conduct either an informal
or formal examination to determine
eligibility and provides written
notification thereof to the State savings
association.
Equity investments. (1) The term
equity investments includes investments
in equity securities and real property
that would be considered an equity
investment under generally accepted
accounting principles.
(2)(i) The term equity securities means
any:
(A) Stock, certificate of interest of
participation in any profit-sharing
agreement, collateral trust certificate or
subscription, preorganization certificate
or subscription, transferable share,
investment contract, or voting trust
certificate; or
(B) In general, any interest or
instrument commonly known as an
equity security; or
(C) Loans having profit sharing
features which generally accepted
accounting principles would reclassify
as equity securities; or
(D) Any security immediately
convertible at the option of the holder
without payment of substantial
additional consideration into such a
security; or
(E) Any security carrying any warrant
or right to subscribe to or purchase such
a security; or
(F) Any certificate of interest or
participation in, temporary or Interim
certificate for, or receipt for any of the
foregoing or any partnership interest; or
(G) Investments in equity securities
and loans or advances to and guarantees
issued on behalf of partnerships or joint
ventures in which a State savings
association holds an interest in real
property under generally accepted
accounting principles.
(ii) The term equity securities does not
include investments in a subsidiary as
that term is defined in this section,
equity investments that are permissible
for national banks, ownership interests
in pools of assets that are risk-weighted
in accordance with § 390.466(a)(1)(vi),
or the stock of Federal Home Loan
Banks or Federal Reserve Banks.
(3) For purposes of this subpart, the
term equity investments in real property
does not include interests in real
property that are primarily used or
intended to be used by the State savings
association, its subsidiaries, or its
affiliates as offices or related facilities
for the conduct of its business.
(4) In addition, for purposes of this
part, the term equity investments in real
property does not include interests in
real property that are acquired in
satisfaction of a debt previously
contracted in good faith or acquired in
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sales under judgments, decrees, or
mortgages held by the State savings
association, provided that the property
is not intended to be held for real estate
investment purposes but is expected to
be disposed of within five years or a
longer period approved by the FDIC.
Exchange rate contracts. The term
exchange rate contracts includes crosscurrency interest rate swaps; forward
foreign exchange rate contracts;
currency options purchased; and any
similar instrument that, in the opinion
of the FDIC, may give rise to similar
risks.
Face amount. The term face amount
means the notational principal, or face
value, amount of an off-balance sheet
item or the amortized cost of an onbalance sheet asset.
Financial asset. The term financial
asset means cash or other monetary
instrument, evidence of debt, evidence
of an ownership interest in an entity, or
a contract that conveys a right to receive
or exchange cash or another financial
instrument from another party.
Financial standby letter of credit. The
term financial standby letter of credit
means a letter of credit or similar
arrangement that represents an
irrevocable obligation to a third-party
beneficiary:
(1) To repay money borrowed by, or
advanced to, or for the account of, a
second party (the account party); or
(2) To make payment on behalf of the
account party, in the event that the
account party fails to fulfill its
obligation to the beneficiary.
Includable subsidiary. The term
includable subsidiary means a
subsidiary of a State savings association
that is:
(1) Engaged solely in activities not
impermissible for a national bank;
(2) Engaged in activities not
permissible for a national bank, but only
if acting solely as agent for its customers
and such agency position is clearly
documented in the State savings
association’s files;
(3) Engaged solely in mortgagebanking activities;
(4)(i) Itself an insured depository
institution or a company the sole
investment of which is an insured
depository institution, and
(ii) Was acquired by the parent State
savings association prior to May 1, 1989;
or
(5) A subsidiary of any Federal
savings association existing as a Federal
savings association on August 9, 1989
that
(i) Was chartered prior to October 15,
1982, as a savings bank or a cooperative
bank under State law, or
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(ii) Acquired its principal assets from
an association that was chartered prior
to October 15, 1982, as a savings bank
or a cooperative bank under State law.
Intangible assets. The term intangible
assets means assets considered to be
intangible assets under generally
accepted accounting principles. These
assets include, but are not limited to,
goodwill, core deposit premiums,
purchased credit card relationships,
favorable leaseholds, and servicing
assets (mortgage and non-mortgage).
Interest-only strips receivable and other
nonsecurity financial instruments are
not intangible assets under this
definition.
Interest-rate contracts. The term
interest-rate contracts includes single
currency interest-rate swaps; basis
swaps; forward rate agreements;
interest-rate options purchased; forward
deposits accepted; and any other
instrument that, in the opinion of the
FDIC, may give rise to similar risks,
including when-issued securities.
Liquidity facility. The term liquidity
facility means a legally binding
commitment to provide liquidity
support to asset-backed commercial
paper by lending to, or purchasing
assets from any structure, program or
conduit in the event that funds are
required to repay maturing asset-backed
commercial paper.
Mortgage-related securities. The term
mortgage-related securities means any
mortgage-related qualifying securities
under section 3(a)(41) of the Securities
Exchange Act of 1934, 15 U.S.C.
78c(a)(41), Provided, That the rating
requirements of that section shall not be
considered for purposes of this
definition.
Nationally recognized statistical
rating organization (NRSRO). The term
nationally recognized statistical rating
organization means an entity recognized
by the Division of Market Regulation of
the Securities and Exchange
Commission (Commission) as a
nationally recognized statistical rating
organization for various purposes,
including the Commission’s uniform net
capital requirements for brokers and
dealers.
OECD-based country. The term OECDbased country means a member of that
grouping of countries that are full
members of the Organization for
Economic Cooperation and
Development (OECD) plus countries
that have concluded special lending
arrangements with the International
Monetary Fund (IMF) associated with
the IMF’s General Arrangements to
Borrow. This term excludes any country
that has rescheduled its external
sovereign debt within the previous five
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years. A rescheduling of external
sovereign debt generally would include
any renegotiation of terms arising from
a country’s inability or unwillingness to
meet its external debt service
obligations, but generally would not
include renegotiations of debt in the
normal course of business, such as a
renegotiation to allow the borrower to
take advantage of a decline in interest
rates or other change in market
conditions.
Original maturity. The term original
maturity means, with respect to a
commitment, the earliest date after a
commitment is made on which the
commitment is scheduled to expire (i.e.,
it will reach its stated maturity and
cease to be binding on either party),
Provided, That either:
(i) The commitment is not subject to
extension or renewal and will actually
expire on its stated expiration date; or
(ii) If the commitment is subject to
extension or renewal beyond its stated
expiration date, the stated expiration
date will be deemed the original
maturity only if the extension or
renewal must be based upon terms and
conditions independently negotiated in
good faith with the customer at the time
of the extension or renewal and upon a
new, bona fide credit analysis utilizing
current information on financial
condition and trends.
Performance-based standby letter of
credit. The term performance-based
standby letter of credit means any letter
of credit, or similar arrangement,
however named or described, which
represents an irrevocable obligation to
the beneficiary on the part of the issuer
to make payment on account of any
default by a third party in the
performance of a nonfinancial or
commercial obligation. Such letters of
credit include arrangements backing
subcontractors’ and suppliers’
performance, labor and materials
contracts, and construction bids.
Perpetual preferred stock. The term
perpetual preferred stock means
preferred stock without a fixed maturity
date that cannot be redeemed at the
option of the holder, and that has no
other provisions that will require future
redemption of the issue. For purposes of
these instruments, preferred stock that
can be redeemed at the option of the
holder is deemed to have an ‘‘original
maturity’’ of the earliest possible date
on which it may be so redeemed.
Cumulative perpetual preferred stock is
preferred stock where the dividends
accumulate from one period to the next.
Noncumulative perpetual preferred
stock is preferred stock where the
unpaid dividends are not carried over to
subsequent dividend periods.
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Problem institution. The term problem
institution means a State savings
association that, at the time of its
acquisition, merger, purchase of assets
or other business combination with or
by another State savings association:
(1) Was subject to special regulatory
controls by its primary Federal or state
regulatory authority;
(2) Posed particular supervisory
concerns to its primary Federal or state
regulatory authority; or
(3) Failed to meet its regulatory
capital requirement immediately before
the transaction.
Prorated assets. The term prorated
assets means the total assets (as
determined in the most recently
available GAAP report but in no event
more than one year old) of a subsidiary
(including those subsidiaries where the
State savings association has a minority
interest) multiplied by the State savings
association’s percentage of ownership of
that subsidiary.
Qualifying mortgage loan. (1) The
term qualifying mortgage loan means a
loan that:
(i) Is fully secured by a first lien on
a one-to four-family residential
property;
(ii) Is underwritten in accordance
with prudent underwriting standards,
including standards relating the ratio of
the loan amount to the value of the
property (LTV ratio). See Appendix to
12 CFR 390.265. A nonqualifying
mortgage loan that is paid down to an
appropriate LTV ratio (calculated using
value at origination) may become a
qualifying loan if it meets all other
requirements of this definition;
(iii) Maintains an appropriate LTV
ratio based on the amortized principal
balance of the loan; and
(iv) Is performing and is not more
than 90 days past due.
(2) If a State savings association holds
the first and junior lien(s) on a
residential property and no other party
holds an intervening lien, the
transaction is treated as a single loan
secured by a first lien for the purposes
of determining the LTV ratio and the
appropriate risk weight under
§ 390.466(a).
(3) A loan to an individual borrower
for the construction of the borrower’s
home may be included as a qualifying
mortgage loan.
(4) A loan that meets the requirements
of this section prior to modification on
a permanent or trial basis under the U.S.
Department of Treasury’s Home
Affordable Mortgage Program may be
included as a qualifying mortgage loan,
so long as the loan is not 90 days or
more past due.
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Qualifying multifamily mortgage loan.
(1) The term qualifying multifamily
mortgage loan means a loan secured by
a first lien on multifamily residential
properties consisting of 5 or more
dwelling units, provided that:
(i) The amortization of principal and
interest occurs over a period of not more
than 30 years;
(ii) The original minimum maturity
for repayment of principal on the loan
is not less than seven years;
(iii) When considering the loan for
placement in a lower risk-weight
category, all principal and interest
payments have been made on a timely
basis in accordance with its terms for
the preceding year;
(iv) The loan is performing and not 90
days or more past due;
(v) The loan is made by the State
savings association in accordance with
prudent underwriting standards; and
(vi) If the interest rate on the loan
does not change over the term of the
loan:
(A) The current loan balance amount
does not exceed 80 percent of the value
of the property securing the loan; and
(B) For the property’s most recent
fiscal year, the ratio of annual net
operating income generated by the
property (before payment of any debt
service on the loan) to annual debt
service on the loan is not less than 120
percent, or in the case of cooperative or
other not-for-profit housing projects, the
property generates sufficient cash flows
to provide comparable protection to the
institution; or
(vii) If the interest rate on the loan
changes over the term of the loan:
(A) The current loan balance amount
does not exceed 75 percent of the value
of the property securing the loan; and
(B) For the property’s most recent
fiscal year, the ratio of annual net
operating income generated by the
property (before payment of any debt
service on the loan) to annual debt
service on the loan is not less than 115
percent, or in the case of cooperative or
other not-for-profit housing projects, the
property generates sufficient cash flows
to provide comparable protection to the
institution.
(2) The term qualifying multifamily
mortgage loan also includes a
multifamily mortgage loan that on
March 18, 1994 was a first mortgage
loan on an existing property consisting
of 5–36 dwelling units with an initial
loan-to-value ratio of not more than
80% where an average annual
occupancy rate of 80% or more of total
units had existed for at least one year,
and continues to meet these criteria.
(3) For purposes of paragraphs (1)(vi)
and (vii) of this definition, the term
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value of the property means, at
origination of a loan to purchase a
multifamily property: the lower of the
purchase price or the amount of the
initial appraisal, or if appropriate, the
initial evaluation. In cases not involving
the purchase of a multifamily loan, the
value of the property is determined by
the most current appraisal, or if
appropriate, the most current
evaluation.
(4) In cases where a borrower
refinances a loan on an existing
property, as an alternative to paragraphs
(1)(iii), (vi), and (vii) of this definition:
(i) All principal and interest payments
on the loan being refinanced have been
made on a timely basis in accordance
with the terms of that loan for the
preceding year; and
(ii) The net income on the property
for the preceding year would support
timely principal and interest payments
on the new loan in accordance with the
applicable debt service requirement.
Qualifying residential construction
loan. (1) The term qualifying residential
construction loan, also referred to as a
residential bridge loan, means a loan
made in accordance with sound lending
principles satisfying the following
criteria:
(i) The builder must have substantial
project equity in the home construction
project;
(ii) The residence being constructed
must be a 1–4 family residence sold to
a home purchaser;
(iii) The lending State savings
association must obtain sufficient
documentation from a permanent lender
(which may be the construction lender)
demonstrating that:
(A) The home buyer intends to
purchase the residence; and
(B) Has the ability to obtain a
permanent qualifying mortgage loan
sufficient to purchase the residence;
(iv) The home purchaser must have
made a substantial earnest money
deposit;
(v) The construction loan must not
exceed 80 percent of the sales price of
the residence;
(vi) The construction loan must be
secured by a first lien on the lot,
residence under construction, and other
improvements;
(vii) The lending State savings
association must retain sufficient
undisbursed loan funds throughout the
construction period to ensure project
completion;
(viii) The builder must incur a
significant percentage of direct costs
(i.e., the actual costs of land, labor, and
material) before any drawdown on the
loan;
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(ix) If at any time during the life of the
construction loan any of the criteria of
this rule are no longer satisfied, the
State savings association must
immediately recategorize the loan at a
100 percent risk-weight and must
accurately report the loan in the State
savings association’s next quarterly
Thrift Financial Report or Consolidated
Reports of Condition or Income (‘‘Call
Report’’), as applicable;
(x) The home purchaser must intend
that the home will be owner-occupied;
(xi) The home purchaser(s) must be an
individual(s), not a partnership, joint
venture, trust corporation, or any other
entity (including an entity acting as a
sole proprietorship) that is purchasing
the home(s) for speculative purposes;
and
(xii) The loan must be performing and
not more than 90 days past due.
(2) The documentation for each loan
and home sale must be sufficient to
demonstrate compliance with the
criteria in paragraph (1) of this
definition. The FDIC retains the
discretion to determine that any loans
not meeting sound lending principles
must be placed in a higher risk-weight
category. The FDIC also reserves the
discretion to modify these criteria on a
case-by-case basis provided that any
such modifications are not inconsistent
with the safety and soundness
objectives of this definition.
Qualifying securities firm. The term
qualifying securities firm means:
(1) A securities firm incorporated in
the United States that is a broker-dealer
that is registered with the Securities and
Exchange Commission (SEC) and that
complies with the SEC’s net capital
regulations (17 CFR 240.15c3(1)); and
(2) A securities firm incorporated in
any other OECD-based country, if the
State savings association is able to
demonstrate that the securities firm is
subject to consolidated supervision and
regulation (covering its subsidiaries, but
not necessarily its parent organizations)
comparable to that imposed on
depository institutions in OECD
countries. Such regulation must include
risk-based capital requirements
comparable to those imposed on
depository institutions under the
Accord on International Convergence of
Capital Measurement and Capital
Standards (1988, as amended in 1998).
Reciprocal holdings of depository
institution instruments. The term
reciprocal holdings of depository
institution instruments means crossholdings or other formal or informal
arrangements in which two or more
depository institutions swap, exchange,
or otherwise agree to hold each other’s
capital instruments. This definition
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does not include holdings of capital
instruments issued by other depository
institutions that were taken in
satisfaction of debts previously
contracted, provided that the reporting
State savings association has not held
such instruments for more than five
years or a longer period approved by the
FDIC.
Recourse. The term recourse means a
State savings association’s retention, in
form or in substance, of any credit risk
directly or indirectly associated with an
asset it has sold (in accordance with
generally accepted accounting
principles) that exceeds a pro rata share
of that State savings association’s claim
on the asset. If a State savings
association has no claim on an asset it
has sold, then the retention of any credit
risk is recourse. A recourse obligation
typically arises when a State savings
association transfers assets in a sale and
retains an explicit obligation to
repurchase assets or to absorb losses due
to a default on the payment of principal
or interest or any other deficiency in the
performance of the underlying obligor
or some other party. Recourse may also
exist implicitly if a State savings
association provides credit
enhancement beyond any contractual
obligation to support assets it has sold.
Recourse obligations include:
(1) Credit-enhancing representations
and warranties made on transferred
assets;
(2) Loan servicing assets retained
pursuant to an agreement under which
the State savings association will be
responsible for losses associated with
the loans serviced. Servicer cash
advances as defined in this section are
not recourse obligations;
(3) Retained subordinated interests
that absorb more than their pro rata
share of losses from the underlying
assets;
(4) Assets sold under an agreement to
repurchase, if the assets are not already
included on the balance sheet;
(5) Loan strips sold without
contractual recourse where the maturity
of the transferred portion of the loan is
shorter than the maturity of the
commitment under which the loan is
drawn;
(6) Credit derivatives that absorb more
than the State savings association’s pro
rata share of losses from the transferred
assets;
(7) Clean-up calls on assets the State
savings association has sold. However,
clean-up calls that are 10 percent or less
of the original pool balance and that are
exercisable at the option of the State
savings association are not recourse
arrangements; and
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(8) Liquidity facilities that provide
support to asset-backed commercial
paper (other than eligible ABCP
liquidity facilities).
Replacement cost. The term
replacement cost means, with respect to
interest rate and exchange-rate
contracts, the loss that would be
incurred in the event of a counterparty
default, as measured by the net cost of
replacing the contract at the current
market value. If default would result in
a theoretical profit, the replacement
value is considered to be zero. This
mark-to-market process must
incorporate changes in both interest
rates and counterparty credit quality.
Residential properties. The term
residential properties means houses,
condominiums, cooperative units, and
manufactured homes. This definition
does not include boats or motor homes,
even if used as a primary residence, or
timeshare properties.
Residual characteristics. The term
residual characteristics means interests
similar to a multi-class pay-through
obligation representing the excess cash
flow generated from mortgage collateral
over the amount required for the issue’s
debt service and ongoing administrative
expenses or interests presenting similar
degrees of interest-rate/prepayment risk
and principal loss risks.
Residual interest. (1) The term
residual interest means any on-balance
sheet asset that:
(i) Represents an interest (including a
beneficial interest) created by a transfer
that qualifies as a sale (in accordance
with generally accepted accounting
principles) of financial assets, whether
through a securitization or otherwise;
and
(ii) Exposes a State savings
association to credit risk directly or
indirectly associated with the
transferred asset that exceeds a pro rata
share of that State savings association’s
claim on the asset, whether through
subordination provisions or other credit
enhancement techniques.
(2) Residual interests generally
include credit-enhancing interest-only
strips, spread accounts, cash collateral
accounts, retained subordinated
interests (and other forms of
overcollateralization), and similar assets
that function as a credit enhancement.
(3) Residual interests further include
those exposures that, in substance,
cause the State savings association to
retain the credit risk of an asset or
exposure that had qualified as a residual
interest before it was sold.
(4) Residual interests generally do not
include assets purchased from a third
party. However, a credit-enhancing
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interest-only strip that is acquired in
any asset transfer is a residual interest.
Risk participation. The term risk
participation means a participation in
which the originating party remains
liable to the beneficiary for the full
amount of an obligation (e.g., a direct
credit substitute), notwithstanding that
another party has acquired a
participation in that obligation.
Risk-weighted assets. The term riskweighted assets means the sum total of
risk-weighted on-balance sheet assets
and the total of risk-weighted offbalance sheet credit equivalent
amounts. These assets are calculated in
accordance with § 390.466.
Securitization. The term
securitization means the pooling and
repackaging by a special purpose entity
of assets or other credit exposures that
can be sold to investors. Securitization
includes transactions that create
stratified credit risk positions whose
performance is dependent upon an
underlying pool of credit exposures,
including loans and commitments.
Servicer cash advance. The term
servicer cash advance means funds that
a residential mortgage servicer advances
to ensure an uninterrupted flow of
payments, including advances made to
cover foreclosure costs or other
expenses to facilitate the timely
collection of the loan. A servicer cash
advance is not a recourse obligation or
a direct credit substitute if:
(1) The servicer is entitled to full
reimbursement and this right is not
subordinated to other claims on the cash
flows from the underlying asset pool; or
(2) For any one loan, the servicer’s
obligation to make nonreimbursable
advances is contractually limited to an
insignificant amount of the outstanding
principal amount on that loan.
State. The term State means any one
of the several states of the United States
of America, the District of Columbia,
Puerto Rico, and the territories and
possessions of the United States.
Structured financing program. The
term structured financing program
means a program where receivable
interests and asset- or mortgage-backed
securities issued by multiple
participants are purchased by a special
purpose entity that repackages those
exposures into securities that can be
sold to investors. Structured financing
programs allocate credit risk, generally,
between the participants and credit
enhancement provided to the program.
Subsidiary. The term subsidiary
means any corporation, partnership,
business trust, joint venture, association
or similar organization in which a State
savings association directly or indirectly
holds an ownership interest and the
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assets of which are consolidated with
those of the State savings association for
purposes of reporting under Generally
Accepted Accounting Principles
(GAAP). Generally, these are majorityowned subsidiaries.1 This definition
does not include ownership interests
that were taken in satisfaction of debts
previously contracted, provided that the
reporting State savings association has
not held the interest for more than five
years or a longer period approved by the
FDIC.
Tier 1 capital. The term Tier 1 capital
means core capital as computed in
accordance with § 390.465(a).
Tier 2 capital. The term Tier 2 capital
means supplementary capital as
computed in accordance with § 390.465.
Total assets. The term total assets
means total assets as would be required
to be reported for consolidated entities
on period-end reports filed with the
FDIC in accordance with generally
accepted accounting principles.
Traded position. The term traded
position means a position retained,
assumed, or issued in connection with
a securitization that is rated by a
NRSRO, where there is a reasonable
expectation that, in the near future, the
rating will be relied upon by:
(1) Unaffiliated investors to purchase
the security; or
(2) An unaffiliated third party to enter
into a transaction involving the
position, such as a purchase, loan, or
repurchase agreement.
Unconditionally cancelable. The term
unconditionally cancelable means, with
respect to a commitment-type lending
arrangement, that the State savings
association may, at any time, with or
without cause, refuse to advance funds
or extend credit under the facility. In
the case of home equity lines of credit,
the State savings association is deemed
able to unconditionally cancel the
commitment if it can, at its option,
prohibit additional extensions of credit,
reduce the line, and terminate the
commitment to the full extent permitted
by relevant Federal law.
United States Government or its
agencies. The term United States
Government or its agencies means an
instrumentality of the U.S. Government
whose debt obligations are fully and
explicitly guaranteed as to the timely
payment of principal and interest by the
full faith and credit of the United States
Government.
1 The FDIC reserves the right to review a State
savings association’s investment in a subsidiary on
a case-by-case basis. If the FDIC determines that
such investment is more appropriately treated as an
equity security or an ownership interest in a
subsidiary, it will make such determination
regardless of the percentage of ownership held by
the State savings association.
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United States Government-sponsored
agency or corporation. The term United
States Government-sponsored agency or
corporation means an agency or
corporation originally established or
chartered to serve public purposes
specified by the United States Congress
but whose obligations are not explicitly
guaranteed by the full faith and credit
of the United States Government.
§ 390.462 Minimum regulatory capital
requirement.
(a) To meet its regulatory capital
requirement a State savings association
must satisfy each of the following
capital standards:
(1) Risk-based capital requirement. (i)
A State savings association’s minimum
risk-based capital requirement shall be
an amount equal to 8% of its riskweighted assets as measured under
§ 390.466.
(ii) A State savings association may
not use supplementary capital to satisfy
this requirement in an amount greater
than 100% of its core capital as defined
in § 390.465.
(2) Leverage ratio requirement. (i) A
State savings association’s minimum
leverage ratio requirement shall be the
amount set forth in § 390.467.
(ii) A State savings association must
satisfy this requirement with core
capital as defined in § 390.465(a).
(3) Tangible capital requirement. (i) A
State savings association’s minimum
tangible capital requirement shall be the
amount set forth in § 390.468.
(ii) A State savings association must
satisfy this requirement with tangible
capital as defined in § 390.468 in an
amount not less than 1.5% of its
adjusted total assets.
(b) [Reserved]
(c) State savings associations are
expected to maintain compliance with
all of these standards at all times.
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§ 390.463 Individual minimum capital
requirements.
(a) Purpose and scope. The rules and
procedures specified in this section
apply to the establishment of an
individual minimum capital
requirement for a State savings
association that varies from the riskbased capital requirement, the leverage
ratio requirement or the tangible capital
requirement that would otherwise apply
to the State savings association under
this subpart.
(b) Appropriate considerations for
establishing individual minimum
capital requirements. Minimum capital
levels higher than the risk-based capital
requirement, the leverage ratio
requirement or the tangible capital
requirement required under this subpart
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may be appropriate for individual State
savings associations. Increased
individual minimum capital
requirements may be established upon a
determination that the State savings
association’s capital is or may become
inadequate in view of its circumstances.
For example, higher capital levels may
be appropriate for:
(1) A State savings association
receiving special supervisory attention;
(2) A State savings association that
has or is expected to have losses
resulting in capital inadequacy;
(3) A State savings association that
has a high degree of exposure to interest
rate risk, prepayment risk, credit risk,
concentration of credit risk, certain risks
arising from nontraditional activities, or
similar risks; or a high proportion of offbalance sheet risk, especially standby
letters of credit;
(4) A State savings association that
has poor liquidity or cash flow;
(5) A State savings association
growing, either internally or through
acquisitions, at such a rate that
supervisory problems are presented that
are not dealt with adequately by other
FDIC regulations or other guidance;
(6) A State savings association that
may be adversely affected by the
activities or condition of its holding
company, affiliate(s), subsidiaries, or
other persons or State savings
associations with which it has
significant business relationships,
including concentrations of credit;
(7) A State savings association with a
portfolio reflecting weak credit quality
or a significant likelihood of financial
loss, or that has loans in nonperforming
status or on which borrowers fail to
comply with repayment terms;
(8) A State savings association that
has inadequate underwriting policies,
standards, or procedures for its loans
and investments; or
(9) A State savings association that
has a record of operational losses that
exceeds the average of other, similarly
situated State savings associations; has
management deficiencies, including
failure to adequately monitor and
control financial and operating risks,
particularly the risks presented by
concentrations of credit and
nontraditional activities; or has a poor
record of supervisory compliance.
(c) Standards for determination of
appropriate individual minimum
capital requirements. The appropriate
minimum capital level for an individual
State savings association cannot be
determined solely through the
application of a rigid mathematical
formula or wholly objective criteria. The
decision is necessarily based, in part, on
subjective judgment grounded in agency
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expertise. The factors to be considered
in the determination will vary in each
case and may include, for example:
(1) The conditions or circumstances
leading to the determination that a
higher minimum capital requirement is
appropriate or necessary for the State
savings association;
(2) The exigency of those
circumstances or potential problems;
(3) The overall condition,
management strength, and future
prospects of the State savings
association and, if applicable, its
holding company, subsidiaries, and
affiliates;
(4) The State savings association’s
liquidity, capital and other indicators of
financial stability, particularly as
compared with those of similarly
situated State savings associations; and
(5) The policies and practices of the
State savings association’s directors,
officers, and senior management as well
as the internal control and internal audit
systems for implementation of such
adopted policies and practices.
(d) Procedures—(1) Notification.
When the FDIC determines that a
minimum capital requirement is
necessary or appropriate for a particular
State savings association, it shall notify
the State savings association in writing
of its proposed individual minimum
capital requirement; the schedule for
compliance with the new requirement;
and the specific causes for determining
that the higher individual minimum
capital requirement is necessary or
appropriate for the State savings
association. The FDIC shall forward the
notifying letter to the appropriate state
supervisor if a state-chartered savings
association would be subject to an
individual minimum capital
requirement.
(2) Response. (i) The response shall
include any information that the State
savings association wants the FDIC to
consider in deciding whether to
establish or to amend an individual
minimum capital requirement for the
State savings association, what the
individual capital requirement should
be, and, if applicable, what compliance
schedule is appropriate for achieving
the required capital level. The responses
of the State savings association and
appropriate state supervisor must be in
writing and must be delivered to the
FDIC within 30 days after the date on
which the notification was received.
Such response must be filed in
accordance with §§ 390.106 and
390.108. The FDIC may extend the time
period for good cause. The time period
for response by the insured State
savings association may be shortened
for good cause:
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(A) When, in the opinion of the FDIC,
the condition of the State savings
association so requires, and the FDIC
informs the State savings association of
the shortened response period in the
notice;
(B) With the consent of the State
savings association; or
(C) When the State savings association
already has advised the FDIC that it
cannot or will not achieve its applicable
minimum capital requirement.
(ii) Failure to respond within 30 days,
or such other time period as may be
specified by the FDIC, may constitute a
waiver of any objections to the proposed
individual minimum capital
requirement or to the schedule for
complying with it, unless the FDIC has
provided an extension of the response
period for good cause.
(3) Decision. After expiration of the
response period, the FDIC shall decide
whether or not it believes the proposed
individual minimum capital
requirement should be established for
the State savings association, or whether
that proposed requirement should be
adopted in modified form, based on a
review of the State savings association’s
response and other relevant
information. The FDIC’s decision shall
address comments received within the
response period from the State savings
association and the appropriate state
supervisor and shall state the level of
capital required, the schedule for
compliance with this requirement, and
any specific remedial action the State
savings association could take to
eliminate the need for continued
applicability of the individual minimum
capital requirement. The FDIC shall
provide the State savings association
and the appropriate state supervisor
with a written decision on the
individual minimum capital
requirement, addressing the substantive
comments made by the State savings
association and setting forth the
decision and the basis for that decision.
Upon receipt of this decision by the
State savings association, the individual
minimum capital requirement becomes
effective and binding upon the State
savings association. This decision
represents final agency action.
(4) Failure to comply. Failure to
satisfy an individual minimum capital
requirement, or to meet any required
incremental additions to capital under a
schedule for compliance with such an
individual minimum capital
requirement, shall constitute a legal
basis for issuing a capital directive
pursuant to § 390.464.
(5) Change in circumstances. If, after
a decision is made under paragraph
(d)(3) of this section, there is a change
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in the circumstances affecting the State
savings association’s capital adequacy
or its ability to reach its required
minimum capital level by the specified
date, FDIC may amend the individual
minimum capital requirement or the
State savings association’s schedule for
such compliance. The FDIC may decline
to consider a State savings association’s
request for such changes that are not
based on a significant change in
circumstances or that are repetitive or
frivolous. Pending the FDIC’s
reexamination of the original decision,
that original decision and any
compliance schedule established
thereunder shall continue in full force
and effect.
§ 390.464
Capital directives.
(a) Issuance of a Capital Directive—(1)
Purpose. In addition to any other action
authorized by law, the FDIC, may issue
a capital directive to a State savings
association that does not have an
amount of capital satisfying its
minimum capital requirement. Issuance
of such a capital directive may be based
on a State savings association’s
noncompliance with the risk-based
capital requirement, the leverage ratio
requirement, the tangible capital
requirement, or individual minimum
capital requirement established under
this subpart, by a written agreement
under 12 U.S.C. 1464(s), or as a
condition for approval of an application.
A capital directive may order a State
savings association to:
(i) Achieve its minimum capital
requirement by a specified date;
(ii) Adhere to the compliance
schedule for achieving its individual
minimum capital requirement;
(iii) Submit and adhere to a capital
plan acceptable to the FDIC describing
the means and a time schedule by
which the State savings association
shall reach its required capital level;
(iv) Take other action, including but
not limited to, reducing the State
savings association’s assets or its rate of
liability growth, or imposing restrictions
on the State savings association’s
payment of dividends, in order to cause
the State savings association to reach its
required capital level;
(v) Take any action authorized under
§ 390.469(e); or
(vi) Take a combination of any of
these actions.
(2) Enforcement of capital directive. A
capital directive issued under this
section, including a plan submitted
pursuant to a capital directive, is
enforceable under 12 U.S.C. 1818 in the
same manner and to the same extent as
an effective and outstanding cease and
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desist order which has become final
under 12 U.S.C. 1818.
(3) Notice of intent to issue capital
directive. The FDIC will determine
whether to initiate the process of issuing
a capital directive. The FDIC will notify
a State savings association in writing by
registered mail of its intention to issue
a capital directive. Since a statechartered savings association is
involved, the FDIC will also notify and
solicit comment from the appropriate
state supervisor. The notice will state:
(i) The reasons for issuance of the
capital directive and
(ii) The proposed contents of the
capital directive.
(3) Response to notice of intent. (i) A
State savings association may respond
to the notice of intent by submitting its
own compliance plan, or may propose
an alternative plan. The response
should also include any information
that the State savings association wishes
the FDIC to consider in deciding
whether to issue a capital directive. The
appropriate state supervisor may also
submit a response. These responses
must be in writing and be delivered
within 30 days after the receipt of the
notices. Such responses must be filed in
accordance with §§ 390.106 and
390.108. In its discretion, the FDIC may
extend the time period for the response
for good cause. The FDIC may, for good
cause, shorten the 30-day time period
for response by the insured State
savings association:
(A) When, in the opinion of the FDIC,
the condition of the State savings
association so requires, and the FDIC
informs the State savings association of
the shortened response period in the
notice;
(B) With the consent of the State
savings association; or
(C) When the State savings association
already has advised the FDIC that it
cannot or will not achieve its applicable
minimum capital requirement.
(ii) Failure to respond within 30 days
of receipt, or such other time period as
may be specified by the FDIC, may
constitute a waiver of any objections to
the capital directive unless the FDIC
grants an extension of the time period
for good cause.
(4) Decision. After the closing date of
the State savings association’s response
period, or upon receipt of the State
savings association’s response, if earlier,
the FDIC shall consider the State
savings association’s response and may
seek additional information or
clarification of the response. Thereafter,
the FDIC will determine whether or not
to issue a capital directive and, if one
is to be issued, whether it should be as
originally proposed or in modified form.
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(5) Service and effectiveness. (i) Upon
issuance, a capital directive will be
served upon the State savings
association. It will include or be
accompanied by a statement of reasons
for its issuance and shall address the
responses received during the response
period.
(ii) A capital directive shall become
effective upon the expiration of 30 days
after service upon the State savings
association, unless the FDIC determines
that a shorter effective period is
necessary either on account of the
public interest or in order to achieve the
capital directive’s purpose. If the State
savings association has consented to
issuance of the capital directive, it may
become effective immediately. A capital
directive shall remain in effect and
enforceable unless, and then only to the
extent that, it is stayed, modified, or
terminated by the FDIC.
(6) Change in circumstances. Upon a
change in circumstances, a State savings
association may submit a request to the
FDIC to reconsider the terms of the
capital directive or consider changes in
the State savings association’s capital
plan issued under a directive for the
State savings association to achieve its
minimum capital requirement. If the
FDIC believes such a change is
warranted, the FDIC may modify the
State savings association’s capital
requirement or may refuse to make such
modification if it determines that there
are not significant changes in
circumstances. Pending a decision on
reconsideration, the capital directive
and capital plan shall continue in full
force and effect.
(b) Relation to other administrative
actions. The FDIC—
(1) May consider a State savings
association’s progress in adhering to any
capital plan required under this section
whenever such State savings association
or any affiliate of such State savings
association seeks approval for any
proposal that would have the effect of
diverting earnings, diminishing capital,
or otherwise impeding such State
savings association’s progress in
meeting its minimum capital
requirement; and
(2) May disapprove any proposal
referred to in paragraph (b)(1) of this
section if the FDIC determines that the
proposal would adversely affect the
ability of the State savings association
on a current or pro forma basis to satisfy
its capital requirement.
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§ 390.465
Components of capital.
(a) Core Capital. (1) The following
elements,1 less the amount of any
deductions pursuant to paragraph (a)(2)
of this section, comprise a State savings
association’ s core capital:
(i) Common stockholders’ equity
(including retained earnings);
(ii) Noncumulative perpetual
preferred stock and related surplus; 2
(iii) Minority interests in the equity
accounts of the subsidiaries that are
fully consolidated.
(iv) Nonwithdrawable accounts and
pledged deposits of mutual State
savings associations (excluding any
treasury shares held by the State savings
association) meeting the criteria of
regulations and memoranda of the FDIC
to the extent that such accounts or
deposits have no fixed maturity date,
cannot be withdrawn at the option of
the accountholder, and do not earn
interest that carries over to subsequent
periods;
(2) Deductions from core capital. (i)
Intangible assets, as defined in
§ 390.461, are deducted from assets and
capital in computing core capital,
except as otherwise provided by
§ 390.471.
(ii) Servicing assets that are not
includable in core capital pursuant to
§ 390.471 are deducted from assets and
capital in computing core capital.
(iii) Credit-enhancing interest-only
strips that are not includable in core
capital under § 390.471 are deducted
from assets and capital in computing
core capital.
(iv) Investments, both equity and
debt, in subsidiaries that are not
includable subsidiaries (including those
subsidiaries where the State savings
association has a minority ownership
interest) are deducted from assets and,
thus core capital except as provided in
paragraphs (a)(2)(v) and (vi) of this
section.
(v) If a State savings association has
any investments (both debt and equity)
in one or more subsidiaries engaged in
1 Stock issues where the dividend is reset
periodically based on current market conditions
and the State savings association’s current credit
rating, including but not limited to, auction rate,
money market or remarketable preferred stock, are
assigned to supplementary capital, regardless of
cumulative or noncumulative characteristics.
2 Stock issued by subsidiaries that may not be
counted by the parent State savings association on
the Thrift Financial Report or Consolidated Reports
of Condition or Income (‘‘Call Report’’), as
applicable, likewise shall not be considered in
calculating capital. For example, preferred stock
issued by a State savings association or a subsidiary
that is, in effect, collateralized by assets of the State
savings association or one of its subsidiaries shall
not be included in capital. Similarly, common stock
with mandatorily redeemable provisions is not
includable in core capital.
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any activity that would not fall within
the scope of activities in which
includable subsidiaries may engage, it
must deduct such investments from
assets and, thus, core capital in
accordance with this paragraph (a)(2)(v).
The State savings association must first
deduct from assets and, thus, core
capital the amount by which any
investments in such subsidiary(ies)
exceed the amount of such investments
held by the State savings association as
of April 12, 1989. Next the State savings
association must deduct from assets
and, thus, core capital, the State savings
association’s investments in and
extensions of credit to the subsidiary on
the date as of which the State savings
association’s capital is being
determined.
(vi) If a State savings association
holds a subsidiary (either directly or
through a subsidiary) that is itself a
domestic depository institution, the
FDIC may, in its sole discretion upon
determining that the amount of core
capital that would be required would be
higher if the assets and liabilities of
such subsidiary were consolidated with
those of the parent State savings
association than the amount that would
be required if the parent State savings
association’s investment were deducted
pursuant to paragraphs (a)(2)(iv) and (v)
of this section, consolidate the assets
and liabilities of that subsidiary with
those of the parent State savings
association in calculating the capital
adequacy of the parent State savings
association, regardless of whether the
subsidiary would otherwise be an
includable subsidiary as defined in
§ 390.461.
(vii) Deferred tax assets that are not
includable in core capital pursuant to
§ 390.471 are deducted from assets and
capital in computing core capital.
(b) Supplementary Capital.
Supplementary capital counts towards a
State savings association’s total capital
up to a maximum of 100% of the State
savings association’s core capital. The
following elements comprise a State
savings association’s supplementary
capital:
(1) Permanent Capital Instruments. (i)
Cumulative perpetual preferred stock
and other perpetual preferred stock 3
3 Preferred stock issued by subsidiaries that may
not be counted by the parent State savings
association on the Thrift Financial Report or
Consolidated Reports of Condition or Income (‘‘Call
Report’’), as applicable, likewise may not be
considered in calculating capital. Preferred stock
issued by a State savings association or a subsidiary
that is, in effect, collateralized by assets of the State
savings association or one of its subsidiaries may
not be included in capital.
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issued pursuant to regulations and
memoranda of the FDIC;
(ii) [Reserved]
(iii) Nonwithdrawable accounts and
pledged deposits (excluding any
treasury shares held by the State savings
association) meeting the criteria of 12
CFR 390.307 to the extent that such
instruments are not included in core
capital under paragraph (a) of this
section;
(iv) Perpetual subordinated debt
issued pursuant to regulations and
memoranda of the FDIC; and
(v) Mandatory convertible
subordinated debt (capital notes) issued
pursuant to regulations and memoranda
of the FDIC.
(2) Maturing Capital Instruments. (i)
Subordinated debt issued pursuant to
regulations and memoranda of the FDIC;
(ii) Intermediate-term preferred stock
issued pursuant to regulations and
memoranda of the FDIC and any related
surplus:
(iii) Mandatory convertible
subordinated debt (commitment notes)
issued pursuant to regulations and
memoranda of the FDIC; and
(iv) Mandatorily redeemable preferred
stock that was issued before July 23,
1985 or issued pursuant to regulations
and memoranda of the Office of Thrift
Supervision and approved in writing by
the FSLIC for inclusion as regulatory
capital before or after issuance.
(3) Transition rules for maturing
capital instruments—A State savings
association may include maturing
capital instruments issued on or before
November 7, 1989, in supplementary
capital in accordance with the treatment
set forth in paragraph (b)(3)(ii) of this
section.
(A) At the beginning of each of the
last five years of the life of the maturing
capital instrument, the amount that is
eligible to be included as supplementary
capital is reduced by 20% of the original
amount of that instrument (net of
redemptions).4
(B) Only the aggregate amount of
maturing capital instruments that
mature in any one year during the seven
years immediately prior to an
instrument’s maturity that does not
exceed 20% of an institution’s capital
will qualify as supplementary capital.
(C) Once a State savings association
selects either paragraph (b)(3)(ii)(A) or
(B) of this section for the issuance of a
maturing capital instrument, it must
4 Capital instruments may be redeemed prior to
maturity and without the prior approval of the
FDIC, as long as the instruments are redeemed with
the proceeds of, or replaced by, a like amount of
a similar or higher quality capital instrument.
However, the FDIC must be notified in writing at
least 30 days in advance of such redemption.
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continue to elect that option for all
subsequent issuances of maturing
capital instruments for as long as there
is a balance outstanding of such postNovember 7, 1989, issuances. Only
when such issuances have all been
repaid and the State savings association
has no balance of such issuances
outstanding may the State savings
association elect the other option.
(4) Allowance for loan and lease
losses. Allowance for loan and lease
losses established under FDIC
regulations and memoranda to a
maximum of 1.25 percent of riskweighted assets.5
(5) Unrealized gains on equity
securities. Up to 45 percent of
unrealized gains on available-for-sale
equity securities with readily
determinable fair values may be
included in supplementary capital.
Unrealized gains are unrealized holding
gains, net of unrealized holding losses,
before income taxes, calculated as the
amount, if any, by which fair value
exceeds historical cost. The FDIC may
disallow such inclusion in the
calculation of supplementary capital if
the FDIC determines that the equity
securities are not prudently valued.
(c) Total capital. (1) A State savings
association’s total capital equals the
sum of its core capital and
supplementary capital (to the extent that
such supplementary capital does not
exceed 100% of its core capital).
(2) The following assets, in addition
to assets required to be deducted
elsewhere in calculating core capital,
are deducted from assets for purposes of
determining total capital:
(i) Reciprocal holdings of depository
institution capital instruments; and
(ii) All equity investments.
§ 390.466 Risk-based capital credit riskweight categories.
(a) Risk-weighted assets. Riskweighted assets equal risk-weighted onbalance sheet assets (computed under
paragraph (a)(1) of this section), plus
risk-weighted off-balance sheet
5 The amount of the allowance for loan and lease
losses that may be included in capital is based on
a percentage of risk-weighted assets. The gross sum
of risk-weighted assets used in this calculation
includes all risk-weighted assets, with the
exception of assets required to be deducted under
§ 390.466 in establishing risk-weighted assets.
‘‘Excess reserves for loan and lease losses’’ is
defined as assets required to be deducted from
capital under § 390.465(a)(2). A State savings
association may deduct excess reserves for loan and
lease losses from the gross sum of risk-weighted
assets (i.e., risk-weighted assets including
allowance for loan and lease losses) in computing
the denominator of the risk-based capital standard.
Thus, a State savings association will exclude the
same amount of excess allowance for loan and lease
losses from both the numerator and the
denominator of the risk-based capital ratio.
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activities (computed under paragraph
(a)(2) of this section), plus risk-weighted
recourse obligations, direct credit
substitutes, and certain other positions
(computed under paragraph (b) of this
section). Assets not included (i.e.,
deducted from capital) for purposes of
calculating capital under § 390.465 are
not included in calculating riskweighted assets.
(1) On-balance sheet assets. Except as
provided in paragraph (b) of this
section, risk-weighted on-balance sheet
assets are computed by multiplying the
on-balance sheet asset amounts times
the appropriate risk-weight categories.
The risk-weight categories are:
(i) Zero percent Risk Weight (Category
1). (A) Cash, including domestic and
foreign currency owned and held in all
offices of a State savings association or
in transit. Any foreign currency held by
a State savings association must be
converted into U.S. dollar equivalents;
(B) Securities issued by and other
direct claims on the U.S. Government or
its agencies (to the extent such
securities or claims are unconditionally
backed by the full faith and credit of the
United States Government) or the
central government of an OECD country;
(C) Notes and obligations issued by
either the Federal Savings and Loan
Insurance Corporation or the Federal
Deposit Insurance Corporation and
backed by the full faith and credit of the
United States Government;
(D) Deposit reserves at, claims on, and
balances due from Federal Reserve
Banks;
(E) The book value of paid-in Federal
Reserve Bank stock;
(F) That portion of assets that is fully
covered against capital loss and/or yield
maintenance agreements by the Federal
Savings and Loan Insurance Corporation
or any successor agency;
(G) That portion of assets directly and
unconditionally guaranteed by the
United States Government or its
agencies, or the central government of
an OECD country;
(H) Claims on, and claims guaranteed
by, a qualifying securities firm that are
collateralized by cash on deposit in the
State savings association or by securities
issued or guaranteed by the United
States Government or its agencies, or the
central government of an OECD country.
To be eligible for this risk weight, the
State savings association must maintain
a positive margin of collateral on the
claim on a daily basis, taking into
account any change in a State savings
association’s exposure to the obligor or
counterparty under the claim in relation
to the market value of the collateral held
in support of the claim.
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(ii) 20 percent Risk Weight (Category
2). (A) Cash items in the process of
collection;
(B) That portion of assets
collateralized by the current market
value of securities issued or guaranteed
by the United States government or its
agencies, or the central government of
an OECD country;
(C) That portion of assets
conditionally guaranteed by the United
States Government or its agencies, or the
central government of an OECD country;
(D) Securities (not including equity
securities) issued by and other claims
on the U.S. Government or its agencies
which are not backed by the full faith
and credit of the United States
Government;
(E) Securities (not including equity
securities) issued by, or other direct
claims on, United States Governmentsponsored agencies;
(F) That portion of assets guaranteed
by United States Government-sponsored
agencies;
(G) That portion of assets
collateralized by the current market
value of securities issued or guaranteed
by United States Government-sponsored
agencies;
(H) Claims on, and claims guaranteed
by, a qualifying securities firm, subject
to the following conditions:
(1) A qualifying securities firm must
have a long-term issuer credit rating, or
a rating on at least one issue of longterm unsecured debt, from a NRSRO.
The rating must be in one of the three
highest investment grade categories
used by the NRSRO. If two or more
NRSROs assign ratings to the qualifying
securities firm, the State savings
association must use the lowest rating to
determine whether the rating
requirement of this paragraph is met. A
qualifying securities firm may rely on
the rating of its parent consolidated
company, if the parent consolidated
company guarantees the claim.
(2) A collateralized claim on a
qualifying securities firm does not have
to comply with the rating requirements
under paragraph (a)(1)(ii)(H)(1) of this
section if the claim arises under a
contract that:
(i) Is a reverse repurchase/repurchase
agreement or securities lending/
borrowing transaction executed using
standard industry documentation;
(ii) Is collateralized by debt or equity
securities that are liquid and readily
marketable;
(iii) Is marked-to-market daily;
(iv) Is subject to a daily margin
maintenance requirement under the
standard industry documentation; and
(v) Can be liquidated, terminated or
accelerated immediately in bankruptcy
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or similar proceeding, and the security
or collateral agreement will not be
stayed or avoided under applicable law
of the relevant jurisdiction. For
example, a claim is exempt from the
automatic stay in bankruptcy in the
United States if it arises under a
securities contract or a repurchase
agreement subject to section 555 or 559
of the Bankruptcy Code (11 U.S.C. 555
or 559), a qualified financial contract
under section 11(e)(8) of the Federal
Deposit Insurance Act (12 U.S.C.
1821(e)(8)), or a netting contract
between or among financial institutions
under sections 401–407 of the Federal
Deposit Insurance Corporation
Improvement Act of 1991 (12 U.S.C.
4401–4407), or Regulation EE (12 CFR
part 231).
(3) If the securities firm uses the claim
to satisfy its applicable capital
requirements, the claim is not eligible
for a risk weight under this paragraph
(a)(1)(ii)(H);
(I) Claims representing general
obligations of any public-sector entity in
an OECD country, and that portion of
any claims guaranteed by any such
public-sector entity;
(J) Bonds issued by the Financing
Corporation or the Resolution Funding
Corporation;
(K) Balances due from and all claims
on domestic depository institutions.
This includes demand deposits and
other transaction accounts, savings
deposits and time certificates of deposit,
federal funds sold, loans to other
depository institutions, including
overdrafts and term federal funds,
holdings of the State savings
association’s own discounted
acceptances for which the account party
is a depository institution, holdings of
bankers acceptances of other
institutions and securities issued by
depository institutions, except those
that qualify as capital;
(L) The book value of paid-in Federal
Home Loan Bank stock;
(M) Deposit reserves at, claims on and
balances due from the Federal Home
Loan Banks;
(N) Assets collateralized by cash held
in a segregated deposit account by the
reporting State savings association;
(O) Claims on, or guaranteed by,
official multilateral lending institutions
or regional development institutions in
which the United States Government is
a shareholder or contributing member; 1
1 These institutions include, but are not limited
to, the International Bank for Reconstruction and
Development (World Bank), the Inter-American
Development Bank, the Asian Development Bank,
the African Development Bank, the European
Investments Bank, the International Monetary Fund
and the Bank for International Settlements.
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47765
(P) That portion of assets
collateralized by the current market
value of securities issued by official
multilateral lending institutions or
regional development institutions in
which the United States Government is
a shareholder or contributing member;
(Q) All claims on depository
institutions incorporated in an OECD
country, and all assets backed by the
full faith and credit of depository
institutions incorporated in an OECD
country. This includes the credit
equivalent amount of participations in
commitments and standby letters of
credit sold to other depository
institutions incorporated in an OECD
country, but only if the originating bank
remains liable to the customer or
beneficiary for the full amount of the
commitment or standby letter of credit.
Also included in this category are the
credit equivalent amounts of risk
participations in bankers’ acceptances
conveyed to other depository
institutions incorporated in an OECD
country. However, bank-issued
securities that qualify as capital of the
issuing bank are not included in this
risk category;
(R) Claims on, or guaranteed by
depository institutions other than the
central bank, incorporated in a nonOECD country, with a remaining
maturity of one year or less;
(S) That portion of local currency
claims conditionally guaranteed by
central governments of non-OECD
countries, to the extent the State savings
association has local currency liabilities
in that country.
(iii) 50 percent Risk Weight (Category
3). (A) Revenue bonds issued by any
public-sector entity in an OECD country
for which the underlying obligor is a
public-sector entity, but which are
repayable solely from the revenues
generated from the project financed
through the issuance of the obligations;
(B) Qualifying mortgage loans and
qualifying multifamily mortgage loans;
(C) Privately-issued mortgage-backed
securities (i.e., those that do not carry
the guarantee of a government or
government sponsored entity)
representing an interest in qualifying
mortgage loans or qualifying
multifamily mortgage loans. If the
security is backed by qualifying
multifamily mortgage loans, the State
savings association must receive timely
payments of principal and interest in
accordance with the terms of the
security. Payments will generally be
considered timely if they are not 30
days past due;
(D) Qualifying residential
construction loans as defined in
§ 390.461.
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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations
(iv) 100 percent Risk Weight (Category
4). All assets not specified above or
deducted from calculations of capital
pursuant to § 390.465, including, but
not limited to:
(A) Consumer loans;
(B) Commercial loans;
(C) Home equity loans;
(D) Non-qualifying mortgage loans;
(E) Non-qualifying multifamily
mortgage loans;
(F) Residential construction loans;
(G) Land loans;
(H) Nonresidential construction loans;
(I) Obligations issued by any state or
any political subdivision thereof for the
benefit of a private party or enterprise
where that party or enterprise, rather
than the issuing state or political
subdivision, is responsible for the
timely payment of principal and interest
on the obligations, e.g., industrial
development bonds;
(J) Debt securities not otherwise
described in this section;
(K) Investments in fixed assets and
premises;
(L) Certain nonsecurity financial
instruments including servicing assets
and intangible assets includable in core
capital under § 390.471;
(M) Interest-only strips receivable,
other than credit-enhancing interestonly strips;
(N)–(O) [Reserved]
(P) That portion of equity investments
not deducted pursuant to § 390.465;
(Q) The prorated assets of subsidiaries
(except for the assets of includable, fully
consolidated subsidiaries) to the extent
such assets are included in adjusted
total assets;
(R) All repossessed assets or assets
that are more than 90 days past due; and
(S) Equity investments that the FDIC
determines have the same risk
characteristics as foreclosed real estate
by the State savings association;
(T) Equity investments permissible for
a national bank.
(v) [Reserved]
(vi) Indirect ownership interests in
pools of assets. Assets representing an
indirect holding of a pool of assets, e.g.,
mutual funds, are assigned to riskweight categories under this section
based upon the risk weight that would
be assigned to the assets in the portfolio
of the pool. An investment in shares of
a mutual fund whose portfolio consists
primarily of various securities or money
market instruments that, if held
separately, would be assigned to
different risk-weight categories,
generally is assigned to the risk-weight
category appropriate to the highest riskweighted asset that the fund is
permitted to hold in accordance with
the investment objectives set forth in its
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Jkt 223001
prospectus. The State savings
association may, at its option, assign the
investment on a pro rata basis to
different risk-weight categories
according to the investment limits in its
prospectus. In no case will an
investment in shares in any such fund
be assigned to a total risk weight less
than 20 percent. If the State savings
association chooses to assign
investments on a pro rata basis, and the
sum of the investment limits of assets in
the fund’s prospectus exceeds 100
percent, the State savings association
must assign the highest pro rata
amounts of its total investment to the
higher risk categories. If, in order to
maintain a necessary degree of shortterm liquidity, a fund is permitted to
hold an insignificant amount of its
assets in short-term, highly liquid
securities of superior credit quality that
do not qualify for a preferential risk
weight, such securities will generally be
disregarded in determining the riskweight category into which the State
savings association’s holding in the
overall fund should be assigned. The
prudent use of hedging instruments by
a mutual fund to reduce the risk of its
assets will not increase the risk
weighting of the mutual fund
investment. For example, the use of
hedging instruments by a mutual fund
to reduce the interest rate risk of its
government bond portfolio will not
increase the risk weight of that fund
above the 20 percent category.
Nonetheless, if the fund engages in any
activities that appear speculative in
nature or has any other characteristics
that are inconsistent with the
preferential risk-weighting assigned to
the fund’s assets, holdings in the fund
will be assigned to the 100 percent riskweight category.
(2) Off-balance sheet items. Except as
provided in paragraph (b) of this
section, risk-weighted off-balance sheet
items are determined by the following
two-step process. First, the face amount
of the off-balance sheet item must be
multiplied by the appropriate credit
conversion factor listed in this
paragraph (a)(2). This calculation
translates the face amount of an offbalance sheet exposure into an onbalance sheet credit-equivalent amount.
Second, the credit-equivalent amount
must be assigned to the appropriate riskweight category using the criteria
regarding obligors, guarantors, and
collateral listed in paragraph (a)(1) of
this section, provided that the maximum
risk weight assigned to the creditequivalent amount of an interest-rate or
exchange-rate contract is 50 percent.
The following are the credit conversion
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factors and the off-balance sheet items
to which they apply.
(i) 100 percent credit conversion
factor (Group A).
(A) [Reserved]
(B) Risk participations purchased in
bankers’ acceptances;
(C) [Reserved]
(D) Forward agreements and other
contingent obligations with a certain
draw down, e.g., legally binding
agreements to purchase assets at a
specified future date. On the date an
institution enters into a forward
agreement or similar obligation, it
should convert the principal amount of
the assets to be purchased at 100
percent as of that date and then assign
this amount to the risk-weight category
appropriate to the obligor or guarantor
of the item, or the nature of the
collateral;
(E) Indemnification of customers
whose securities the State savings
association has lent as agent. If the
customer is not indemnified against loss
by the State savings association, the
transaction is excluded from the riskbased capital calculation. When a State
savings association lends its own
securities, the transaction is treated as a
loan. When a State savings association
lends its own securities or is acting as
agent, agrees to indemnify a customer,
the transaction is assigned to the risk
weight appropriate to the obligor or
collateral that is delivered to the lending
or indemnifying institution or to an
independent custodian acting on their
behalf.
(ii) 50 percent credit conversion factor
(Group B). (A) Transaction-related
contingencies, including, among other
things, performance bonds and
performance-based standby letters of
credit related to a particular transaction;
(B) Unused portions of commitments
(including home equity lines of credit
and eligible ABCP liquidity facilities)
with an original maturity exceeding one
year except those listed in paragraph
(a)(2)(v) of this section. For eligible
ABCP liquidity facilities, the resulting
credit equivalent amount is assigned to
the risk category appropriate to the
assets to be funded by the liquidity
facility based on the assets or the
obligor, after considering any collateral
or guarantees, or external credit ratings
under paragraph (b)(3) of this section, if
applicable; and
(C) Revolving underwriting facilities,
note issuance facilities, and similar
arrangements pursuant to which the
State savings association’s customer can
issue short-term debt obligations in its
own name, but for which the State
savings association has a legally binding
commitment to either:
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(1) Purchase the obligations the
customer is unable to sell by a stated
date; or
(2) Advance funds to its customer, if
the obligations cannot be sold.
(iii) 20 percent credit conversion
factor (Group C). Trade-related
contingencies, i.e., short-term, selfliquidating instruments used to finance
the movement of goods and
collateralized by the underlying
shipment. A commercial letter of credit
is an example of such an instrument.
(iv) 10 percent credit conversion
factor (Group D). Unused portions of
eligible ABCP liquidity facilities with an
original maturity of one year or less. The
resulting credit equivalent amount is
assigned to the risk category appropriate
to the assets to be funded by the
liquidity facility based on the assets or
the obligor, after considering any
collateral or guarantees, or external
credit ratings under paragraph (b)(3) of
this section, if applicable;
(v) Zero percent credit conversion
factor (Group E). (A) Unused portions of
commitments with an original maturity
of one year or less, except for eligible
ABCP liquidity facilities;
(B) Unused commitments with an
original maturity greater than one year,
if they are unconditionally cancelable at
any time at the option of the State
savings association and the State
savings association has the contractual
right to make, and in fact does make,
either:
(1) A separate credit decision based
upon the borrower’s current financial
condition before each drawing under
the lending facility; or
(2) An annual (or more frequent)
credit review based upon the borrower’s
current financial condition to determine
whether or not the lending facility
should be continued; and
(C) The unused portion of retail credit
card lines or other related plans that are
unconditionally cancelable by the State
savings association in accordance with
applicable law.
(vi) Off-balance sheet contracts;
interest-rate and foreign exchange rate
contracts (Group F)—(A) Calculation of
credit equivalent amounts. The credit
equivalent amount of an off-balance
sheet interest rate or foreign exchange
rate contract that is not subject to a
qualifying bilateral netting contract in
accordance with paragraph (a)(2)(vi)(B)
of this section is equal to the sum of the
current credit exposure, i.e., the
replacement cost of the contract, and the
potential future credit exposure of the
off-balance sheet rate contract. The
calculation of credit equivalent amounts
is measured in U.S. dollars, regardless
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47767
of the currency or currencies specified
in the off-balance sheet rate contract.
(1) Current credit exposure. The
current credit exposure of an off-balance
sheet rate contract is determined by the
mark-to-market value of the contract. If
the mark-to-market value is positive,
then the current credit exposure equals
that mark-to-market value. If the markto-market value is zero or negative, then
the current exposure is zero. In
determining its current credit exposure
for multiple off-balance sheet rate
contracts executed with a single
counterparty, a State savings association
may net positive and negative mark-tomarket values of off-balance sheet rate
contracts if subject to a bilateral netting
contract as provided in paragraph
(a)(2)(vi)(B) of this section.
(2) Potential future credit exposure.
The potential future credit exposure of
an off-balance sheet rate contract,
including a contract with a negative
mark-to-market value, is estimated by
multiplying the notional principal 2 by a
credit conversion factor. State savings
associations, subject to examiner
review, should use the effective rather
than the apparent or stated notional
amount in this calculation. The
conversion factors are: 3
savings association has a single claim or
obligation either to receive or pay only
the net amount of the sum of the
positive and negative mark-to-market
values on the individual off-balance
sheet rate contracts covered by the
bilateral netting contract. The single
legal obligation for the net amount is
operative in the event that a
counterparty, or a counterparty to whom
the bilateral netting contract has been
validly assigned, fails to perform due to
any of the following events: default,
insolvency, bankruptcy, or other similar
circumstances;
(3) The State savings association
obtains a written and reasoned legal
opinion(s) representing, with a high
degree of certainty, that in the event of
a legal challenge, including one
resulting from default, insolvency,
bankruptcy or similar circumstances,
the relevant court and administrative
authorities would find the State savings
association’s exposure to be the net
amount under:
(i) The law of the jurisdiction in
which the counterparty is chartered or
the equivalent location in the case of
noncorporate entities, and if a branch of
the counterparty is involved, then also
under the law of the jurisdiction in
which the branch is located;
(ii) The law that governs the
Foreign exInterest rate change rate
Remaining
individual off-balance sheet rate
contracts
maturity
contracts
contracts covered by the bilateral
(percents)
(percents)
netting contract; and
(iii) The law that governs the bilateral
One year or less
0.0
1.0
Over one year ...
0.5
5.0 netting contract;
(4) The State savings association
establishes and maintains procedures to
(B) Off-balance sheet rate contracts
monitor possible changes in relevant
subject to bilateral netting contracts. In
law and to ensure that the bilateral
determining its current credit exposure
netting contract continues to satisfy the
for multiple off-balance sheet rate
requirements of this section; and
contracts executed with a single
(5) The State savings association
counterparty, a State savings association
maintains in its files documentation
may net off-balance sheet rate contracts
adequate to support the netting of an
subject to a bilateral netting contract by
4
offsetting positive and negative mark-to- off-balance sheet rate contract.
(C) Walkaway clause. A bilateral
market values, provided that:
netting contract that contains a
(1) The bilateral netting contract is in
walkaway clause is not eligible for
writing;
netting for purposes of calculating the
(2) The bilateral netting contract
current credit exposure amount. The
creates a single legal obligation for all
term ‘‘walkaway clause’’ means a
individual off-balance sheet rate
provision in a bilateral netting contract
contracts covered by the bilateral
netting contract. In effect, the bilateral
4 By netting individual off-balance sheet rate
netting contract provides that the State
2 For purposes of calculating potential future
credit exposure for foreign exchange contracts and
other similar contracts, in which notional principal
is equivalent to cash flows, total notional principal
is defined as the net receipts to each party falling
due on each value date in each currency.
3 No potential future credit exposure is calculated
for single currency interest rate swaps in which
payments are made based upon two floating rate
indices, so-called floating/floating or basis swaps;
the credit equivalent amount is measured solely on
the basis of the current credit exposure.
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contracts for the purpose of calculating its credit
equivalent amount, a State savings association
represents that documentation adequate to support
the netting of an off-balance sheet rate contract is
in the State savings association’s files and available
for inspection by the FDIC. Upon determination by
the FDIC that a State savings association’s files are
inadequate or that a bilateral netting contract may
not be legally enforceable under any one of the
bodies of law described in paragraphs
(a)(2)(vi)(B)(3) (i) through (iii) of this section, the
underlying individual off-balance sheet rate
contracts may not be netted for the purposes of this
section.
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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations
that permits a nondefaulting
counterparty to make a lower payment
than it would make otherwise under the
bilateral netting contract, or no payment
at all, to a defaulter or the estate of a
defaulter, even if the defaulter or the
estate of the defaulter is a net creditor
under the bilateral netting contract.
(D) Risk weighting. Once the State
savings association determines the
credit equivalent amount for an offbalance sheet rate contract, that amount
is assigned to the risk-weight category
appropriate to the counterparty, or, if
relevant, to the nature of any collateral
or guarantee. Collateral held against a
netting contract is not recognized for
capital purposes unless it is legally
available for all contracts included in
the netting contract. However, the
maximum risk weight for the credit
equivalent amount of such off-balance
sheet rate contracts is 50 percent.
(E) Exceptions. The following offbalance sheet rate contracts are not
subject to the above calculation, and
therefore, are not part of the
denominator of a State savings
association’s risk-based capital ratio:
(1) A foreign exchange rate contract
with an original maturity of 14 calendar
days or less; and
(2) Any interest rate or foreign
exchange rate contract that is traded on
an exchange requiring the daily
payment of any variations in the market
value of the contract.
(3) If a State savings association has
multiple overlapping exposures (such as
a program-wide credit enhancement and
a liquidity facility) to an ABCP program
that is not consolidated for risk-based
capital purposes, the State savings
association is not required to hold
duplicative risk-based capital under this
subpart against the overlapping
position. Instead, the State savings
association should apply to the
overlapping position the applicable riskbased capital treatment that results in
the highest capital charge.
(b) Recourse obligations, direct credit
substitutes, and certain other
positions—(1) In general. Except as
otherwise permitted in this paragraph
(b), to determine the risk-weighted asset
amount for a recourse obligation or a
direct credit substitute (but not a
residual interest):
(i) Multiply the full amount of the
credit-enhanced assets for which the
State savings association directly or
indirectly retains or assumes credit risk
by a 100 percent conversion factor. (For
a direct credit substitute that is an onbalance sheet asset (e.g., a purchased
subordinated security), a State savings
association must use the amount of the
direct credit substitute and the full
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amount of the asset its supports, i.e., all
the more senior positions in the
structure); and
(ii) Assign this credit equivalent
amount to the risk-weight category
appropriate to the obligor in the
underlying transaction, after
considering any associated guarantees
or collateral. Paragraph (a)(1) of this
section lists the risk-weight categories.
(2) Residual interests. Except as
otherwise permitted under this
paragraph (b), a State savings
association must maintain risk-based
capital for residual interests as follows:
(i) Credit-enhancing interest-only
strips. After applying the concentration
limit under § 390.471(e)(2), a state
saving association must maintain riskbased capital for a credit-enhancing
interest-only strip equal to the
remaining amount of the strip (net of
any existing associated deferred tax
liability), even if the amount of riskbased capital that must be maintained
exceeds the full risk-based capital
requirement for the assets transferred.
Transactions that, in substance, result in
the retention of credit risk associated
with a transferred credit-enhancing
interest-only strip are treated as if the
strip was retained by the State savings
association and was not transferred.
(ii) Other residual interests. A state
saving association must maintain riskbased capital for a residual interest
(excluding a credit-enhancing interestonly strip) equal to the face amount of
the residual interest (net of any existing
associated deferred tax liability), even if
the amount of risk-based capital that
must be maintained exceeds the full
risk-based capital requirement for the
assets transferred. Transactions that, in
substance, result in the retention of
credit risk associated with a transferred
residual interest are treated as if the
residual interest was retained by the
State savings association and was not
transferred.
(iii) Residual interests and other
recourse obligations. Where a State
savings association holds a residual
interest (including a credit-enhancing
interest-only strip) and another recourse
obligation in connection with the same
transfer of assets, the State savings
association must maintain risk-based
capital equal to the greater of:
(A) The risk-based capital
requirement for the residual interest as
calculated under paragraph (b)(2)(i) and
(ii) of this section; or
(B) The full risk-based capital
requirement for the assets transferred,
subject to the low-level recourse rules
under paragraph (b)(7) of this section.
(3) Ratings-based approach—(i)
Calculation. A State savings association
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may calculate the risk-weighted asset
amount for an eligible position
described in paragraph (b)(3)(ii) of this
section by multiplying the face amount
of the position by the appropriate risk
weight determined in accordance with
Table A or B of this section.
Note: Stripped mortgage-backed securities
or other similar instruments, such as interestonly and principal-only strips, that are not
credit enhancing must be assigned to the
100% risk-weight category.
TABLE A TO § 390.466
Long term rating category
Risk weight
(in percent)
Highest or second highest investment grade .................
Third highest investment
grade .................................
Lowest investment grade .....
One category below investment grade ........................
20
50
100
200
TABLE B TO § 390.466
Short term rating category
Highest investment grade .....
Second highest investment
grade .................................
Lowest investment grade .....
Risk weight
(in percent)
20
50
100
(ii) Eligibility—(A) Traded positions.
A position is eligible for the treatment
described in paragraph (b)(3)(i) of this
section, if:
(1) The position is a recourse
obligation, direct credit substitute,
residual interest, or asset- or mortgagebacked security and is not a creditenhancing interest-only strip;
(2) The position is a traded position;
and
(3) The NRSRO has rated a long term
position as one grade below investment
grade or better or a short term position
as investment grade. If two or more
NRSROs assign ratings to a traded
position, the State savings association
must use the lowest rating to determine
the appropriate risk-weight category
under paragraph (b)(3)(i) of this section.
(B) Non-traded positions. A position
that is not traded is eligible for the
treatment described in paragraph
(b)(3)(i) of this section if:
(1) The position is a recourse
obligation, direct credit substitute,
residual interest, or asset- or mortgagebacked security extended in connection
with a securitization and is not a creditenhancing interest-only strip;
(2) More than one NRSRO rate the
position;
(3) All of the NRSROs that provide a
rating rate a long term position as one
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with an asset-backed commercial paper
program sponsored by the State savings
association. Before it may rely on an
internal credit risk rating system, the
state saving association must
demonstrate to FDIC’s satisfaction that
the system is adequate. Adequate
internal credit risk rating systems
typically:
(1) Are an integral part of the State
savings association’s risk management
system that explicitly incorporates the
full range of risks arising from the State
savings association’s participation in
securitization activities;
(2) Link internal credit ratings to
measurable outcomes, such as the
probability that the position will
experience any loss, the expected loss
on the position in the event of default,
and the degree of variance in losses in
the event of default on that position;
(3) Separately consider the risk
associated with the underlying loans or
borrowers, and the risk associated with
the structure of the particular
securitization transaction;
(4) Identify gradations of risk among
‘‘pass’’ assets and other risk positions;
(5) Use clear, explicit criteria to
classify assets into each internal rating
grade, including subjective factors;
(6) Employ independent credit risk
management or loan review personnel
to assign or review the credit risk
ratings;
(7) Include an internal audit
procedure to periodically verify that
internal risk ratings are assigned in
accordance with the State savings
association’s established criteria;
(8) Monitor the performance of the
assigned internal credit risk ratings over
time to determine the appropriateness of
the initial credit risk rating assignment,
and adjust individual credit risk ratings
TABLE C TO § 390.466
or the overall internal credit risk rating
system, as needed; and
Risk weight
Rating category
(9) Make credit risk rating
(in percent)
assumptions that are consistent with, or
Investment grade ..................
100 more conservative than, the credit risk
rating assumptions and methodologies
One category below investment grade ........................
200 of NRSROs.
(B) Program ratings. (1) A recourse
(ii) Eligibility. A position extended in
obligation or direct credit substitute, but
connection with a securitization is
not a residual interest, is eligible for the
eligible for the treatment described in
treatment described in paragraph
paragraph (b)(4)(i) of this section if it is
(b)(4)(i) of this section, if the position is
not rated by an NRSRO, is not a residual retained or assumed in connection with
interest, and meets one of the three
a structured finance program and an
alternative standards described in
NRSRO has reviewed the terms of the
paragraph (b)(4)(ii)(A), (B), or (C) of this program and stated a rating for positions
section:
associated with the program. If the
(A) Position rated internally. A direct
program has options for different
credit substitute, but not a purchased
combinations of assets, standards,
credit-enhancing interest-only strip, is
internal or external credit enhancements
eligible for the treatment described
and other relevant factors, and the
under paragraph (b)(4)(i) of this section, NRSRO specifies ranges of rating
if the position is assumed in connection categories to them, the State savings
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grade below investment grade or better
or a short term position as investment
grade. If the NRSROs assign different
ratings to the position, the State savings
association must use the lowest rating to
determine the appropriate risk-weight
category under paragraph (b)(3)(i) of this
section;
(4) The NRSROs base their ratings on
the same criteria that they use to rate
securities that are traded positions; and
(5) The ratings are publicly available.
(C) Unrated senior positions. If a
recourse obligation, direct credit
substitute, residual interest, or asset- or
mortgage-backed security is not rated by
an NRSRO, but is senior or preferred in
all features to a traded position
(including collateralization and
maturity), the State savings association
may risk-weight the face amount of the
senior position under paragraph (b)(3)(i)
of this section, based on the rating of the
traded position, subject to supervisory
guidance. The State savings association
must satisfy FDIC that this treatment is
appropriate. This paragraph (b)(3)(i)(C)
applies only if the traded position
provides substantive credit support to
the unrated position until the unrated
position matures.
(4) Certain positions that are not rated
by NRSROs—(i) Calculation. A State
savings association may calculate the
risk-weighted asset amount for eligible
position described in paragraph (b)(4)(ii)
of this section based on the State
savings association’s determination of
the credit rating of the position. To riskweight the asset, the State savings
association must multiply the face
amount of the position by the
appropriate risk weight determined in
accordance with Table C of this section.
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47769
association may apply the rating
category applicable to the option that
corresponds to the State savings
association’s position.
(2) To rely on a program rating, the
State savings association must
demonstrate to FDIC’s satisfaction that
the credit risk rating assigned to the
program meets the same standards
generally used by NRSROs for rating
traded positions. The State savings
association must also demonstrate to
FDIC’s satisfaction that the criteria
underlying the assignments for the
program are satisfied by the particular
position.
(3) If a State savings association
participates in a securitization
sponsored by another party, FDIC may
authorize the State savings association
to use this approach based on a program
rating obtained by the sponsor of the
program.
(C) Computer program. A recourse
obligation or direct credit substitute, but
not a residual interest, is eligible for the
treatment described in paragraph
(b)(4)(i) of this section, if the position is
extended in connection with a
structured financing program and the
State savings association uses an
acceptable credit assessment computer
program to determine the rating of the
position. An NRSRO must have
developed the computer program and
the State savings association must
demonstrate to FDIC’s satisfaction that
the ratings under the program
correspond credibly and reliably with
the rating of traded positions.
(5) Alternative capital computation
for small business obligations—(i)
Definitions. For the purposes of this
paragraph (b)(5):
(A) Qualified State savings
association means a State savings
association that:
(1) Is well capitalized as defined in
§ 390.453 without applying the capital
treatment described in this paragraph
(b)(5); or
(2) Is adequately capitalized as
defined in § 390.453 without applying
the capital treatment described in this
paragraph (b)(5) and has received
written permission from the FDIC to
apply that capital treatment.
(B) Small business means a business
that meets the criteria for a small
business concern established by the
Small Business Administration in 13
CFR 121 pursuant to 15 U.S.C. 632.
(ii) Capital requirement.
Notwithstanding any other provision of
this paragraph (b), with respect to a
transfer of a small business loan or lease
of personal property with recourse that
is a sale under generally accepted
accounting principles, a qualified State
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savings association may elect to include
only the amount of its recourse in its
risk-weighted assets. To qualify for this
election, the State savings association
must establish and maintain a reserve
under generally accepted accounting
principles sufficient to meet the
reasonable estimated liability of the
State savings association under the
recourse obligation.
(iii) Aggregate amount of recourse.
The total outstanding amount of
recourse retained by a qualified State
savings association with respect to
transfers of small business loans and
leases of personal property and
included in the risk-weighted assets of
the State savings association as
described in paragraph (b)(5)(ii) of this
section, may not exceed 15 percent of
the association’s total capital computed
under § 390.465(c).
(iv) State savings association that
ceases to be a qualified State savings
association or that exceeds aggregate
limits. If a State savings association
ceases to be a qualified State savings
association or exceeds the aggregate
limit described in paragraph (b)(5)(iii) of
this section, the State savings
association may continue to apply the
capital treatment described in paragraph
(b)(5)(ii) of this section to transfers of
small business loans and leases of
personal property that occurred when
the association was a qualified State
savings association and did not exceed
the limit.
(v) Prompt corrective action not
affected. (A) A State savings association
shall compute its capital without regard
to this paragraph (b)(5) of this section
for purposes of prompt corrective action
(12 U.S.C. 1831o), unless the State
savings association is adequately or well
capitalized without applying the capital
treatment described in this paragraph
(b)(5) and would be well capitalized
after applying that capital treatment.
(B) A State savings association shall
compute its capital requirement without
regard to this paragraph (b)(5) for the
purposes of applying 12 U.S.C.
1831o(g), regardless of the association’s
capital level.
(6) Risk participations and
syndications of direct credit substitutes.
A State savings association must
calculate the risk-weighted asset amount
for a risk participation in, or syndication
of, a direct credit substitute as follows:
(i) If a State savings association
conveys a risk participation in a direct
credit substitute, the State savings
association must convert the full
amount of the assets that are supported
by the direct credit substitute to a credit
equivalent amount using a 100 percent
conversion factor. The State savings
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association must assign the pro rata
share of the credit equivalent amount
that was conveyed through the risk
participation to the lower of: The riskweight category appropriate to the
obligor in the underlying transaction,
after considering any associated
guarantees or collateral; or the riskweight category appropriate to the party
acquiring the participation. The State
savings association must assign the pro
rata share of the credit equivalent
amount that was not participated out to
the risk-weight category appropriate to
the obligor, after considering any
associated guarantees or collateral.
(ii) If a State savings association
acquires a risk participation in a direct
credit substitute, the State savings
association must multiply its pro rata
share of the direct credit substitute by
the full amount of the assets that are
supported by the direct credit
substitute, and convert this amount to a
credit equivalent amount using a 100
percent conversion factor. The State
savings association must assign the
resulting credit equivalent amount to
the risk-weight category appropriate to
the obligor in the underlying
transaction, after considering any
associated guarantees or collateral.
(iii) If the State savings association
holds a direct credit substitute in the
form of a syndication where each State
savings association or other participant
is obligated only for its pro rata share
of the risk and there is no recourse to
the originating party, the State savings
association must calculate the credit
equivalent amount by multiplying only
its pro rata share of the assets supported
by the direct credit substitute by a 100
percent conversion factor. The State
savings association must assign the
resulting credit equivalent amount to
the risk-weight category appropriate to
the obligor in the underlying transaction
after considering any associated
guarantees or collateral.
(7) Limitations on risk-based capital
requirements—(i) Low-level exposure
rule. If the maximum contractual
exposure to loss retained or assumed by
a State savings association is less than
the effective risk-based capital
requirement, as determined in
accordance with this paragraph (b), for
the assets supported by the State savings
association’s position, the risk-based
capital requirement is limited to the
State savings association’s contractual
exposure less any recourse liability
account established in accordance with
generally accepted accounting
principles. This limitation does not
apply when a State savings association
provides credit enhancement beyond
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any contractual obligation to support
assets it has sold.
(ii) Mortgage-related securities or
participation certificates retained in a
mortgage loan swap. If a State savings
association holds a mortgage-related
security or a participation certificate as
a result of a mortgage loan swap with
recourse, it must hold risk-based capital
to support the recourse obligation and
that percentage of the mortgage-related
security or participation certificate that
is not covered by the recourse
obligation. The total amount of riskbased capital required for the security
(or certificate) and the recourse
obligation is limited to the risk-based
capital requirement for the underlying
loans, calculated as if the State savings
association continued to hold these
loans as an on-balance sheet asset.
(iii) Related on-balance sheet assets. If
an asset is included in the calculation
of the risk-based capital requirement
under this paragraph (b) and also
appears as an asset on the State savings
association’s balance sheet, the State
savings association must risk-weight the
asset only under this paragraph (b),
except in the case of loan servicing
assets and similar arrangements with
embedded recourse obligations or direct
credit substitutes. In that case, the State
savings association must separately riskweight the on-balance sheet servicing
asset and the related recourse
obligations and direct credit substitutes
under this section, and incorporate
these amounts into the risk-based
capital calculation.
(8) Obligations of subsidiaries. If a
State savings association retains a
recourse obligation or assumes a direct
credit substitute on the obligation of a
subsidiary that is not an includable
subsidiary, and the recourse obligation
or direct credit substitute is an equity or
debt investment in that subsidiary
under generally accepted accounting
principles, the face amount of the
recourse obligation or direct credit
substitute is deducted for capital under
§§ 390.465(a)(2) and 390.468(c). All
other recourse obligations and direct
credit substitutes retained or assumed
by a State savings association on the
obligations of an entity in which the
State savings association has an equity
investment are risk-weighted in
accordance with this paragraph (b).
§ 390.467
Leverage ratio.
(a) The minimum leverage capital
requirement for a State savings
association assigned a composite rating
of 1, as defined in this subpart, shall
consist of a ratio of core capital to
adjusted total assets of 3 percent. These
generally are strong State savings
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associations that are not anticipating or
experiencing significant growth and
have well-diversified risks, including no
undue interest rate risk exposure,
excellent asset quality, high liquidity,
and good earnings.
(b) For all State savings associations
not meeting the conditions set forth in
paragraph (a) of this section, the
minimum leverage capital requirement
shall consist of a ratio of core capital to
adjusted total assets of 4 percent. Higher
capital ratios may be required if
warranted by the particular
circumstances or risk profiles of an
individual State savings association. In
all cases, State savings associations
should hold capital commensurate with
the level and nature of all risks,
including the volume and severity of
problem loans, to which they are
exposed.
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§ 390.468
Tangible capital requirement.
(a) State savings associations shall
have and maintain tangible capital in an
amount equal to at least 1.5% of
adjusted total assets.
(b) The following elements, less the
amount of any deductions pursuant to
paragraph (c) of this section, comprise a
State savings association’s tangible
capital:
(1) Common stockholders’ equity
(including retained earnings);
(2) Noncumulative perpetual
preferred stock and related earnings;
(3) Nonwithdrawable accounts and
pledged deposits that would qualify as
core capital under § 390.465; and
(4) Minority interests in the equity
accounts of fully consolidated
subsidiaries.
(c) Deductions from tangible capital.
In calculating tangible capital, a State
savings association must deduct from
assets, and, thus, from capital:
(1) Intangible assets (as defined in
§ 390.461) except for mortgage servicing
assets to the extent they are includable
in tangible capital under § 390.471, and
credit enhancing interest-only strips and
deferred tax assets not includable in
tangible capital under § 390.471.
(2) Investments, both equity and debt,
in subsidiaries that are not includable
subsidiaries (including those
subsidiaries where the State savings
association has a minority ownership
interest), except as provided in
paragraphs (c)(3) and (4) of this section.
(3) If a State savings association has
any investments (both debt and equity)
in one or more subsidiary(ies) engaged
as of April 12, 1989, and continuing to
be engaged in any activity that would
not fall within the scope of activities in
which includable subsidiaries may
engage, it must deduct such investments
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from assets and, thus, tangible capital in
accordance with this paragraph (c)(3).
The State savings association must first
deduct from assets and, thus, capital the
amount by which any investments in
such a subsidiary(ies) exceed the
amount of such investments held by the
State savings association as of April 12,
1989. Next, the State savings association
must deduct from assets and, thus,
tangible capital the lesser of:
(i) The State savings association’s
investments in and extensions of credit
to the subsidiary as of April 12, 1989;
or
(ii) The State savings association’s
investments in and extensions of credit
to the subsidiary on the date as of which
the State savings association’s capital is
being determined.
(4) If a State savings association holds
a subsidiary (either directly or through
a subsidiary) that is itself a domestic
depository institution the FDIC may, in
its sole discretion upon determining
that the amount of tangible capital that
would be required would be higher if
the assets and liabilities of such
subsidiary were consolidated with those
of the parent State savings association
than the amount that would be required
if the parent State savings association’s
investment were deducted pursuant to
paragraphs (c)(2) and (3) of this section,
consolidate the assets and liabilities of
that subsidiary with those of the parent
State savings association in calculating
the capital adequacy of the parent State
savings association, regardless of
whether the subsidiary would otherwise
be an includable subsidiary as defined
in § 390.461.
§ 390.469 Consequences of failure to meet
capital requirements.
(a) Capital plans. (1) [Reserved]
(2) The FDIC shall require any State
savings association not in compliance
with capital standards to submit a
capital plan that:
(i) Addresses the State savings
association’s need for increased capital;
(ii) Describes the manner in which the
State savings association will increase
capital so as to achieve compliance with
capital standards;
(iii) Specifies types and levels of
activities in which the State savings
association will engage;
(iv) Requires any increase in assets to
be accompanied by increase in tangible
capital not less in percentage amount
than the leverage limit then applicable;
(v) Requires any increase in assets to
be accompanied by an increase in
capital not less in percentage amount
than required under the risk-based
capital standard then applicable; and
(vi) Is acceptable to the FDIC.
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47771
(3) To be acceptable to the FDIC under
this section, a plan must, in addition to
satisfying all of the requirements set
forth in paragraphs (a)(2)(i) through (v)
of this section, contain a certification
that while the plan is under review by
the FDIC, the State savings association
will not, without the prior written
approval of the appropriate Regional
Director:
(i) Grow beyond net interest credited;
(ii) Make any capital distributions; or
(iii) Act inconsistently with any other
limitations on activities established by
statute, regulation or by the FDIC in
supervisory guidance for State savings
associations not meeting capital
standards.
(4) If the plan submitted to the FDIC
under paragraph (a)(2) of this section is
not approved by the FDIC, the State
savings association shall immediately
and without any further action, be
subject to the following restrictions:
(i) It may not increase its assets
beyond the amount held on the day it
receives written notice of the FDIC’s
disapproval of the plan; and
(ii) It must comply with any other
restrictions or limitations set forth in the
written notice of the FDIC’s disapproval
of the plan.
(b) On or after January 1, 1991, the
FDIC shall:
(1) Prohibit any asset growth by any
State savings association not in
compliance with capital standards,
except as provided in paragraph (d) of
this section; and
(2) Require any State savings
association not in compliance with
capital standards to comply with a
capital directive issued by the FDIC
which may include the restrictions
contained in paragraph (e) of this
section and any other restrictions the
FDIC determines appropriate.
(c) A State savings association that
wishes to obtain an exemption from the
sanctions provided in paragraph (b)(2)
of this section must file a request for
exemption with the appropriate
Regional Director. Such request must
include a capital plan that satisfies the
requirements of paragraph (a)(2) of this
section.
(d) The FDIC may permit any State
savings association that is subject to
paragraph (b) of this section to increase
its assets in an amount not exceeding
the amount of net interest credited to
the State savings association’s deposit
liabilities, if:
(1) The State savings association
obtains the FDIC’s prior approval;
(2) Any increase in assets is
accompanied by an increase in tangible
capital in an amount not less than 3%
of the increase in assets;
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(3) Any increase in assets is
accompanied by an increase in capital
not less in percentage amount than
required under the risk-based capital
standards then applicable;
(4) Any increase in assets is invested
in low-risk assets; and
(5) The State savings association’s
ratio of core capital to total assets is not
less than the ratio existing on January 1,
1991.
(e) If a State savings association fails
to meet the risk-based capital
requirement, the leverage ratio
requirement, or the tangible capital
requirement established under this
subpart, the FDIC may, through
enforcement proceedings or otherwise,
require such State savings association to
take one or more of the following
corrective actions:
(1) Increase the amount of its
regulatory capital to a specified level or
levels;
(2) Convene a meeting or meetings
with the FDIC for the purpose of
accomplishing the objectives of this
section;
(3) Reduce the rate of earnings that
may be paid on savings accounts;
(4) Limit the receipt of deposits to
those made to existing accounts;
(5) Cease or limit the issuance of new
accounts of any or all classes or
categories, except in exchange for
existing accounts;
(6) Cease or limit lending or the
making of a particular type or category
of loan;
(7) Cease or limit the purchase of
loans or the making of specified other
investments;
(8) Limit operational expenditures to
specified levels;
(9) Increase liquid assets and maintain
such increased liquidity at specified
levels; or
(10) Take such other action or actions
as the FDIC may deem necessary or
appropriate for the safety and soundness
of the State savings association, or
depositors or investors in the State
savings association.
(f) The FDIC shall treat as an unsafe
and unsound practice any material
failure by a State savings association to
comply with any plan, regulation,
written agreement undertaken under
this section or order or directive issued
to comply with the requirements of this
subpart.
§ 390.470
Reservation of authority.
(a) Transactions for purposes of
evasion. The FDIC may disregard any
transaction entered into primarily for
the purpose of reducing the minimum
required amount of regulatory capital or
otherwise evading the requirements of
this subpart.
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(b) Average versus period-end figures.
The FDIC reserves the right to require a
State savings association to compute its
capital ratios on the basis of average,
rather than period-end, assets when the
FDIC determines appropriate to carry
out the purposes of this subpart.
(c)(1) Reservation of authority.
Notwithstanding the definitions of core
and supplementary capital in § 390.465,
the FDIC may find that a particular type
of purchased intangible asset or capital
instrument constitutes or may constitute
core or supplementary capital, and may
permit one or more State savings
associations to include all or a portion
of such intangible asset or funds
obtained through such capital
instrument as core or supplementary
capital, permanently or on a temporary
basis, for the purposes of compliance
with this subpart or for any other
purposes. Similarly, the FDIC may find
that a particular asset or core or
supplementary capital component has
characteristics or terms that diminish its
contribution to a State savings
association’s ability to absorb losses,
and the FDIC may require the
discounting or deduction of such asset
or component from the computation of
core, supplementary, or total capital.
(2) Notwithstanding § 390.466, the
FDIC will look to the substance of a
transaction and may find that the
assigned risk weight for any asset, or
credit equivalent amount or credit
conversion factor for any off-balance
sheet item does not appropriately reflect
the risks imposed on the State savings
association. The FDIC may require the
State savings association to apply
another risk-weight, credit equivalent
amount, or credit conversion factor that
the FDIC deems appropriate.
(3) The FDIC may find that the capital
treatment for an exposure to a
transaction not subject to consolidation
on the State savings association’s
balance sheet does not appropriately
reflect the risks imposed on the State
savings association. Accordingly, the
FDIC may require the State savings
association to treat the transaction as if
it were consolidated on the State
savings association’s balance sheet. The
FDIC will look to the substance of and
risk associated with the transaction as
well as other relevant factors in
determining whether to require such
treatment and in calculating risk based
capital as the FDIC deems appropriate.
(4) If this subpart does not specifically
assign a risk weight, credit equivalent
amount, or credit conversion factor, the
FDIC may assign any risk weight, credit
equivalent amount, or credit conversion
factor that it deems appropriate. In
making this determination, the FDIC
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will consider the risks associated with
the asset or off-balance sheet item as
well as other relevant factors.
(d) In making a determination under
this paragraph (c) of this section, the
FDIC will notify the State savings
association of the determination and
solicit a response from the State savings
association. After review of the response
by the State savings association, the
FDIC shall issue a final supervisory
decision regarding the determination
made under paragraph (c) of this
section.
§ 390.471 Purchased credit card
relationships, servicing assets, intangible
assets (other than purchased credit card
relationships and servicing assets), creditenhancing interest-only strips, and deferred
tax assets.
(a) Scope. This section prescribes the
maximum amount of purchased credit
card relationships, serving assets,
intangible assets (other than purchased
credit card relationships and servicing
assets), credit-enhancing interest-only
strips, and deferred tax assets that State
savings associations may include in
calculating tangible and core capital.
(b) Computation of core and tangible
capital. (1) Purchased credit card
relationships may be included (that is,
not deducted) in computing core capital
in accordance with the restrictions in
this section, but must be deducted in
computing tangible capital.
(2) In accordance with the restrictions
in this section, mortgage servicing assets
may be included in computing core and
tangible capital and nonmortgage
servicing assets may be included in core
capital.
(3) Intangible assets, as defined in
§ 390.461, other than purchased credit
card relationships described in
paragraph (b)(1) of this section,
servicing assets described in paragraph
(b)(2) of this section, and core deposit
intangibles described in paragraph (g)(3)
of this section, are deducted in
computing tangible and core capital,
subject to paragraph (e)(3)(ii) of this
section.
(4) Credit-enhancing interest-only
strips may be included (that is not
deducted) in computing core capital
subject to the restrictions of this section,
and may be included in tangible capital
in the same amount.
(5) Deferred tax assets may be
included (that is not deducted) in
computing core capital subject to the
restrictions of paragraph (h) of this
section, and may be included in tangible
capital in the same amount.
(c) Market valuations. The FDIC
reserves the authority to require any
State savings association to perform an
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independent market valuation of assets
subject to this section on a case-by-case
basis or through the issuance of policy
guidance. An independent market
valuation, if required, shall be
conducted in accordance with any
policy guidance issued by the FDIC. A
required valuation shall include
adjustments for any significant changes
in original valuation assumptions,
including changes in prepayment
estimates or attrition rates. The
valuation shall determine the current
fair value of assets subject to this
section. This independent market
valuation may be conducted by an
independent valuation expert evaluating
the reasonableness of the internal
calculations and assumptions used by
the State savings association in
conducting its internal analysis. The
State savings association shall calculate
an estimated fair value for assets subject
to this section at least quarterly
regardless of whether an independent
valuation expert is required to perform
an independent market valuation.
(d) Value limitation. For purposes of
calculating core capital under this
subpart (but not for financial statement
purposes), purchased credit card
relationships and servicing assets must
be valued at the lesser of:
(1) Ninety (90) percent of their fair
value determined in accordance with
paragraph (c) of this section; or
(2) One hundred (100) percent of their
remaining unamortized book value
determined in accordance with the
instructions for the Thrift Financial
Report or Consolidated Reports of
Condition or Income (‘‘Call Report.’’), as
applicable.
(e) Core capital limitations —(1)
Servicing assets and purchased credit
card relationships. (i) The maximum
aggregate amount of servicing assets and
purchased credit card relationships that
may be included in core capital is
limited to the lesser of:
(A) 100 percent of the amount of core
capital; or
(B) The amount of servicing assets
and purchased credit card relationships
determined in accordance with
paragraph (d) of this section.
(ii) In addition to the aggregate
limitation in paragraph (e)(1)(i) of this
section, a sublimit applies to purchased
credit card relationships and non
mortgage-related serving assets. The
maximum allowable amount of these
two types of assets combined is limited
to the lesser of:
(A) 25 percent the amount of core
capital; and
(B) The amount of purchased credit
card relationships and non mortgagerelated servicing assets determined in
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accordance with paragraph (d) of this
section.
(2) Credit-enhancing interest-only
strips. The maximum aggregate amount
of credit-enhancing interest-only strips
that may be included in core capital is
limited to 25 percent of the amount of
core capital. Purchased and retained
credit-enhancing interest-only strips, on
a non-tax adjusted basis, are included in
the total amount that is used for
purposes of determining whether a State
savings association exceeds the core
capital limit.
(3) Computation. (i) For purposes of
computing the limits and sublimits in
paragraphs (e) and (h) of this section,
core capital is computed before the
deduction of disallowed servicing
assets, disallowed purchased credit card
relationships, disallowed creditenhancing interest-only strips
(purchased and retained), and
disallowed deferred tax assets.
(ii) A State savings association may
elect to deduct the following items on
a basis net of deferred tax liabilities:
(A) Disallowed servicing assets;
(B) Goodwill such that only the net
amount must be deducted from Tier 1
capital;
(C) Disallowed credit-enhancing
interest-only strips (both purchased and
retained); and
(D) Other intangible assets arising
from non-taxable business
combinations. A deferred tax liability
that is specifically related to an
intangible asset (other than purchased
credit card relationships) arising from a
nontaxable business combination may
be netted against this intangible asset.
The net amount of the intangible asset
must be deducted from Tier 1 capital.
(iii) Deferred tax liabilities that are
netted in accordance with paragraph
(e)(3)(ii) of this section cannot also be
netted against deferred tax assets when
determining the amount of deferred tax
assets that are dependent upon future
taxable income.
(f) Tangible capital limitation. The
maximum amount of mortgage servicing
assets that may be included in tangible
capital shall be the same amount
includable in core capital in accordance
with the limitations set by paragraph (e)
of this section. All nonmortgage
servicing assets are deducted in
computing tangible capital.
(g) Exemption for certain
subsidiaries—(1) Exemption standard.
A State savings association holding
purchased mortgage servicing rights in
separately capitalized, non-includable
subsidiaries may submit an application
for approval by the FDIC for an
exemption from the deductions and
limitations set forth in this section. The
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deductions and limitations will apply to
such purchased mortgage servicing
rights, however, if the FDIC determines
that:
(i) The State savings association and
subsidiary are not conducting activities
on an arm’s length basis; or
(ii) The exemption is not consistent
with the State savings association’s safe
and sound operation.
(2) Applicable requirements. If the
FDIC determines to grant or to permit
the continuation of an exemption under
paragraph (h)(1) of this section, the State
savings association receiving the
exemption must ensure the following:
(i) The State savings association’s
investments in, and extensions of credit
to, the subsidiary are deducted from
capital when calculating capital under
this subpart;
(ii) Extensions of credit and other
transactions with the subsidiary are
conducted in compliance with the rules
for covered transactions with affiliates
set forth in sections 23A and 23B of the
Federal Reserve Act, as applied to State
savings associations; and
(iii) Any contracts entered into by the
subsidiary include a written disclosure
indicating that the subsidiary is not a
bank or State savings association; the
subsidiary is an organization separate
and apart from any bank or State savings
association; and the obligations of the
subsidiary are not backed or guaranteed
by any bank or State savings association
and are not insured by the FDIC.
(h) Treatment of deferred tax assets.
For purposes of calculating Tier 1
capital under this subpart (but not for
financial statement purposes) deferred
tax assets are subject to the conditions,
limitations, and restrictions described in
this section.
(1) Tier 1 capital limitations. (i) The
maximum allowable amount of deferred
tax assets net of any valuation
allowance that are dependent upon
future taxable income will be limited to
the lesser of:
(A) The amount of deferred tax assets
that are dependent upon future taxable
income that is expected to be realized
within one year of the calendar quarterend date, based on a projected future
taxable income for that year; or
(B) Ten percent of the amount of Tier
1 capital that exists before the deduction
of any disallowed servicing assets, any
disallowed purchased credit card
relationships, any disallowed creditenhancing interest-only strips, and any
disallowed deferred tax assets.
(ii) For purposes of this limitation, all
existing temporary differences should
be assumed to fully reverse at the
calendar quarter-end date. The recorded
amount of deferred tax assets that are
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dependent upon future taxable income,
net of any valuation allowance for
deferred tax assets, in excess of this
limitation will be deducted from assets
and from equity capital for purposes of
determining Tier 1 capital under this
subpart. The amount of deferred tax
assets that can be realized from taxes
paid in prior carryback years and from
the reversal of existing taxable
temporary differences generally would
not be deducted from assets and from
equity capital.
(iii) Notwithstanding paragraph
(h)(1)(B)(ii) of this section, the amount
of carryback potential that may be
considered in calculating the amount of
deferred tax assets that a State savings
association that is part of a consolidated
group (for tax purposes) may include in
Tier 1 capital may not exceed the
amount which the association could
reasonably expect to have refunded by
its parent.
(2) Projected future taxable income.
Projected future taxable income should
not include net operating loss
carryforwards to be used within one
year of the most recent calendar quarterend date or the amount of existing
temporary differences expected to
reverse within that year. Projected
future taxable income should include
the estimated effect of tax planning
strategies that are expected to be
implemented to realize tax
carryforwards that will otherwise expire
during that year. Future taxable income
projections for the current fiscal year
(adjusted for any significant changes
that have occurred or are expected to
occur) may be used when applying the
capital limit at an interim calendar
quarter-end date rather than preparing a
new projection each quarter.
(3) Unrealized holding gains and
losses on available-for-sale debt
securities. The deferred tax effects of
any unrealized holding gains and losses
on available-for-sale debt securities may
be excluded from the determination of
the amount of deferred tax assets that
are dependent upon future taxable
income and the calculation of the
maximum allowable amount of such
assets. If these deferred tax effects are
excluded, this treatment must be
followed consistently over time.
Appendix A to Subpart Z of Part 390—
Risk-Based Capital Requirements—
Internal-Ratings-Based and Advanced
Measurement Approaches
Part I General Provisions
Section 1 Purpose, Applicability,
Reservation of Authority, and Principle of
Conservatism
Section 2 Definitions
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Section 3 Minimum Risk-Based Capital
Requirements
Part II Qualifying Capital
Section 11 Additional Deductions
Section 12 Deductions and Limitations Not
Required
Section 13 Eligible Credit Reserves
Part III Qualification
Section 21 Qualification Process
Section 22 Qualification Requirements
Section 23 Ongoing Qualification
Section 24 Merger and Acquisition
Transitional Arrangements
Part IV Risk-Weighted Assets for General
Credit Risk
Section 31 Mechanics for Calculating Total
Wholesale and Retail Risk-Weighted Assets
Section 32 Counterparty Credit Risk of
Repo-Style Transactions, Eligible Margin
Loans, and OTC Derivative Contracts
Section 33 Guarantees and Credit
Derivatives: PD Substitution and LGD
Adjustment Approaches
Section 34 Guarantees and Credit
Derivatives: Double Default Treatment
Section 35 Risk-Based Capital Requirement
for Unsettled Transactions
Part V Risk-Weighted Assets for
Securitization Exposures
Section 41 Operational Criteria for
Recognizing the Transfer of Risk
Section 42 Risk-Based Capital Requirement
for Securitization Exposures
Section 43 Ratings-Based Approach (RBA)
Section 44 Internal Assessment Approach
(IAA)
Section 45 Supervisory Formula Approach
(SFA)
Section 46 Recognition of Credit Risk
Mitigants for Securitization Exposures
Section 47 Risk-Based Capital Requirement
for Early Amortization Provisions
Part VI Risk-Weighted Assets for Equity
Exposures
Section 51 Introduction and Exposure
Measurement
Section 52 Simple Risk Weight Approach
(SRWA)
Section 53 Internal Models Approach (IMA)
Section 54 Equity Exposures to Investment
Funds
Section 55 Equity Derivative Contracts
Part VII Risk-Weighted Assets for
Operational Risk
Section 61 Qualification Requirements for
Incorporation of Operational Risk
Mitigants
Section 62 Mechanics of Risk-Weighted
Asset Calculation
Part VIII Disclosure
Section 71 Disclosure Requirements
Part IX Transition Provisions
Section 81 Optional Transition Provisions
Related to the Implementation of
Consolidation Requirements Under FAS
167
Part I. General Provisions
Section 1. Purpose, Applicability,
Reservation of Authority, and Principle of
Conservatism
(a) Purpose. This appendix establishes:
(1) Minimum qualifying criteria for State
savings associations using State savings
association-specific internal risk
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measurement and management processes for
calculating risk-based capital requirements;
(2) Methodologies for such State savings
associations to calculate their risk-based
capital requirements; and
(3) Public disclosure requirements for such
State savings associations.
(b) Applicability. (1) This appendix applies
to a State savings association that:
(i) Has consolidated assets, as reported on
the most recent year-end Thrift Financial
Report (TFR) or Consolidated Reports of
Condition or Income (‘‘Call Report’’), as
applicable, equal to $250 billion or more;
(ii) Has consolidated total on-balance sheet
foreign exposure at the most recent year-end
equal to $10 billion or more (where total onbalance sheet foreign exposure equals total
cross-border claims less claims with head
office or guarantor located in another country
plus redistributed guaranteed amounts to the
country of head office or guarantor plus local
country claims on local residents plus
revaluation gains on foreign exchange and
derivative products, calculated in accordance
with the Federal Financial Institutions
Examination Council (FFIEC) 009 Country
Exposure Report);
(iii) Is a subsidiary of a depository
institution that uses 12 CFR part 3, appendix
C, 12 CFR part 208, appendix F, 12 CFR part
325, appendix D, or 12 CFR subpart Z of part
390, appendix A, to calculate its risk-based
capital requirements; or
(iv) Is a subsidiary of a bank holding
company that uses 12 CFR part 225,
appendix G, to calculate its risk-based capital
requirements.
(2) Any State savings association may elect
to use this appendix to calculate its riskbased capital requirements.
(3) A State savings association that is
subject to this appendix must use this
appendix unless the FDIC determines in
writing that application of this appendix is
not appropriate in light of the State savings
association’s asset size, level of complexity,
risk profile, or scope of operations. In making
a determination under this paragraph, the
FDIC will apply notice and response
procedures in the same manner and to the
same extent as the notice and response
procedures in § 390.463(d).
(c) Reservation of authority—(1) Additional
capital in the aggregate. The FDIC may
require a State savings association to hold an
amount of capital greater than otherwise
required under this appendix if the FDIC
determines that the State savings
association’s risk-based capital requirement
under this appendix is not commensurate
with the State savings association’s credit,
market, operational, or other risks. In making
a determination under this paragraph, the
FDIC will apply notice and response
procedures in the same manner and to the
same extent as the notice and response
procedures in § 390.463(d).
(2) Specific risk-weighted asset amounts. (i)
If the FDIC determines that the risk-weighted
asset amount calculated under this appendix
by the State savings association for one or
more exposures is not commensurate with
the risks associated with those exposures, the
FDIC may require the State savings
association to assign a different risk-weighted
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asset amount to the exposures, to assign
different risk parameters to the exposures (if
the exposures are wholesale or retail
exposures), or to use different model
assumptions for the exposures (if relevant),
all as specified by the FDIC.
(ii) If the FDIC determines that the riskweighted asset amount for operational risk
produced by the State savings association
under this appendix is not commensurate
with the operational risks of the State savings
association, the FDIC may require the State
savings association to assign a different riskweighted asset amount for operational risk, to
change elements of its operational risk
analytical framework, including
distributional and dependence assumptions,
or to make other changes to the State savings
association’s operational risk management
processes, data and assessment systems, or
quantification systems, all as specified by the
FDIC.
(3) Regulatory capital treatment of
unconsolidated entities. The FDIC may find
that the capital treatment for an exposure to
a transaction not subject to consolidation on
the State savings association’s balance sheet
does not appropriately reflect the risks
imposed on the State savings association.
Accordingly, the FDIC may require the State
savings association to treat the transaction as
if it were consolidated on the State savings
association’s balance sheet. The FDIC will
look to the substance of and risk associated
with the transaction as well as other relevant
factors in determining whether to require
such treatment and in calculating risk-based
capital as the FDIC deems appropriate.
(4) Other supervisory authority. Nothing in
this appendix limits the authority of the FDIC
under any other provision of law or
regulation to take supervisory or enforcement
action, including action to address unsafe or
unsound practices or conditions, deficient
capital levels, or violations of law.
(d) Principle of conservatism.
Notwithstanding the requirements of this
appendix, a State savings association may
choose not to apply a provision of this
appendix to one or more exposures, provided
that:
(1) The State savings association can
demonstrate on an ongoing basis to the
satisfaction of the FDIC that not applying the
provision would, in all circumstances,
unambiguously generate a risk-based capital
requirement for each such exposure greater
than that which would otherwise be required
under this appendix;
(2) The State savings association
appropriately manages the risk of each such
exposure;
(3) The State savings association notifies
the FDIC in writing prior to applying this
principle to each such exposure; and
(4) The exposures to which the State
savings association applies this principle are
not, in the aggregate, material to the State
savings association.
Section 2. Definitions
Advanced internal ratings-based (IRB)
systems means a State savings association’s
internal risk rating and segmentation system;
risk parameter quantification system; data
management and maintenance system; and
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control, oversight, and validation system for
credit risk of wholesale and retail exposures.
Advanced systems means a State savings
association’s advanced IRB systems,
operational risk management processes,
operational risk data and assessment systems,
operational risk quantification systems, and,
to the extent the State savings association
uses the following systems, the internal
models methodology, double default
excessive correlation detection process, IMA
for equity exposures, and IAA for
securitization exposures to ABCP programs.
Affiliate with respect to a company means
any company that controls, is controlled by,
or is under common control with, the
company.
Applicable external rating means:
(1) With respect to an exposure that has
multiple external ratings assigned by
NRSROs, the lowest solicited external rating
assigned to the exposure by any NRSRO; and
(2) With respect to an exposure that has a
single external rating assigned by an NRSRO,
the external rating assigned to the exposure
by the NRSRO.
Applicable inferred rating means:
(1) With respect to an exposure that has
multiple inferred ratings, the lowest inferred
rating based on a solicited external rating;
and
(2) With respect to an exposure that has a
single inferred rating, the inferred rating.
Asset-backed commercial paper (ABCP)
program means a program that primarily
issues commercial paper that:
(1) Has an external rating; and
(2) Is backed by underlying exposures held
in a bankruptcy-remote SPE.
Asset-backed commercial paper (ABCP)
program sponsor means a State savings
association that:
(1) Establishes an ABCP program;
(2) Approves the sellers permitted to
participate in an ABCP program;
(3) Approves the exposures to be
purchased by an ABCP program; or
(4) Administers the ABCP program by
monitoring the underlying exposures,
underwriting or otherwise arranging for the
placement of debt or other obligations issued
by the program, compiling monthly reports,
or ensuring compliance with the program
documents and with the program’s credit and
investment policy.
Backtesting means the comparison of a
State savings association’s internal estimates
with actual outcomes during a sample period
not used in model development. In this
context, backtesting is one form of out-ofsample testing.
Bank holding company is defined in
section 2 of the Bank Holding Company Act
(12 U.S.C. 1841).
Benchmarking means the comparison of a
State savings association’s internal estimates
with relevant internal and external data or
with estimates based on other estimation
techniques.
Business environment and internal control
factors means the indicators of a State
savings association’s operational risk profile
that reflect a current and forward-looking
assessment of the State savings association’s
underlying business risk factors and internal
control environment.
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Carrying value means, with respect to an
asset, the value of the asset on the balance
sheet of the State savings association,
determined in accordance with GAAP.
Clean-up call means a contractual
provision that permits an originating State
savings association or servicer to call
securitization exposures before their stated
maturity or call date. See also eligible cleanup call.
Commodity derivative contract means a
commodity-linked swap, purchased
commodity-linked option, forward
commodity-linked contract, or any other
instrument linked to commodities that gives
rise to similar counterparty credit risks.
Company means a corporation,
partnership, limited liability company,
depository institution, business trust, special
purpose entity, association, or similar
organization.
Control. A person or company controls a
company if it:
(1) Owns, controls, or holds with power to
vote 25 percent or more of a class of voting
securities of the company; or
(2) Consolidates the company for financial
reporting purposes.
Controlled early amortization provision
means an early amortization provision that
meets all the following conditions:
(1) The originating State savings
association has appropriate policies and
procedures to ensure that it has sufficient
capital and liquidity available in the event of
an early amortization;
(2) Throughout the duration of the
securitization (including the early
amortization period), there is the same pro
rata sharing of interest, principal, expenses,
losses, fees, recoveries, and other cash flows
from the underlying exposures based on the
originating State savings association’s and
the investors’ relative shares of the
underlying exposures outstanding measured
on a consistent monthly basis;
(3) The amortization period is sufficient for
at least 90 percent of the total underlying
exposures outstanding at the beginning of the
early amortization period to be repaid or
recognized as in default; and
(4) The schedule for repayment of investor
principal is not more rapid than would be
allowed by straight-line amortization over an
18-month period.
Credit derivative means a financial contract
executed under standard industry credit
derivative documentation that allows one
party (the protection purchaser) to transfer
the credit risk of one or more exposures
(reference exposure) to another party (the
protection provider). See also eligible credit
derivative.
Credit-enhancing interest-only strip (CEIO)
means an on-balance sheet asset that, in form
or in substance:
(1) Represents a contractual right to receive
some or all of the interest and no more than
a minimal amount of principal due on the
underlying exposures of a securitization; and
(2) Exposes the holder to credit risk
directly or indirectly associated with the
underlying exposures that exceeds a pro rata
share of the holder’s claim on the underlying
exposures, whether through subordination
provisions or other credit-enhancement
techniques.
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Credit-enhancing representations and
warranties means representations and
warranties that are made or assumed in
connection with a transfer of underlying
exposures (including loan servicing assets)
and that obligate a State savings association
to protect another party from losses arising
from the credit risk of the underlying
exposures. Credit-enhancing representations
and warranties include provisions to protect
a party from losses resulting from the default
or nonperformance of the obligors of the
underlying exposures or from an
insufficiency in the value of the collateral
backing the underlying exposures. Creditenhancing representations and warranties do
not include:
(1) Early default clauses and similar
warranties that permit the return of, or
premium refund clauses that cover, first-lien
residential mortgage exposures for a period
not to exceed 120 days from the date of
transfer, provided that the date of transfer is
within one year of origination of the
residential mortgage exposure;
(2) Premium refund clauses that cover
underlying exposures guaranteed, in whole
or in part, by the U.S. government, a U.S.
government agency, or a U.S. government
sponsored enterprise, provided that the
clauses are for a period not to exceed 120
days from the date of transfer; or
(3) Warranties that permit the return of
underlying exposures in instances of
misrepresentation, fraud, or incomplete
documentation.
Credit risk mitigant means collateral, a
credit derivative, or a guarantee.
Credit-risk-weighted assets means 1.06
multiplied by the sum of:
(1) Total wholesale and retail risk-weighted
assets;
(2) Risk-weighted assets for securitization
exposures; and
(3) Risk-weighted assets for equity
exposures.
Current exposure means, with respect to a
netting set, the larger of zero or the market
value of a transaction or portfolio of
transactions within the netting set that would
be lost upon default of the counterparty,
assuming no recovery on the value of the
transactions. Current exposure is also called
replacement cost.
Default—(1) Retail. (i) A retail exposure of
a State savings association is in default if:
(A) The exposure is 180 days past due, in
the case of a residential mortgage exposure or
revolving exposure;
(B) The exposure is 120 days past due, in
the case of all other retail exposures; or
(C) The State savings association has taken
a full or partial charge-off, write-down of
principal, or material negative fair value
adjustment of principal on the exposure for
credit-related reasons.
(ii) Notwithstanding paragraph (1)(i) of this
definition, for a retail exposure held by a
non-U.S. subsidiary of the State savings
association that is subject to an internal
ratings-based approach to capital adequacy
consistent with the Basel Committee on
Banking Supervision’s ‘‘International
Convergence of Capital Measurement and
Capital Standards: A Revised Framework’’ in
a non-U.S. jurisdiction, the State savings
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association may elect to use the definition of
default that is used in that jurisdiction,
provided that the State savings association
has obtained prior approval from the FDIC to
use the definition of default in that
jurisdiction.
(iii) A retail exposure in default remains in
default until the State savings association has
reasonable assurance of repayment and
performance for all contractual principal and
interest payments on the exposure.
(2) Wholesale. (i) A State savings
association’s wholesale obligor is in default
if:
(A) The State savings association
determines that the obligor is unlikely to pay
its credit obligations to the State savings
association in full, without recourse by the
State savings association to actions such as
realizing collateral (if held); or
(B) The obligor is past due more than 90
days on any material credit obligation(s) to
the State savings association.1
(ii) An obligor in default remains in default
until the State savings association has
reasonable assurance of repayment and
performance for all contractual principal and
interest payments on all exposures of the
State savings association to the obligor (other
than exposures that have been fully writtendown or charged-off).
Dependence means a measure of the
association among operational losses across
and within units of measure.
Depository institution is defined in section
3 of the Federal Deposit Insurance Act (12
U.S.C. 1813).
Derivative contract means a financial
contract whose value is derived from the
values of one or more underlying assets,
reference rates, or indices of asset values or
reference rates. Derivative contracts include
interest rate derivative contracts, exchange
rate derivative contracts, equity derivative
contracts, commodity derivative contracts,
credit derivatives, and any other instrument
that poses similar counterparty credit risks.
Derivative contracts also include unsettled
securities, commodities, and foreign
exchange transactions with a contractual
settlement or delivery lag that is longer than
the lesser of the market standard for the
particular instrument or five business days.
Early amortization provision means a
provision in the documentation governing a
securitization that, when triggered, causes
investors in the securitization exposures to
be repaid before the original stated maturity
of the securitization exposures, unless the
provision:
(1) Is triggered solely by events not directly
related to the performance of the underlying
exposures or the originating State savings
association (such as material changes in tax
laws or regulations); or
(2) Leaves investors fully exposed to future
draws by obligors on the underlying
exposures even after the provision is
triggered.
Economic downturn conditions means,
with respect to an exposure held by the State
savings association, those conditions in
1 Overdrafts are past due once the obligor has
breached an advised limit or been advised of a limit
smaller than the current outstanding balance.
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which the aggregate default rates for that
exposure’s wholesale or retail exposure
subcategory (or subdivision of such
subcategory selected by the State savings
association) in the exposure’s national
jurisdiction (or subdivision of such
jurisdiction selected by the State savings
association) are significantly higher than
average.
Effective maturity (M) of a wholesale
exposure means:
(1) For wholesale exposures other than
repo-style transactions, eligible margin loans,
and OTC derivative contracts described in
paragraph (2) or (3) of this definition:
(i) The weighted-average remaining
maturity (measured in years, whole or
fractional) of the expected contractual cash
flows from the exposure, using the
undiscounted amounts of the cash flows as
weights; or
(ii) The nominal remaining maturity
(measured in years, whole or fractional) of
the exposure.
(2) For repo-style transactions, eligible
margin loans, and OTC derivative contracts
subject to a qualifying master netting
agreement for which the State savings
association does not apply the internal
models approach in paragraph (d) of section
32 of this appendix, the weighted-average
remaining maturity (measured in years,
whole or fractional) of the individual
transactions subject to the qualifying master
netting agreement, with the weight of each
individual transaction set equal to the
notional amount of the transaction.
(3) For repo-style transactions, eligible
margin loans, and OTC derivative contracts
for which the State savings association
applies the internal models approach in
paragraph (d) of section 32 of this appendix,
the value determined in paragraph (d)(4) of
section 32 of this appendix.
Effective notional amount means, for an
eligible guarantee or eligible credit
derivative, the lesser of the contractual
notional amount of the credit risk mitigant
and the EAD of the hedged exposure,
multiplied by the percentage coverage of the
credit risk mitigant. For example, the
effective notional amount of an eligible
guarantee that covers, on a pro rata basis, 40
percent of any losses on a $100 bond would
be $40.
Eligible clean-up call means a clean-up call
that:
(1) Is exercisable solely at the discretion of
the originating State savings association or
servicer;
(2) Is not structured to avoid allocating
losses to securitization exposures held by
investors or otherwise structured to provide
credit enhancement to the securitization; and
(3)(i) For a traditional securitization, is
only exercisable when 10 percent or less of
the principal amount of the underlying
exposures or securitization exposures
(determined as of the inception of the
securitization) is outstanding; or
(ii) For a synthetic securitization, is only
exercisable when 10 percent or less of the
principal amount of the reference portfolio of
underlying exposures (determined as of the
inception of the securitization) is
outstanding.
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Eligible credit derivative means a credit
derivative in the form of a credit default
swap, nth-to-default swap, total return swap,
or any other form of credit derivative
approved by the FDIC, provided that:
(1) The contract meets the requirements of
an eligible guarantee and has been confirmed
by the protection purchaser and the
protection provider;
(2) Any assignment of the contract has
been confirmed by all relevant parties;
(3) If the credit derivative is a credit default
swap or nth-to-default swap, the contract
includes the following credit events:
(i) Failure to pay any amount due under
the terms of the reference exposure, subject
to any applicable minimal payment threshold
that is consistent with standard market
practice and with a grace period that is
closely in line with the grace period of the
reference exposure; and
(ii) Bankruptcy, insolvency, or inability of
the obligor on the reference exposure to pay
its debts, or its failure or admission in
writing of its inability generally to pay its
debts as they become due, and similar events;
(4) The terms and conditions dictating the
manner in which the contract is to be settled
are incorporated into the contract;
(5) If the contract allows for cash
settlement, the contract incorporates a robust
valuation process to estimate loss reliably
and specifies a reasonable period for
obtaining post-credit event valuations of the
reference exposure;
(6) If the contract requires the protection
purchaser to transfer an exposure to the
protection provider at settlement, the terms
of at least one of the exposures that is
permitted to be transferred under the contract
provides that any required consent to transfer
may not be unreasonably withheld;
(7) If the credit derivative is a credit default
swap or nth-to-default swap, the contract
clearly identifies the parties responsible for
determining whether a credit event has
occurred, specifies that this determination is
not the sole responsibility of the protection
provider, and gives the protection purchaser
the right to notify the protection provider of
the occurrence of a credit event; and
(8) If the credit derivative is a total return
swap and the State savings association
records net payments received on the swap
as net income, the State savings association
records offsetting deterioration in the value
of the hedged exposure (either through
reductions in fair value or by an addition to
reserves).
Eligible credit reserves means all general
allowances that have been established
through a charge against earnings to absorb
credit losses associated with on- or offbalance sheet wholesale and retail exposures,
including the allowance for loan and lease
losses (ALLL) associated with such exposures
but excluding specific reserves created
against recognized losses.
Eligible double default guarantor, with
respect to a guarantee or credit derivative
obtained by a State savings association,
means:
(1) U.S.-based entities. A depository
institution, a bank holding company, a
savings and loan holding company (as
defined in 12 U.S.C. 1467a) provided all or
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substantially all of the holding company’s
activities are permissible for a financial
holding company under 12 U.S.C. 1843(k), a
securities broker or dealer registered with the
SEC under the Securities Exchange Act of
1934 (15 U.S.C. 78o et seq.), or an insurance
company in the business of providing credit
protection (such as a monoline bond insurer
or re-insurer) that is subject to supervision by
a State insurance regulator, if:
(i) At the time the guarantor issued the
guarantee or credit derivative or at any time
thereafter, the State savings association
assigned a PD to the guarantor’s rating grade
that was equal to or lower than the PD
associated with a long-term external rating in
the third-highest investment-grade rating
category; and
(ii) The State savings association currently
assigns a PD to the guarantor’s rating grade
that is equal to or lower than the PD
associated with a long-term external rating in
the lowest investment-grade rating category;
or
(2) Non-U.S.-based entities. A foreign bank
(as defined in § 211.2 of the Federal Reserve
Board’s Regulation K (12 CFR 211.2)), a nonU.S.-based securities firm, or a non-U.S.based insurance company in the business of
providing credit protection, if:
(i) The State savings association
demonstrates that the guarantor is subject to
consolidated supervision and regulation
comparable to that imposed on U.S.
depository institutions, securities brokerdealers, or insurance companies (as the case
may be), or has issued and outstanding an
unsecured long-term debt security without
credit enhancement that has a long-term
applicable external rating of at least
investment grade;
(ii) At the time the guarantor issued the
guarantee or credit derivative or at any time
thereafter, the State savings association
assigned a PD to the guarantor’s rating grade
that was equal to or lower than the PD
associated with a long-term external rating in
the third-highest investment-grade rating
category; and
(iii) The State savings association currently
assigns a PD to the guarantor’s rating grade
that is equal to or lower than the PD
associated with a long-term external rating in
the lowest investment-grade rating category.
Eligible guarantee means a guarantee that:
(1) Is written and unconditional;
(2) Covers all or a pro rata portion of all
contractual payments of the obligor on the
reference exposure;
(3) Gives the beneficiary a direct claim
against the protection provider;
(4) Is not unilaterally cancelable by the
protection provider for reasons other than the
breach of the contract by the beneficiary;
(5) Is legally enforceable against the
protection provider in a jurisdiction where
the protection provider has sufficient assets
against which a judgment may be attached
and enforced;
(6) Requires the protection provider to
make payment to the beneficiary on the
occurrence of a default (as defined in the
guarantee) of the obligor on the reference
exposure in a timely manner without the
beneficiary first having to take legal actions
to pursue the obligor for payment;
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47777
(7) Does not increase the beneficiary’s cost
of credit protection on the guarantee in
response to deterioration in the credit quality
of the reference exposure; and
(8) Is not provided by an affiliate of the
State savings association, unless the affiliate
is an insured depository institution, bank,
securities broker or dealer, or insurance
company that:
(i) Does not control the State savings
association; and
(ii) Is subject to consolidated supervision
and regulation comparable to that imposed
on U.S. depository institutions, securities
broker-dealers, or insurance companies (as
the case may be).
Eligible margin loan means an extension of
credit where:
(1) The extension of credit is collateralized
exclusively by liquid and readily marketable
debt or equity securities, gold, or conforming
residential mortgages;
(2) The collateral is marked to market
daily, and the transaction is subject to daily
margin maintenance requirements;
(3) The extension of credit is conducted
under an agreement that provides the State
savings association the right to accelerate and
terminate the extension of credit and to
liquidate or set off collateral promptly upon
an event of default (including upon an event
of bankruptcy, insolvency, or similar
proceeding) of the counterparty, provided
that, in any such case, any exercise of rights
under the agreement will not be stayed or
avoided under applicable law in the relevant
jurisdictions; 2 and
(4) The State savings association has
conducted sufficient legal review to conclude
with a well-founded basis (and maintains
sufficient written documentation of that legal
review) that the agreement meets the
requirements of paragraph (3) of this
definition and is legal, valid, binding, and
enforceable under applicable law in the
relevant jurisdictions.
Eligible operational risk offsets means
amounts, not to exceed expected operational
loss, that:
(1) Are generated by internal business
practices to absorb highly predictable and
reasonably stable operational losses,
including reserves calculated consistent with
GAAP; and
(2) Are available to cover expected
operational losses with a high degree of
certainty over a one-year horizon.
Eligible purchased wholesale exposure
means a purchased wholesale exposure that:
(1) The State savings association or
securitization SPE purchased from an
unaffiliated seller and did not directly or
indirectly originate;
(2) Was generated on an arm’s-length basis
between the seller and the obligor
2 This requirement is met where all transactions
under the agreement are (i) executed under U.S. law
and (ii) constitute ‘‘securities contracts’’ under
section 555 of the Bankruptcy Code (11 U.S.C. 555),
qualified financial contracts under section 11(e)(8)
of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(8)), or netting contracts between or among
financial institutions under sections 401–407 of the
Federal Deposit Insurance Corporation
Improvement Act of 1991 (12 U.S.C. 4401–4407) or
the Federal Reserve Board’s Regulation EE (12 CFR
part 231).
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(intercompany accounts receivable and
receivables subject to contra-accounts
between firms that buy and sell to each other
do not satisfy this criterion);
(3) Provides the State savings association
or securitization SPE with a claim on all
proceeds from the exposure or a pro rata
interest in the proceeds from the exposure;
(4) Has an M of less than one year; and
(5) When consolidated by obligor, does not
represent a concentrated exposure relative to
the portfolio of purchased wholesale
exposures.
Eligible securitization guarantor means:
(1) A sovereign entity, the Bank for
International Settlements, the International
Monetary Fund, the European Central Bank,
the European Commission, a Federal Home
Loan Bank, Federal Agricultural Mortgage
Corporation (Farmer Mac), a multilateral
development bank, a depository institution, a
bank holding company, a savings and loan
holding company (as defined in 12 U.S.C.
1467a) provided all or substantially all of the
holding company’s activities are permissible
for a financial holding company under 12
U.S.C. 1843(k), a foreign bank (as defined in
§ 211.2 of the Federal Reserve Board’s
Regulation K (12 CFR 211.2)), or a securities
firm;
(2) Any other entity (other than a
securitization SPE) that has issued and
outstanding an unsecured long-term debt
security without credit enhancement that has
a long-term applicable external rating in one
of the three highest investment-grade rating
categories; or
(3) Any other entity (other than a
securitization SPE) that has a PD assigned by
the State savings association that is lower
than or equal to the PD associated with a
long-term external rating in the third highest
investment-grade rating category.
Eligible servicer cash advance facility
means a servicer cash advance facility in
which:
(1) The servicer is entitled to full
reimbursement of advances, except that a
servicer may be obligated to make nonreimbursable advances for a particular
underlying exposure if any such advance is
contractually limited to an insignificant
amount of the outstanding principal balance
of that exposure;
(2) The servicer’s right to reimbursement is
senior in right of payment to all other claims
on the cash flows from the underlying
exposures of the securitization; and
(3) The servicer has no legal obligation to,
and does not, make advances to the
securitization if the servicer concludes the
advances are unlikely to be repaid.
Equity derivative contract means an equitylinked swap, purchased equity-linked option,
forward equity-linked contract, or any other
instrument linked to equities that gives rise
to similar counterparty credit risks.
Equity exposure means:
(1) A security or instrument (whether
voting or non-voting) that represents a direct
or indirect ownership interest in, and is a
residual claim on, the assets and income of
a company, unless:
(i) The issuing company is consolidated
with the State savings association under
GAAP;
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(ii) The State savings association is
required to deduct the ownership interest
from tier 1 or tier 2 capital under this
appendix;
(iii) The ownership interest incorporates a
payment or other similar obligation on the
part of the issuing company (such as an
obligation to make periodic payments); or
(iv) The ownership interest is a
securitization exposure;
(2) A security or instrument that is
mandatorily convertible into a security or
instrument described in paragraph (1) of this
definition;
(3) An option or warrant that is exercisable
for a security or instrument described in
paragraph (1) of this definition; or
(4) Any other security or instrument (other
than a securitization exposure) to the extent
the return on the security or instrument is
based on the performance of a security or
instrument described in paragraph (1) of this
definition.
Excess spread for a period means:
(1) Gross finance charge collections and
other income received by a securitization
SPE (including market interchange fees) over
a period minus interest paid to the holders
of the securitization exposures, servicing
fees, charge-offs, and other senior trust or
similar expenses of the SPE over the period;
divided by
(2) The principal balance of the underlying
exposures at the end of the period.
Exchange rate derivative contract means a
cross-currency interest rate swap, forward
foreign-exchange contract, currency option
purchased, or any other instrument linked to
exchange rates that gives rise to similar
counterparty credit risks.
Excluded mortgage exposure means any
one- to four-family residential pre-sold
construction loan for a residence for which
the purchase contract is cancelled that would
receive a 100 percent risk weight under
section 618(a)(2) of the Resolution Trust
Corporation Refinancing, Restructuring, and
Improvement Act and under 12 CFR 390.461
(definition of ‘‘qualifying residential
construction loan’’) and 12 CFR
390.466(a)(1)(iv).
Expected credit loss (ECL) means:
(1) For a wholesale exposure to a nondefaulted obligor or segment of non-defaulted
retail exposures that is carried at fair value
with gains and losses flowing through
earnings or that is classified as held-for-sale
and is carried at the lower of cost or fair
value with losses flowing through earnings,
zero.
(2) For all other wholesale exposures to
non-defaulted obligors or segments of nondefaulted retail exposures, the product of PD
times LGD times EAD for the exposure or
segment.
(3) For a wholesale exposure to a defaulted
obligor or segment of defaulted retail
exposures, the State savings association’s
impairment estimate for allowance purposes
for the exposure or segment.
(4) Total ECL is the sum of expected credit
losses for all wholesale and retail exposures
other than exposures for which the State
savings association has applied the double
default treatment in section 34 of this
appendix.
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Expected exposure (EE) means the
expected value of the probability distribution
of non-negative credit risk exposures to a
counterparty at any specified future date
before the maturity date of the longest term
transaction in the netting set. Any negative
market values in the probability distribution
of market values to a counterparty at a
specified future date are set to zero to convert
the probability distribution of market values
to the probability distribution of credit risk
exposures.
Expected operational loss (EOL) means the
expected value of the distribution of
potential aggregate operational losses, as
generated by the State savings association’s
operational risk quantification system using
a one-year horizon.
Expected positive exposure (EPE) means
the weighted average over time of expected
(non-negative) exposures to a counterparty
where the weights are the proportion of the
time interval that an individual expected
exposure represents. When calculating riskbased capital requirements, the average is
taken over a one-year horizon.
Exposure at default (EAD). (1) For the onbalance sheet component of a wholesale
exposure or segment of retail exposures
(other than an OTC derivative contract, or a
repo-style transaction, or eligible margin loan
for which the State savings association
determines EAD under section 32 of this
appendix), EAD means:
(i) If the exposure or segment is a security
classified as available-for-sale, the State
savings associations carrying value
(including net accrued but unpaid interest
and fees) for the exposure or segment less
any unrealized gains on the exposure or
segment and plus any unrealized losses on
the exposure or segment; or
(ii) If the exposure or segment is not a
security classified as available-for-sale, the
State savings association’s carrying value
(including net accrued but unpaid interest
and fees) for the exposure or segment.
(2) For the off-balance sheet component of
a wholesale exposure or segment of retail
exposures (other than an OTC derivative
contract, or a repo-style transaction or
eligible margin loan for which the State
savings association determines EAD under
section 32 of this appendix) in the form of
a loan commitment, line of credit, traderelated letter of credit, or transaction-related
contingency, EAD means the State savings
association’s best estimate of net additions to
the outstanding amount owed the State
savings association, including estimated
future additional draws of principal and
accrued but unpaid interest and fees, that are
likely to occur over a one-year horizon
assuming the wholesale exposure or the retail
exposures in the segment were to go into
default. This estimate of net additions must
reflect what would be expected during
economic downturn conditions. Traderelated letters of credit are short-term, selfliquidating instruments that are used to
finance the movement of goods and are
collateralized by the underlying goods.
Transaction-related contingencies relate to a
particular transaction and include, among
other things, performance bonds and
performance-based letters of credit.
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(3) For the off-balance sheet component of
a wholesale exposure or segment of retail
exposures (other than an OTC derivative
contract, or a repo-style transaction or
eligible margin loan for which the State
savings association determines EAD under
section 32 of this appendix) in the form of
anything other than a loan commitment, line
of credit, trade-related letter of credit, or
transaction-related contingency, EAD means
the notional amount of the exposure or
segment.
(4) EAD for OTC derivative contracts is
calculated as described in section 32 of this
appendix. A State savings association also
may determine EAD for repo-style
transactions and eligible margin loans as
described in section 32 of this appendix.
(5) For wholesale or retail exposures in
which only the drawn balance has been
securitized, the State savings association
must reflect its share of the exposures’
undrawn balances in EAD. Undrawn
balances of revolving exposures for which
the drawn balances have been securitized
must be allocated between the seller’s and
investors’ interests on a pro rata basis, based
on the proportions of the seller’s and
investors’ shares of the securitized drawn
balances.
Exposure category means any of the
wholesale, retail, securitization, or equity
exposure categories.
External operational loss event data
means, with respect to a State savings
association, gross operational loss amounts,
dates, recoveries, and relevant causal
information for operational loss events
occurring at organizations other than the
State savings association.
External rating means a credit rating that
is assigned by an NRSRO to an exposure,
provided:
(1) The credit rating fully reflects the entire
amount of credit risk with regard to all
payments owed to the holder of the exposure.
If a holder is owed principal and interest on
an exposure, the credit rating must fully
reflect the credit risk associated with timely
repayment of principal and interest. If a
holder is owed only principal on an
exposure, the credit rating must fully reflect
only the credit risk associated with timely
repayment of principal; and
(2) The credit rating is published in an
accessible form and is or will be included in
the transition matrices made publicly
available by the NRSRO that summarize the
historical performance of positions rated by
the NRSRO.
Financial collateral means collateral:
(1) In the form of:
(i) Cash on deposit with the State savings
association (including cash held for the State
savings association by a third-party custodian
or trustee);
(ii) Gold bullion;
(iii) Long-term debt securities that have an
applicable external rating of one category
below investment grade or higher;
(iv) Short-term debt instruments that have
an applicable external rating of at least
investment grade;
(v) Equity securities that are publicly
traded;
(vi) Convertible bonds that are publicly
traded;
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(vii) Money market mutual fund shares and
other mutual fund shares if a price for the
shares is publicly quoted daily; or
(viii) Conforming residential mortgages;
and
(2) In which the State savings association
has a perfected, first priority security interest
or, outside of the United States, the legal
equivalent thereof (with the exception of
cash on deposit and notwithstanding the
prior security interest of any custodial agent).
GAAP means generally accepted
accounting principles as used in the United
States.
Gain-on-sale means an increase in the
equity capital (as reported on Schedule SC of
the Thrift Financial Report or in the
Consolidated Reports of Condition or Income
(‘‘Call Report’’), as applicable, of a State
savings association that results from a
securitization (other than an increase in
equity capital that results from the State
savings association’s receipt of cash in
connection with the securitization).
Guarantee means a financial guarantee,
letter of credit, insurance, or other similar
financial instrument (other than a credit
derivative) that allows one party (beneficiary)
to transfer the credit risk of one or more
specific exposures (reference exposure) to
another party (protection provider). See also
eligible guarantee.
High volatility commercial real estate
(HVCRE) exposure means a credit facility
that finances or has financed the acquisition,
development, or construction (ADC) of real
property, unless the facility finances:
(1) One- to four-family residential
properties; or
(2) Commercial real estate projects in
which:
(i) The loan-to-value ratio is less than or
equal to the applicable maximum
supervisory loan-to-value ratio in the FDIC’s
real estate lending standards at 12 CFR
390.264–390.265;
(ii) The borrower has contributed capital to
the project in the form of cash or
unencumbered readily marketable assets (or
has paid development expenses out-ofpocket) of at least 15 percent of the real
estate’s appraised ‘‘as completed’’ value; and
(iii) The borrower contributed the amount
of capital required by paragraph (2)(ii) of this
definition before the State savings association
advances funds under the credit facility, and
the capital contributed by the borrower, or
internally generated by the project, is
contractually required to remain in the
project throughout the life of the project. The
life of a project concludes only when the
credit facility is converted to permanent
financing or is sold or paid in full. Permanent
financing may be provided by the State
savings association that provided the ADC
facility as long as the permanent financing is
subject to the State savings association’s
underwriting criteria for long-term mortgage
loans.
Inferred rating. A securitization exposure
has an inferred rating equal to the external
rating referenced in paragraph (2)(i) of this
definition if:
(1) The securitization exposure does not
have an external rating; and
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(2) Another securitization exposure issued
by the same issuer and secured by the same
underlying exposures:
(i) Has an external rating;
(ii) Is subordinated in all respects to the
unrated securitization exposure;
(iii) Does not benefit from any credit
enhancement that is not available to the
unrated securitization exposure; and
(iv) Has an effective remaining maturity
that is equal to or longer than that of the
unrated securitization exposure.
Interest rate derivative contract means a
single-currency interest rate swap, basis
swap, forward rate agreement, purchased
interest rate option, when-issued securities,
or any other instrument linked to interest
rates that gives rise to similar counterparty
credit risks.
Internal operational loss event data means,
with respect to a State savings association,
gross operational loss amounts, dates,
recoveries, and relevant causal information
for operational loss events occurring at the
State savings association.
Investing State savings association means,
with respect to a securitization, a State
savings association that assumes the credit
risk of a securitization exposure (other than
an originating State savings association of the
securitization). In the typical synthetic
securitization, the investing State savings
association sells credit protection on a pool
of underlying exposures to the originating
State savings association.
Investment fund means a company:
(1) All or substantially all of the assets of
which are financial assets; and
(2) That has no material liabilities.
Investors’ interest EAD means, with respect
to a securitization, the EAD of the underlying
exposures multiplied by the ratio of:
(1) The total amount of securitization
exposures issued by the securitization SPE to
investors; divided by
(2) The outstanding principal amount of
underlying exposures.
Loss given default (LGD) means:
(1) For a wholesale exposure, the greatest
of:
(i) Zero;
(ii) The State savings association’s
empirically based best estimate of the longrun default-weighted average economic loss,
per dollar of EAD, the State savings
association would expect to incur if the
obligor (or a typical obligor in the loss
severity grade assigned by the State savings
association to the exposure) were to default
within a one-year horizon over a mix of
economic conditions, including economic
downturn conditions; or
(iii) The State savings association’s
empirically based best estimate of the
economic loss, per dollar of EAD, the State
savings association would expect to incur if
the obligor (or a typical obligor in the loss
severity grade assigned by the State savings
association to the exposure) were to default
within a one-year horizon during economic
downturn conditions.
(2) For a segment of retail exposures, the
greatest of:
(i) Zero;
(ii) The State savings association’s
empirically based best estimate of the long-
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run default-weighted average economic loss,
per dollar of EAD, the State savings
association would expect to incur if the
exposures in the segment were to default
within a one-year horizon over a mix of
economic conditions, including economic
downturn conditions; or
(iii) The State savings association’s
empirically based best estimate of the
economic loss, per dollar of EAD, the State
savings association would expect to incur if
the exposures in the segment were to default
within a one-year horizon during economic
downturn conditions.
(3) The economic loss on an exposure in
the event of default is all material creditrelated losses on the exposure (including
accrued but unpaid interest or fees, losses on
the sale of collateral, direct workout costs,
and an appropriate allocation of indirect
workout costs). Where positive or negative
cash flows on a wholesale exposure to a
defaulted obligor or a defaulted retail
exposure (including proceeds from the sale of
collateral, workout costs, additional
extensions of credit to facilitate repayment of
the exposure, and draw-downs of unused
credit lines) occur after the date of default,
the economic loss must reflect the net
present value of cash flows as of the default
date using a discount rate appropriate to the
risk of the defaulted exposure.
Main index means the Standard & Poor’s
500 Index, the FTSE All-World Index, and
any other index for which the State savings
association can demonstrate to the
satisfaction of the FDIC that the equities
represented in the index have comparable
liquidity, depth of market, and size of bid-ask
spreads as equities in the Standard & Poor’s
500 Index and FTSE All-World Index.
Multilateral development bank means the
International Bank for Reconstruction and
Development, the International Finance
Corporation, the Inter-American
Development Bank, the Asian Development
Bank, the African Development Bank, the
European Bank for Reconstruction and
Development, the European Investment
Bank, the European Investment Fund, the
Nordic Investment Bank, the Caribbean
Development Bank, the Islamic Development
Bank, the Council of Europe Development
Bank, and any other multilateral lending
institution or regional development bank in
which the U.S. government is a shareholder
or contributing member or which the FDIC
determines poses comparable credit risk.
Nationally recognized statistical rating
organization (NRSRO) means an entity
registered with the SEC as a nationally
recognized statistical rating organization
under section 15E of the Securities Exchange
Act of 1934 (15 U.S.C. 78o–7).
Netting set means a group of transactions
with a single counterparty that are subject to
a qualifying master netting agreement or
qualifying cross-product master netting
agreement. For purposes of the internal
models methodology in paragraph (d) of
section 32 of this appendix, each transaction
that is not subject to such a master netting
agreement is its own netting set.
Nth-to-default credit derivative means a
credit derivative that provides credit
protection only for the nth-defaulting
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reference exposure in a group of reference
exposures.
Obligor means the legal entity or natural
person contractually obligated on a
wholesale exposure, except that a State
savings association may treat the following
exposures as having separate obligors:
(1) Exposures to the same legal entity or
natural person denominated in different
currencies;
(2)(i) An income-producing real estate
exposure for which all or substantially all of
the repayment of the exposure is reliant on
the cash flows of the real estate serving as
collateral for the exposure; the State savings
association, in economic substance, does not
have recourse to the borrower beyond the
real estate collateral; and no cross-default or
cross-acceleration clauses are in place other
than clauses obtained solely out of an
abundance of caution; and
(ii) Other credit exposures to the same legal
entity or natural person; and
(3) (i) A wholesale exposure authorized
under section 364 of the U.S. Bankruptcy
Code (11 U.S.C. 364) to a legal entity or
natural person who is a debtor-in-possession
for purposes of Chapter 11 of the Bankruptcy
Code; and
(ii) Other credit exposures to the same legal
entity or natural person.
Operational loss means a loss (excluding
insurance or tax effects) resulting from an
operational loss event. Operational loss
includes all expenses associated with an
operational loss event except for opportunity
costs, forgone revenue, and costs related to
risk management and control enhancements
implemented to prevent future operational
losses.
Operational loss event means an event that
results in loss and is associated with any of
the following seven operational loss event
type categories:
(1) Internal fraud, which means the
operational loss event type category that
comprises operational losses resulting from
an act involving at least one internal party of
a type intended to defraud, misappropriate
property, or circumvent regulations, the law,
or company policy, excluding diversity- and
discrimination-type events.
(2) External fraud, which means the
operational loss event type category that
comprises operational losses resulting from
an act by a third party of a type intended to
defraud, misappropriate property, or
circumvent the law. Retail credit card losses
arising from non-contractual, third-party
initiated fraud (for example, identity theft)
are external fraud operational losses. All
other third-party initiated credit losses are to
be treated as credit risk losses.
(3) Employment practices and workplace
safety, which means the operational loss
event type category that comprises
operational losses resulting from an act
inconsistent with employment, health, or
safety laws or agreements, payment of
personal injury claims, or payment arising
from diversity- and discrimination-type
events.
(4) Clients, products, and business
practices, which means the operational loss
event type category that comprises
operational losses resulting from the nature
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or design of a product or from an
unintentional or negligent failure to meet a
professional obligation to specific clients
(including fiduciary and suitability
requirements).
(5) Damage to physical assets, which
means the operational loss event type
category that comprises operational losses
resulting from the loss of or damage to
physical assets from natural disaster or other
events.
(6) Business disruption and system
failures, which means the operational loss
event type category that comprises
operational losses resulting from disruption
of business or system failures.
(7) Execution, delivery, and process
management, which means the operational
loss event type category that comprises
operational losses resulting from failed
transaction processing or process
management or losses arising from relations
with trade counterparties and vendors.
Operational risk means the risk of loss
resulting from inadequate or failed internal
processes, people, and systems or from
external events (including legal risk but
excluding strategic and reputational risk).
Operational risk exposure means the
99.9th percentile of the distribution of
potential aggregate operational losses, as
generated by the State savings association’s
operational risk quantification system over a
one-year horizon (and not incorporating
eligible operational risk offsets or qualifying
operational risk mitigants).
Originating State savings association, with
respect to a securitization, means a State
savings association that:
(1) Directly or indirectly originated or
securitized the underlying exposures
included in the securitization; or
(2) Serves as an ABCP program sponsor to
the securitization.
Other retail exposure means an exposure
(other than a securitization exposure, an
equity exposure, a residential mortgage
exposure, an excluded mortgage exposure, a
qualifying revolving exposure, or the residual
value portion of a lease exposure) that is
managed as part of a segment of exposures
with homogeneous risk characteristics, not
on an individual-exposure basis, and is
either:
(1) An exposure to an individual for nonbusiness purposes; or
(2) An exposure to an individual or
company for business purposes if the State
savings association’s consolidated business
credit exposure to the individual or company
is $1 million or less.
Over-the-counter (OTC) derivative contract
means a derivative contract that is not traded
on an exchange that requires the daily receipt
and payment of cash-variation margin.
Probability of default (PD) means:
(1) For a wholesale exposure to a nondefaulted obligor, the State savings
association’s empirically based best estimate
of the long-run average one-year default rate
for the rating grade assigned by the State
savings association to the obligor, capturing
the average default experience for obligors in
the rating grade over a mix of economic
conditions (including economic downturn
conditions) sufficient to provide a reasonable
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estimate of the average one-year default rate
over the economic cycle for the rating grade.
(2) For a segment of non-defaulted retail
exposures, the State savings association’s
empirically based best estimate of the longrun average one-year default rate for the
exposures in the segment, capturing the
average default experience for exposures in
the segment over a mix of economic
conditions (including economic downturn
conditions) sufficient to provide a reasonable
estimate of the average one-year default rate
over the economic cycle for the segment and
adjusted upward as appropriate for segments
for which seasoning effects are material. For
purposes of this definition, a segment for
which seasoning effects are material is a
segment where there is a material
relationship between the time since
origination of exposures within the segment
and the State savings association’s best
estimate of the long-run average one-year
default rate for the exposures in the segment.
(3) For a wholesale exposure to a defaulted
obligor or segment of defaulted retail
exposures, 100 percent.
Protection amount (P) means, with respect
to an exposure hedged by an eligible
guarantee or eligible credit derivative, the
effective notional amount of the guarantee or
credit derivative, reduced to reflect any
currency mismatch, maturity mismatch, or
lack of restructuring coverage (as provided in
section 33 of this appendix).
Publicly traded means traded on:
(1) Any exchange registered with the SEC
as a national securities exchange under
section 6 of the Securities Exchange Act of
1934 (15 U.S.C. 78f); or
(2) Any non-U.S.-based securities exchange
that:
(i) Is registered with, or approved by, a
national securities regulatory authority; and
(ii) Provides a liquid, two-way market for
the instrument in question, meaning that
there are enough independent bona fide
offers to buy and sell so that a sales price
reasonably related to the last sales price or
current bona fide competitive bid and offer
quotations can be determined promptly and
a trade can be settled at such a price within
five business days.
Qualifying central counterparty means a
counterparty (for example, a clearinghouse)
that:
(1) Facilitates trades between
counterparties in one or more financial
markets by either guaranteeing trades or
novating contracts;
(2) Requires all participants in its
arrangements to be fully collateralized on a
daily basis; and
(3) The State savings association
demonstrates to the satisfaction of the FDIC
is in sound financial condition and is subject
to effective oversight by a national
supervisory authority.
Qualifying cross-product master netting
agreement means a qualifying master netting
agreement that provides for termination and
close-out netting across multiple types of
financial transactions or qualifying master
netting agreements in the event of a
counterparty’s default, provided that:
(1) The underlying financial transactions
are OTC derivative contracts, eligible margin
loans, or repo-style transactions; and
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(2) The State savings association obtains a
written legal opinion verifying the validity
and enforceability of the agreement under
applicable law of the relevant jurisdictions if
the counterparty fails to perform upon an
event of default, including upon an event of
bankruptcy, insolvency, or similar
proceeding.
Qualifying master netting agreement means
any written, legally enforceable bilateral
agreement, provided that:
(1) The agreement creates a single legal
obligation for all individual transactions
covered by the agreement upon an event of
default, including bankruptcy, insolvency, or
similar proceeding, of the counterparty;
(2) The agreement provides the State
savings association the right to accelerate,
terminate, and close-out on a net basis all
transactions under the agreement and to
liquidate or set off collateral promptly upon
an event of default, including upon an event
of bankruptcy, insolvency, or similar
proceeding, of the counterparty, provided
that, in any such case, any exercise of rights
under the agreement will not be stayed or
avoided under applicable law in the relevant
jurisdictions;
(3) The State savings association has
conducted sufficient legal review to conclude
with a well-founded basis (and maintains
sufficient written documentation of that legal
review) that:
(i) The agreement meets the requirements
of paragraph (2) of this definition; and
(ii) In the event of a legal challenge
(including one resulting from default or from
bankruptcy, insolvency, or similar
proceeding) the relevant court and
administrative authorities would find the
agreement to be legal, valid, binding, and
enforceable under the law of the relevant
jurisdictions;
(4) The State savings association
establishes and maintains procedures to
monitor possible changes in relevant law and
to ensure that the agreement continues to
satisfy the requirements of this definition;
and
(5) The agreement does not contain a
walkaway clause (that is, a provision that
permits a non-defaulting counterparty to
make a lower payment than it would make
otherwise under the agreement, or no
payment at all, to a defaulter or the estate of
a defaulter, even if the defaulter or the estate
of the defaulter is a net creditor under the
agreement).
Qualifying revolving exposure (QRE)
means an exposure (other than a
securitization exposure or equity exposure)
to an individual that is managed as part of
a segment of exposures with homogeneous
risk characteristics, not on an individualexposure basis, and:
(1) Is revolving (that is, the amount
outstanding fluctuates, determined largely by
the borrower’s decision to borrow and repay,
up to a pre-established maximum amount);
(2) Is unsecured and unconditionally
cancelable by the State savings association to
the fullest extent permitted by Federal law;
and
(3) Has a maximum exposure amount
(drawn plus undrawn) of up to $100,000.
Repo-style transaction means a repurchase
or reverse repurchase transaction, or a
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securities borrowing or securities lending
transaction, including a transaction in which
the State savings association acts as agent for
a customer and indemnifies the customer
against loss, provided that:
(1) The transaction is based solely on
liquid and readily marketable securities,
cash, gold, or conforming residential
mortgages;
(2) The transaction is marked-to-market
daily and subject to daily margin
maintenance requirements;
(3)(i) The transaction is a ‘‘securities
contract’’ or ‘‘repurchase agreement’’ under
section 555 or 559, respectively, of the
Bankruptcy Code (11 U.S.C. 555 or 559), a
qualified financial contract under section
11(e)(8) of the Federal Deposit Insurance Act
(12 U.S.C. 1821(e)(8)), or a netting contract
between or among financial institutions
under sections 401–407 of the Federal
Deposit Insurance Corporation Improvement
Act of 1991 (12 U.S.C. 4401–4407) or the
Federal Reserve Board’s Regulation EE (12
CFR part 231); or
(ii) If the transaction does not meet the
criteria set forth in paragraph (3)(i) of this
definition, then either:
(A) The transaction is executed under an
agreement that provides the State savings
association the right to accelerate, terminate,
and close-out the transaction on a net basis
and to liquidate or set off collateral promptly
upon an event of default (including upon an
event of bankruptcy, insolvency, or similar
proceeding) of the counterparty, provided
that, in any such case, any exercise of rights
under the agreement will not be stayed or
avoided under applicable law in the relevant
jurisdictions; or
(B) The transaction is:
(1) Either overnight or unconditionally
cancelable at any time by the State savings
association; and
(2) Executed under an agreement that
provides the State savings association the
right to accelerate, terminate, and close-out
the transaction on a net basis and to liquidate
or set off collateral promptly upon an event
of counterparty default; and
(4) The State savings association has
conducted sufficient legal review to conclude
with a well-founded basis (and maintains
sufficient written documentation of that legal
review) that the agreement meets the
requirements of paragraph (3) of this
definition and is legal, valid, binding, and
enforceable under applicable law in the
relevant jurisdictions.
Residential mortgage exposure means an
exposure (other than a securitization
exposure, equity exposure, or excluded
mortgage exposure) that is managed as part
of a segment of exposures with homogeneous
risk characteristics, not on an individualexposure basis, and is:
(1) An exposure that is primarily secured
by a first or subsequent lien on one- to fourfamily residential property; or
(2) An exposure with an original and
outstanding amount of $1 million or less that
is primarily secured by a first or subsequent
lien on residential property that is not one to
four family.
Retail exposure means a residential
mortgage exposure, a qualifying revolving
exposure, or another retail exposure.
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Retail exposure subcategory means the
residential mortgage exposure, qualifying
revolving exposure, or other retail exposure
subcategory.
Risk parameter means a variable used in
determining risk-based capital requirements
for wholesale and retail exposures,
specifically probability of default (PD), loss
given default (LGD), exposure at default
(EAD), or effective maturity (M).
Scenario analysis means a systematic
process of obtaining expert opinions from
business managers and risk management
experts to derive reasoned assessments of the
likelihood and loss impact of plausible highseverity operational losses. Scenario analysis
may include the well-reasoned evaluation
and use of external operational loss event
data, adjusted as appropriate to ensure
relevance to a State savings association’s
operational risk profile and control structure.
SEC means the U.S. Securities and
Exchange Commission.
Securitization means a traditional
securitization or a synthetic securitization.
Securitization exposure means an onbalance sheet or off-balance sheet credit
exposure that arises from a traditional or
synthetic securitization (including creditenhancing representations and warranties).
Securitization special purpose entity
(securitization SPE) means a corporation,
trust, or other entity organized for the
specific purpose of holding underlying
exposures of a securitization, the activities of
which are limited to those appropriate to
accomplish this purpose, and the structure of
which is intended to isolate the underlying
exposures held by the entity from the credit
risk of the seller of the underlying exposures
to the entity.
Senior securitization exposure means a
securitization exposure that has a first
priority claim on the cash flows from the
underlying exposures. When determining
whether a securitization exposure has a first
priority claim on the cash flows from the
underlying exposures, a State savings
association is not required to consider
amounts due under interest rate or currency
derivative contracts, fees due, or other
similar payments. Both the most senior
commercial paper issued by an ABCP
program and a liquidity facility that supports
the ABCP program may be senior
securitization exposures if the liquidity
facility provider’s right to reimbursement of
the drawn amounts is senior to all claims on
the cash flows from the underlying exposures
except amounts due under interest rate or
currency derivative contracts, fees due, or
other similar payments.
Servicer cash advance facility means a
facility under which the servicer of the
underlying exposures of a securitization may
advance cash to ensure an uninterrupted
flow of payments to investors in the
securitization, including advances made to
cover foreclosure costs or other expenses to
facilitate the timely collection of the
underlying exposures. See also eligible
servicer cash advance facility.
Sovereign entity means a central
government (including the U.S. government)
or an agency, department, ministry, or central
bank of a central government.
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Sovereign exposure means:
(1) A direct exposure to a sovereign entity;
or
(2) An exposure directly and
unconditionally backed by the full faith and
credit of a sovereign entity.
Subsidiary means, with respect to a
company, a company controlled by that
company.
Synthetic securitization means a
transaction in which:
(1) All or a portion of the credit risk of one
or more underlying exposures is transferred
to one or more third parties through the use
of one or more credit derivatives or
guarantees (other than a guarantee that
transfers only the credit risk of an individual
retail exposure);
(2) The credit risk associated with the
underlying exposures has been separated into
at least two tranches reflecting different
levels of seniority;
(3) Performance of the securitization
exposures depends upon the performance of
the underlying exposures; and
(4) All or substantially all of the underlying
exposures are financial exposures (such as
loans, commitments, credit derivatives,
guarantees, receivables, asset-backed
securities, mortgage-backed securities, other
debt securities, or equity securities).
Tier 1 capital is defined in §§ 390.461–
390.471, as modified in part II of this
appendix.
Tier 2 capital is defined in §§ 390.461–
390.471, as modified in part II of this
appendix.
Total qualifying capital means the sum of
tier 1 capital and tier 2 capital, after all
deductions required in this appendix.
Total risk-weighted assets means:
(1) The sum of:
(i) Credit risk-weighted assets; and
(ii) Risk-weighted assets for operational
risk; minus
(2) Excess eligible credit reserves not
included in tier 2 capital.
Total wholesale and retail risk-weighted
assets means the sum of risk-weighted assets
for wholesale exposures to non-defaulted
obligors and segments of non-defaulted retail
exposures; risk-weighted assets for wholesale
exposures to defaulted obligors and segments
of defaulted retail exposures; risk-weighted
assets for assets not defined by an exposure
category; and risk-weighted assets for nonmaterial portfolios of exposures (all as
determined in section 31 of this appendix)
and risk-weighted assets for unsettled
transactions (as determined in section 35 of
this appendix) minus the amounts deducted
from capital pursuant to §§ 390.461–390.471
(excluding those deductions reversed in
section 12 of this appendix).
Traditional securitization means a
transaction in which:
(1) All or a portion of the credit risk of one
or more underlying exposures is transferred
to one or more third parties other than
through the use of credit derivatives or
guarantees;
(2) The credit risk associated with the
underlying exposures has been separated into
at least two tranches reflecting different
levels of seniority;
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(3) Performance of the securitization
exposures depends upon the performance of
the underlying exposures;
(4) All or substantially all of the underlying
exposures are financial exposures (such as
loans, commitments, credit derivatives,
guarantees, receivables, asset-backed
securities, mortgage-backed securities, other
debt securities, or equity securities);
(5) The underlying exposures are not
owned by an operating company;
(6) The underlying exposures are not
owned by a small business investment
company described in section 302 of the
Small Business Investment Act of 1958 (15
U.S.C. 682); and
(7) The underlying exposures are not
owned by a firm an investment in which is
designed primarily to promote community
welfare, including the welfare of low- and
moderate-income communities or families,
such as by providing services or jobs.
(8) The FDIC may determine that a
transaction in which the underlying
exposures are owned by an investment firm
that exercises substantially unfettered control
over the size and composition of its assets,
liabilities, and off-balance sheet exposures is
not a traditional securitization based on the
transaction’s leverage, risk profile, or
economic substance.
(9) The FDIC may deem a transaction that
meets the definition of a traditional
securitization, notwithstanding paragraph
(5), (6), or (7) of this definition, to be a
traditional securitization based on the
transaction’s leverage, risk profile, or
economic substance.
Tranche means all securitization exposures
associated with a securitization that have the
same seniority level.
Underlying exposures means one or more
exposures that have been securitized in a
securitization transaction.
Unexpected operational loss (UOL) means
the difference between the State savings
association’s operational risk exposure and
the State savings association’s expected
operational loss.
Unit of measure means the level (for
example, organizational unit or operational
loss event type) at which the State savings
association’s operational risk quantification
system generates a separate distribution of
potential operational losses.
Value-at-Risk (VaR) means the estimate of
the maximum amount that the value of one
or more exposures could decline due to
market price or rate movements during a
fixed holding period within a stated
confidence interval.
Wholesale exposure means a credit
exposure to a company, natural person,
sovereign entity, or governmental entity
(other than a securitization exposure, retail
exposure, excluded mortgage exposure, or
equity exposure). Examples of a wholesale
exposure include:
(1) A non-tranched guarantee issued by a
State savings association on behalf of a
company;
(2) A repo-style transaction entered into by
a State savings association with a company
and any other transaction in which a State
savings association posts collateral to a
company and faces counterparty credit risk;
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(3) An exposure that a State savings
association treats as a covered position under
any applicable market risk rule for which
there is a counterparty credit risk capital
requirement;
(4) A sale of corporate loans by a State
savings association to a third party in which
the State savings association retains full
recourse;
(5) An OTC derivative contract entered into
by a State savings association with a
company;
(6) An exposure to an individual that is not
managed by a State savings association as
part of a segment of exposures with
homogeneous risk characteristics; and
(7) A commercial lease.
Wholesale exposure subcategory means the
HVCRE or non-HVCRE wholesale exposure
subcategory.
Section 3. Minimum Risk-Based Capital
Requirements
(a) Except as modified by paragraph (c) of
this section or by section 23 of this appendix,
each State savings association must meet a
minimum ratio of:
(1) Total qualifying capital to total riskweighted assets of 8.0 percent; and
(2) Tier 1 capital to total risk-weighted
assets of 4.0 percent.
(b) Each State savings association must
hold capital commensurate with the level
and nature of all risks to which the State
savings association is exposed.
(c) When a State savings association
subject to any applicable market risk rule
calculates its risk-based capital requirements
under this appendix, the State savings
association must also refer to any applicable
market risk rule for supplemental rules to
calculate risk-based capital requirements
adjusted for market risk.
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Part II. Qualifying Capital
Section 11. Additional Deductions
(a) General. A State savings association
that uses this appendix must make the same
deductions from its tier 1 capital and tier 2
capital required in §§ 390.461–390.471
except that:
(1) A State savings association is not
required to deduct certain equity investments
and CEIOs (as provided in section 12 of this
appendix); and
(2) A State savings association also must
make the deductions from capital required by
paragraphs (b) and (c) of this section.
(b) Deductions from tier 1 capital. A State
savings association must deduct from tier 1
capital any gain-on-sale associated with a
securitization exposure as provided in
paragraph (a) of section 41 and paragraphs
(a)(1), (c), (g)(1), and (h)(1) of section 42 of
this appendix.
(c) Deductions from tier 1 and tier 2
capital. A State savings association must
deduct the exposures specified in paragraphs
(c)(1) through (c)(7) in this section 50 percent
from tier 1 capital and 50 percent from tier
2 capital. If the amount deductible from tier
2 capital exceeds the State savings
association’s actual tier 2 capital, however,
the State savings association must deduct the
excess from tier 1 capital.
(1) Credit-enhancing interest-only strips
(CEIOs). In accordance with paragraphs (a)(1)
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and (c) of section 42 of this appendix, any
CEIO that does not constitute gain-on-sale.
(2) Non-qualifying securitization
exposures. In accordance with paragraphs
(a)(4) and (c) of section 42 of this appendix,
any securitization exposure that does not
qualify for the Ratings-Based Approach, the
Internal Assessment Approach, or the
Supervisory Formula Approach under
sections 43, 44, and 45 of this appendix,
respectively.
(3) Securitizations of non-IRB exposures. In
accordance with paragraphs (c) and (g)(4) of
section 42 of this appendix, certain
exposures to a securitization any underlying
exposure of which is not a wholesale
exposure, retail exposure, securitization
exposure, or equity exposure.
(4) Low-rated securitization exposures. In
accordance with section 43 and paragraph (c)
of section 42 of this appendix, any
securitization exposure that qualifies for and
must be deducted under the Ratings-Based
Approach.
(5) High-risk securitization exposures
subject to the Supervisory Formula
Approach. In accordance with paragraphs (b)
and (c) of section 45 of this appendix and
paragraph (c) of section 42 of this appendix,
certain high-risk securitization exposures (or
portions thereof) that qualify for the
Supervisory Formula Approach.
(6) Eligible credit reserves shortfall. In
accordance with paragraph (a)(1) of section
13 of this appendix, any eligible credit
reserves shortfall.
(7) Certain failed capital markets
transactions. In accordance with paragraph
(e)(3) of section 35 of this appendix, the State
savings association’s exposure on certain
failed capital markets transactions.
Section 12. Deductions and Limitations Not
Required
(a) Deduction of CEIOs. A State savings
association is not required to make the
deduction from capital for CEIOs in 12 CFR
390.465(a)(2)(iii) and 390.471(e).
(b) Deduction for certain equity
investments. A State savings association is
not required to deduct equity securities from
capital under 12 CFR 390.465(c)(2)(ii).
However, it must continue to deduct equity
investments in real estate under that section.
See 12 CFR 390.461, which defines equity
investments, including equity securities and
equity investments in real estate.
Section 13. Eligible Credit Reserves
(a) Comparison of eligible credit reserves to
expected credit losses—(1) Shortfall of
eligible credit reserves. If a State savings
association’s eligible credit reserves are less
than the State savings association’s total
expected credit losses, the State savings
association must deduct the shortfall amount
50 percent from tier 1 capital and 50 percent
from tier 2 capital. If the amount deductible
from tier 2 capital exceeds the State savings
association’s actual tier 2 capital, the State
savings association must deduct the excess
amount from tier 1 capital.
(2) Excess eligible credit reserves. If a State
savings association’s eligible credit reserves
exceed the State savings association’s total
expected credit losses, the State savings
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association may include the excess amount
in tier 2 capital to the extent that the excess
amount does not exceed 0.6 percent of the
State savings association’s credit-riskweighted assets.
(b) Treatment of allowance for loan and
lease losses. Regardless of any provision in
§§ 390.461 through 390.471, the ALLL is
included in tier 2 capital only to the extent
provided in paragraph (a)(2) of this section
and in section 24 of this appendix.
Part III. Qualification
Section 21. Qualification Process
(a) Timing. (1) A State savings association
that is described in paragraph (b)(1) of
section 1 of this appendix must adopt a
written implementation plan no later than six
months after the later of April 1, 2008, or the
date the State savings association meets a
criterion in that section. The implementation
plan must incorporate an explicit first floor
period start date no later than 36 months
after the later of April 1, 2008, or the date
the State savings association meets at least
one criterion under paragraph (b)(1) of
section 1 of this appendix. The FDIC may
extend the first floor period start date.
(2) A State savings association that elects
to be subject to this appendix under
paragraph (b)(2) of section 1 of this appendix
must adopt a written implementation plan.
(b) Implementation plan. (1) The State
savings association’s implementation plan
must address in detail how the State savings
association complies, or plans to comply,
with the qualification requirements in
section 22 of this appendix. The State savings
association also must maintain a
comprehensive and sound planning and
governance process to oversee the
implementation efforts described in the plan.
At a minimum, the plan must:
(i) Comprehensively address the
qualification requirements in section 22 of
this appendix for the State savings
association and each consolidated subsidiary
(U.S. and foreign-based) of the State savings
association with respect to all portfolios and
exposures of the State savings association
and each of its consolidated subsidiaries;
(ii) Justify and support any proposed
temporary or permanent exclusion of
business lines, portfolios, or exposures from
application of the advanced approaches in
this appendix (which business lines,
portfolios, and exposures must be, in the
aggregate, immaterial to the State savings
association);
(iii) Include the State savings association’s
self-assessment of:
(A) The State savings association’s current
status in meeting the qualification
requirements in section 22 of this appendix;
and
(B) The consistency of the State savings
association’s current practices with the
FDIC’s supervisory guidance on the
qualification requirements;
(iv) Based on the State savings
association’s self-assessment, identify and
describe the areas in which the State savings
association proposes to undertake additional
work to comply with the qualification
requirements in section 22 of this appendix
or to improve the consistency of the State
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savings association’s current practices with
the FDIC’s supervisory guidance on the
qualification requirements (gap analysis);
(v) Describe what specific actions the State
savings association will take to address the
areas identified in the gap analysis required
by paragraph (b)(1)(iv) of this section;
(vi) Identify objective, measurable
milestones, including delivery dates and a
date when the State savings association’s
implementation of the methodologies
described in this appendix will be fully
operational;
(vii) Describe resources that have been
budgeted and are available to implement the
plan; and
(viii) Receive approval of the State savings
association’s board of directors.
(2) The State savings association must
submit the implementation plan, together
with a copy of the minutes of the board of
directors’ approval, to the FDIC at least 60
days before the State savings association
proposes to begin its parallel run, unless the
FDIC waives prior notice.
(c) Parallel run. Before determining its riskbased capital requirements under this
appendix and following adoption of the
implementation plan, the State savings
association must conduct a satisfactory
parallel run. A satisfactory parallel run is a
period of no less than four consecutive
calendar quarters during which the State
savings association complies with the
qualification requirements in section 22 of
this appendix to the satisfaction of the FDIC.
During the parallel run, the State savings
association must report to the FDIC on a
calendar quarterly basis its risk-based capital
ratios using §§ 390.461 through 390.471 and
the risk-based capital requirements described
in this appendix. During this period, the
State savings association is subject to
§§ 390.461 through 390.471.
(d) Approval to calculate risk-based capital
requirements under this appendix. The FDIC
will notify the State savings association of
the date that the State savings association
may begin its first floor period if the FDIC
determines that:
(1) The State savings association fully
complies with all the qualification
requirements in section 22 of this appendix;
(2) The State savings association has
conducted a satisfactory parallel run under
paragraph (c) of this section; and
(3) The State savings association has an
adequate process to ensure ongoing
compliance with the qualification
requirements in section 22 of this appendix.
(e) Transitional floor periods. Following a
satisfactory parallel run, a State savings
association is subject to three transitional
floor periods.
(1) Risk-based capital ratios during the
transitional floor periods—(i) Tier 1 riskbased capital ratio. During a State savings
association’s transitional floor periods, the
State savings association’s tier 1 risk-based
capital ratio is equal to the lower of:
(A) The State savings association’s flooradjusted tier 1 risk-based capital ratio; or
(B) The State savings association’s
advanced approaches tier 1 risk-based capital
ratio.
(ii) Total risk-based capital ratio. During a
State savings association’s transitional floor
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periods, the State savings association’s total
risk-based capital ratio is equal to the lower
of:
(A) The State savings association’s flooradjusted total risk-based capital ratio; or
(B) The State savings association’s
advanced approaches total risk-based capital
ratio.
(2) Floor-adjusted risk-based capital ratios.
(i) A State savings association’s flooradjusted tier 1 risk-based capital ratio during
a transitional floor period is equal to the
State savings association’s tier 1 capital as
calculated under §§ 390.461–390.471,
divided by the product of:
(A) The State savings association’s total
risk-weighted assets as calculated under
§§ 390.461 through 390.471; and
(B) The appropriate transitional floor
percentage in Table 1.
(ii) A State savings association’s flooradjusted total risk-based capital ratio during
a transitional floor period is equal to the sum
of the State savings association’s tier 1 and
tier 2 capital as calculated under §§ 390.461
through 390.471, divided by the product of:
(A) The State savings association’s total
risk-weighted assets as calculated under
§§ 390.461 through 390.471; and
(B) The appropriate transitional floor
percentage in Table 1.
(iii) A State savings association that meets
the criteria in paragraph (b)(1) or (b)(2) of
section 1 of this appendix as of April 1, 2008,
must use §§ 390.461 through 390.471 during
the parallel run and as the basis for its
transitional floors.
TABLE 1—TRANSITIONAL FLOORS
Transitional floor period
First floor period ...................
Second floor period ..............
Third floor period ..................
Transitional
floor
percentage
95
90
85
(3) Advanced approaches risk-based
capital ratios. (i) A State savings association’s
advanced approaches tier 1 risk-based capital
ratio equals the State savings association’s
tier 1 risk-based capital ratio as calculated
under this appendix (other than this section
on transitional floor periods).
(ii) A State savings association’s advanced
approaches total risk-based capital ratio
equals the State savings association’s total
risk-based capital ratio as calculated under
this appendix (other than this section on
transitional floor periods).
(4) Reporting. During the transitional floor
periods, a State savings association must
report to the FDIC on a calendar quarterly
basis both floor-adjusted risk-based capital
ratios and both advanced approaches riskbased capital ratios.
(5) Exiting a transitional floor period. A
State savings association may not exit a
transitional floor period until the State
savings association has spent a minimum of
four consecutive calendar quarters in the
period and the FDIC has determined that the
State savings association may exit the floor
period. The FDIC’s determination will be
based on an assessment of the State savings
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association’s ongoing compliance with the
qualification requirements in section 22 of
this appendix.
(6) Interagency study. After the end of the
second transition year (2010), the Federal
banking agencies will publish a study that
evaluates the advanced approaches to
determine if there are any material
deficiencies. For any primary Federal
supervisor to authorize any institution to exit
the third transitional floor period, the study
must determine that there are no such
material deficiencies that cannot be
addressed by then-existing tools, or, if such
deficiencies are found, they are first
remedied by changes to this appendix.
Notwithstanding the preceding sentence, a
primary Federal supervisor that disagrees
with the finding of material deficiency may
not authorize any institution under its
jurisdiction to exit the third transitional floor
period unless it provides a public report
explaining its reasoning.
Section 22. Qualification Requirements
(a) Process and systems requirements. (1) A
State savings association must have a
rigorous process for assessing its overall
capital adequacy in relation to its risk profile
and a comprehensive strategy for maintaining
an appropriate level of capital.
(2) The systems and processes used by a
State savings association for risk-based
capital purposes under this appendix must
be consistent with the State savings
association’s internal risk management
processes and management information
reporting systems.
(3) Each State savings association must
have an appropriate infrastructure with risk
measurement and management processes that
meet the qualification requirements of this
section and are appropriate given the State
savings association’s size and level of
complexity. Regardless of whether the
systems and models that generate the risk
parameters necessary for calculating a State
savings association’s risk-based capital
requirements are located at any affiliate of
the State savings association, the State
savings association itself must ensure that the
risk parameters and reference data used to
determine its risk-based capital requirements
are representative of its own credit risk and
operational risk exposures.
(b) Risk rating and segmentation systems
for wholesale and retail exposures. (1) A
State savings association must have an
internal risk rating and segmentation system
that accurately and reliably differentiates
among degrees of credit risk for the State
savings association’s wholesale and retail
exposures.
(2) For wholesale exposures:
(i) A State savings association must have
an internal risk rating system that accurately
and reliably assigns each obligor to a single
rating grade (reflecting the obligor’s
likelihood of default). A State savings
association may elect, however, not to assign
to a rating grade an obligor to whom the State
savings association extends credit based
solely on the financial strength of a
guarantor, provided that all of the State
savings association’s exposures to the obligor
are fully covered by eligible guarantees, the
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State savings association applies the PD
substitution approach in paragraph (c)(1) of
section 33 of this appendix to all exposures
to that obligor, and the State savings
association immediately assigns the obligor
to a rating grade if a guarantee can no longer
be recognized under this appendix. The State
savings association’s wholesale obligor rating
system must have at least seven discrete
rating grades for non-defaulted obligors and
at least one rating grade for defaulted
obligors.
(ii) Unless the State savings association has
chosen to directly assign LGD estimates to
each wholesale exposure, the State savings
association must have an internal risk rating
system that accurately and reliably assigns
each wholesale exposure to a loss severity
rating grade (reflecting the State savings
association’s estimate of the LGD of the
exposure). A State savings association
employing loss severity rating grades must
have a sufficiently granular loss severity
grading system to avoid grouping together
exposures with widely ranging LGDs.
(3) For retail exposures, a State savings
association must have an internal system that
groups retail exposures into the appropriate
retail exposure subcategory, groups the retail
exposures in each retail exposure
subcategory into separate segments with
homogeneous risk characteristics, and
assigns accurate and reliable PD and LGD
estimates for each segment on a consistent
basis. The State savings association’s system
must identify and group in separate segments
by subcategories exposures identified in
paragraphs (c)(2)(ii) and (iii) of section 31 of
this appendix.
(4) The State savings association’s internal
risk rating policy for wholesale exposures
must describe the State savings association’s
rating philosophy (that is, must describe how
wholesale obligor rating assignments are
affected by the State savings association’s
choice of the range of economic, business,
and industry conditions that are considered
in the obligor rating process).
(5) The State savings association’s internal
risk rating system for wholesale exposures
must provide for the review and update (as
appropriate) of each obligor rating and (if
applicable) each loss severity rating
whenever the State savings association
receives new material information, but no
less frequently than annually. The State
savings association’s retail exposure
segmentation system must provide for the
review and update (as appropriate) of
assignments of retail exposures to segments
whenever the State savings association
receives new material information, but
generally no less frequently than quarterly.
(c) Quantification of risk parameters for
wholesale and retail exposures. (1) The State
savings association must have a
comprehensive risk parameter quantification
process that produces accurate, timely, and
reliable estimates of the risk parameters for
the State savings association’s wholesale and
retail exposures.
(2) Data used to estimate the risk
parameters must be relevant to the State
savings association’s actual wholesale and
retail exposures, and of sufficient quality to
support the determination of risk-based
capital requirements for the exposures.
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(3) The State savings association’s risk
parameter quantification process must
produce appropriately conservative risk
parameter estimates where the State savings
association has limited relevant data, and any
adjustments that are part of the quantification
process must not result in a pattern of bias
toward lower risk parameter estimates.
(4) The State savings association’s risk
parameter estimation process should not rely
on the possibility of U.S. government
financial assistance, except for the financial
assistance that the U.S. government has a
legally binding commitment to provide.
(5) Where the State savings association’s
quantifications of LGD directly or indirectly
incorporate estimates of the effectiveness of
its credit risk management practices in
reducing its exposure to troubled obligors
prior to default, the State savings association
must support such estimates with empirical
analysis showing that the estimates are
consistent with its historical experience in
dealing with such exposures during
economic downturn conditions.
(6) PD estimates for wholesale obligors and
retail segments must be based on at least five
years of default data. LGD estimates for
wholesale exposures must be based on at
least seven years of loss severity data, and
LGD estimates for retail segments must be
based on at least five years of loss severity
data. EAD estimates for wholesale exposures
must be based on at least seven years of
exposure amount data, and EAD estimates for
retail segments must be based on at least five
years of exposure amount data.
(7) Default, loss severity, and exposure
amount data must include periods of
economic downturn conditions, or the State
savings association must adjust its estimates
of risk parameters to compensate for the lack
of data from periods of economic downturn
conditions.
(8) The State savings association’s PD,
LGD, and EAD estimates must be based on
the definition of default in this appendix.
(9) The State savings association must
review and update (as appropriate) its risk
parameters and its risk parameter
quantification process at least annually.
(10) The State savings association must at
least annually conduct a comprehensive
review and analysis of reference data to
determine relevance of reference data to the
State savings association’s exposures, quality
of reference data to support PD, LGD, and
EAD estimates, and consistency of reference
data to the definition of default contained in
this appendix.
(d) Counterparty credit risk model. A State
savings association must obtain the prior
written approval of the FDIC under section
32 of this appendix to use the internal
models methodology for counterparty credit
risk.
(e) Double default treatment. A State
savings association must obtain the prior
written approval of the FDIC under section
34 of this appendix to use the double default
treatment.
(f) Securitization exposures. A State
savings association must obtain the prior
written approval of the FDIC under section
44 of this appendix to use the Internal
Assessment Approach for securitization
exposures to ABCP programs.
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(g) Equity exposures model. A State savings
association must obtain the prior written
approval of the FDIC under section 53 of this
appendix to use the Internal Models
Approach for equity exposures.
(h) Operational risk—(1) Operational risk
management processes. A State savings
association must:
(i) Have an operational risk management
function that:
(A) Is independent of business line
management; and
(B) Is responsible for designing,
implementing, and overseeing the State
savings association’s operational risk data
and assessment systems, operational risk
quantification systems, and related processes;
(ii) Have and document a process (which
must capture business environment and
internal control factors affecting the State
savings association’s operational risk profile)
to identify, measure, monitor, and control
operational risk in State savings association
products, activities, processes, and systems;
and
(iii) Report operational risk exposures,
operational loss events, and other relevant
operational risk information to business unit
management, senior management, and the
board of directors (or a designated committee
of the board).
(2) Operational risk data and assessment
systems. A State savings association must
have operational risk data and assessment
systems that capture operational risks to
which the State savings association is
exposed. The State savings association’s
operational risk data and assessment systems
must:
(i) Be structured in a manner consistent
with the State savings association’s current
business activities, risk profile, technological
processes, and risk management processes;
and
(ii) Include credible, transparent,
systematic, and verifiable processes that
incorporate the following elements on an
ongoing basis:
(A) Internal operational loss event data.
The State savings association must have a
systematic process for capturing and using
internal operational loss event data in its
operational risk data and assessment systems.
(1) The State savings association’s
operational risk data and assessment systems
must include a historical observation period
of at least five years for internal operational
loss event data (or such shorter period
approved by the FDIC to address transitional
situations, such as integrating a new business
line).
(2) The State savings association must be
able to map its internal operational loss event
data into the seven operational loss event
type categories.
(3) The State savings association may
refrain from collecting internal operational
loss event data for individual operational
losses below established dollar threshold
amounts if the State savings association can
demonstrate to the satisfaction of the FDIC
that the thresholds are reasonable, do not
exclude important internal operational loss
event data, and permit the State savings
association to capture substantially all the
dollar value of the State savings association’s
operational losses.
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(B) External operational loss event data.
The State savings association must have a
systematic process for determining its
methodologies for incorporating external
operational loss event data into its
operational risk data and assessment systems.
(C) Scenario analysis. The State savings
association must have a systematic process
for determining its methodologies for
incorporating scenario analysis into its
operational risk data and assessment systems.
(D) Business environment and internal
control factors. The State savings association
must incorporate business environment and
internal control factors into its operational
risk data and assessment systems. The State
savings association must also periodically
compare the results of its prior business
environment and internal control factor
assessments against its actual operational
losses incurred in the intervening period.
(3) Operational risk quantification systems.
(i) The State savings association’s operational
risk quantification systems:
(A) Must generate estimates of the State
savings association’s operational risk
exposure using its operational risk data and
assessment systems;
(B) Must employ a unit of measure that is
appropriate for the State savings association’s
range of business activities and the variety of
operational loss events to which it is
exposed, and that does not combine business
activities or operational loss events with
demonstrably different risk profiles within
the same loss distribution;
(C) Must include a credible, transparent,
systematic, and verifiable approach for
weighting each of the four elements,
described in paragraph (h)(2)(ii) of this
section, that a State savings association is
required to incorporate into its operational
risk data and assessment systems;
(D) May use internal estimates of
dependence among operational losses across
and within units of measure if the State
savings association can demonstrate to the
satisfaction of the FDIC that its process for
estimating dependence is sound, robust to a
variety of scenarios, and implemented with
integrity, and allows for the uncertainty
surrounding the estimates. If the State
savings association has not made such a
demonstration, it must sum operational risk
exposure estimates across units of measure to
calculate its total operational risk exposure;
and
(E) Must be reviewed and updated (as
appropriate) whenever the State savings
association becomes aware of information
that may have a material effect on the State
savings association’s estimate of operational
risk exposure, but the review and update
must occur no less frequently than annually.
(ii) With the prior written approval of the
FDIC, a State savings association may
generate an estimate of its operational risk
exposure using an alternative approach to
that specified in paragraph (h)(3)(i) of this
section. A State savings association
proposing to use such an alternative
operational risk quantification system must
submit a proposal to the FDIC. In
determining whether to approve a State
savings association’s proposal to use an
alternative operational risk quantification
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system, the FDIC will consider the following
principles:
(A) Use of the alternative operational risk
quantification system will be allowed only
on an exception basis, considering the size,
complexity, and risk profile of the State
savings association;
(B) The State savings association must
demonstrate that its estimate of its
operational risk exposure generated under
the alternative operational risk quantification
system is appropriate and can be supported
empirically; and
(C) A State savings association must not
use an allocation of operational risk capital
requirements that includes entities other than
depository institutions or the benefits of
diversification across entities.
(i) Data management and maintenance. (1)
A State savings association must have data
management and maintenance systems that
adequately support all aspects of its
advanced systems and the timely and
accurate reporting of risk-based capital
requirements.
(2) A State savings association must retain
data using an electronic format that allows
timely retrieval of data for analysis,
validation, reporting, and disclosure
purposes.
(3) A State savings association must retain
sufficient data elements related to key risk
drivers to permit adequate monitoring,
validation, and refinement of its advanced
systems.
(j) Control, oversight, and validation
mechanisms. (1) The State savings
association’s senior management must ensure
that all components of the State savings
association’s advanced systems function
effectively and comply with the qualification
requirements in this section.
(2) The State savings association’s board of
directors (or a designated committee of the
board) must at least annually review the
effectiveness of, and approve, the State
savings association’s advanced systems.
(3) A State savings association must have
an effective system of controls and oversight
that:
(i) Ensures ongoing compliance with the
qualification requirements in this section;
(ii) Maintains the integrity, reliability, and
accuracy of the State savings association’s
advanced systems; and
(iii) Includes adequate governance and
project management processes.
(4) The State savings association must
validate, on an ongoing basis, its advanced
systems. The State savings association’s
validation process must be independent of
the advanced systems’ development,
implementation, and operation, or the
validation process must be subjected to an
independent review of its adequacy and
effectiveness. Validation must include:
(i) An evaluation of the conceptual
soundness of (including developmental
evidence supporting) the advanced systems;
(ii) An ongoing monitoring process that
includes verification of processes and
benchmarking; and
(iii) An outcomes analysis process that
includes back-testing.
(5) The State savings association must have
an internal audit function independent of
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business-line management that at least
annually assesses the effectiveness of the
controls supporting the State savings
association’s advanced systems and reports
its findings to the State savings association’s
board of directors (or a committee thereof).
(6) The State savings association must
periodically stress test its advanced systems.
The stress testing must include a
consideration of how economic cycles,
especially downturns, affect risk-based
capital requirements (including migration
across rating grades and segments and the
credit risk mitigation benefits of double
default treatment).
(k) Documentation. The State savings
association must adequately document all
material aspects of its advanced systems.
Section 23. Ongoing Qualification
(a) Changes to advanced systems. A State
savings association must meet all the
qualification requirements in section 22 of
this appendix on an ongoing basis. A State
savings association must notify the FDIC
when the State savings association makes any
change to an advanced system that would
result in a material change in the State
savings association’s risk-weighted asset
amount for an exposure type, or when the
State savings association makes any
significant change to its modeling
assumptions.
(b) Failure to comply with qualification
requirements. (1) If the FDIC determines that
a State savings association that uses this
appendix and has conducted a satisfactory
parallel run fails to comply with the
qualification requirements in section 22 of
this appendix, the FDIC will notify the State
savings association in writing of the State
savings association’s failure to comply.
(2) The State savings association must
establish and submit a plan satisfactory to the
FDIC to return to compliance with the
qualification requirements.
(3) In addition, if the FDIC determines that
the State savings association’s risk-based
capital requirements are not commensurate
with the State savings association’s credit,
market, operational, or other risks, the FDIC
may require such a State savings association
to calculate its risk-based capital
requirements:
(i) Under §§ 390.461 through 390.471; or
(ii) Under this appendix with any
modifications provided by the FDIC.
Section 24. Merger and Acquisition
Transitional Arrangements
(a) Mergers and acquisitions of companies
without advanced systems. If a State savings
association merges with or acquires a
company that does not calculate its riskbased capital requirements using advanced
systems, the State savings association may
use §§ 390.461 through 390.471 to determine
the risk-weighted asset amounts for, and
deductions from capital associated with, the
merged or acquired company’s exposures for
up to 24 months after the calendar quarter
during which the merger or acquisition
consummates. The FDIC may extend this
transition period for up to an additional 12
months. Within 90 days of consummating the
merger or acquisition, the State savings
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association must submit to the FDIC an
implementation plan for using its advanced
systems for the acquired company. During
the period when § 390.460 applies to the
merged or acquired company, any ALLL
associated with the merged or acquired
company’s exposures may be included in the
State savings association’s tier 2 capital up to
1.25 percent of the acquired company’s riskweighted assets. All general allowances of
the merged or acquired company must be
excluded from the State savings association’s
eligible credit reserves. In addition, the riskweighted assets of the merged or acquired
company are not included in the State
savings association’s credit-risk-weighted
assets but are included in total risk-weighted
assets. If a State savings association relies on
this paragraph, the State savings association
must disclose publicly the amounts of riskweighted assets and qualifying capital
calculated under this appendix for the
acquiring State savings association and under
§§ 390.461 through 390.471 for the acquired
company.
(b) Mergers and acquisitions of companies
with advanced systems—(1) If a State savings
association merges with or acquires a
company that calculates its risk-based capital
requirements using advanced systems, the
State savings association may use the
acquired company’s advanced systems to
determine the risk-weighted asset amounts
for, and deductions from capital associated
with, the merged or acquired company’s
exposures for up to 24 months after the
calendar quarter during which the
acquisition or merger consummates. The
FDIC may extend this transition period for up
to an additional 12 months. Within 90 days
of consummating the merger or acquisition,
the State savings association must submit to
the FDIC an implementation plan for using
its advanced systems for the merged or
acquired company.
(2) If the acquiring State savings
association is not subject to the advanced
approaches in this appendix at the time of
acquisition or merger, during the period
when §§ 390.461 through 390.471 apply to
the acquiring State savings association, the
ALLL associated with the exposures of the
merged or acquired company may not be
directly included in tier 2 capital. Rather, any
excess eligible credit reserves associated with
the merged or acquired company’s exposures
may be included in the State savings
association’s tier 2 capital up to 0.6 percent
of the credit-risk-weighted assets associated
with those exposures.
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Part IV. Risk-Weighted Assets for General
Credit Risk
Section 31. Mechanics for Calculating Total
Wholesale and Retail Risk-Weighted Assets
(a) Overview. A State savings association
must calculate its total wholesale and retail
risk-weighted asset amount in four distinct
phases:
(1) Phase 1—categorization of exposures;
(2) Phase 2—assignment of wholesale
obligors and exposures to rating grades and
segmentation of retail exposures;
(3) Phase 3—assignment of risk parameters
to wholesale exposures and segments of retail
exposures; and
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(4) Phase 4—calculation of risk-weighted
asset amounts.
(b) Phase 1—Categorization. The State
savings association must determine which of
its exposures are wholesale exposures, retail
exposures, securitization exposures, or equity
exposures. The State savings association
must categorize each retail exposure as a
residential mortgage exposure, a QRE, or an
other retail exposure. The State savings
association must identify which wholesale
exposures are HVCRE exposures, sovereign
exposures, OTC derivative contracts, repostyle transactions, eligible margin loans,
eligible purchased wholesale exposures,
unsettled transactions to which section 35 of
this appendix applies, and eligible
guarantees or eligible credit derivatives that
are used as credit risk mitigants. The State
savings association must identify any onbalance sheet asset that does not meet the
definition of a wholesale, retail, equity, or
securitization exposure, as well as any nonmaterial portfolio of exposures described in
paragraph (e)(4) of this section.
(c) Phase 2—Assignment of wholesale
obligors and exposures to rating grades and
retail exposures to segments—(1) Assignment
of wholesale obligors and exposures to rating
grades.
(i) The State savings association must
assign each obligor of a wholesale exposure
to a single obligor rating grade and must
assign each wholesale exposure to which it
does not directly assign an LGD estimate to
a loss severity rating grade.
(ii) The State savings association must
identify which of its wholesale obligors are
in default.
(2) Segmentation of retail exposures. (i)
The State savings association must group the
retail exposures in each retail subcategory
into segments that have homogeneous risk
characteristics.
(ii) The State savings association must
identify which of its retail exposures are in
default. The State savings association must
segment defaulted retail exposures separately
from non-defaulted retail exposures.
(iii) If the State savings association
determines the EAD for eligible margin loans
using the approach in paragraph (b) of
section 32 of this appendix, the State savings
association must identify which of its retail
exposures are eligible margin loans for which
the State savings association uses this EAD
approach and must segment such eligible
margin loans separately from other retail
exposures.
(3) Eligible purchased wholesale
exposures. A State savings association may
group its eligible purchased wholesale
exposures into segments that have
homogeneous risk characteristics. A State
savings association must use the wholesale
exposure formula in Table 2 in this section
to determine the risk-based capital
requirement for each segment of eligible
purchased wholesale exposures.
(d) Phase 3—Assignment of risk
parameters to wholesale exposures and
segments of retail exposures—(1)
Quantification process. Subject to the
limitations in this paragraph (d), the State
savings association must:
(i) Associate a PD with each wholesale
obligor rating grade;
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(ii) Associate an LGD with each wholesale
loss severity rating grade or assign an LGD to
each wholesale exposure;
(iii) Assign an EAD and M to each
wholesale exposure; and
(iv) Assign a PD, LGD, and EAD to each
segment of retail exposures.
(2) Floor on PD assignment. The PD for
each wholesale obligor or retail segment may
not be less than 0.03 percent, except for
exposures to or directly and unconditionally
guaranteed by a sovereign entity, the Bank for
International Settlements, the International
Monetary Fund, the European Commission,
the European Central Bank, or a multilateral
development bank, to which the State
savings association assigns a rating grade
associated with a PD of less than 0.03
percent.
(3) Floor on LGD estimation. The LGD for
each segment of residential mortgage
exposures (other than segments of residential
mortgage exposures for which all or
substantially all of the principal of each
exposure is directly and unconditionally
guaranteed by the full faith and credit of a
sovereign entity) may not be less than 10
percent.
(4) Eligible purchased wholesale
exposures. A State savings association must
assign a PD, LGD, EAD, and M to each
segment of eligible purchased wholesale
exposures. If the State savings association
can estimate ECL (but not PD or LGD) for a
segment of eligible purchased wholesale
exposures, the State savings association must
assume that the LGD of the segment equals
100 percent and that the PD of the segment
equals ECL divided by EAD. The estimated
ECL must be calculated for the exposures
without regard to any assumption of recourse
or guarantees from the seller or other parties.
(5) Credit risk mitigation—credit
derivatives, guarantees, and collateral. (i) A
State savings association may take into
account the risk reducing effects of eligible
guarantees and eligible credit derivatives in
support of a wholesale exposure by applying
the PD substitution or LGD adjustment
treatment to the exposure as provided in
section 33 of this appendix or, if applicable,
applying double default treatment to the
exposure as provided in section 34 of this
appendix. A State savings association may
decide separately for each wholesale
exposure that qualifies for the double default
treatment under section 34 of this appendix
whether to apply the double default
treatment or to use the PD substitution or
LGD adjustment treatment without
recognizing double default effects.
(ii) A State savings association may take
into account the risk reducing effects of
guarantees and credit derivatives in support
of retail exposures in a segment when
quantifying the PD and LGD of the segment.
(iii) Except as provided in paragraph (d)(6)
of this section, a State savings association
may take into account the risk reducing
effects of collateral in support of a wholesale
exposure when quantifying the LGD of the
exposure and may take into account the risk
reducing effects of collateral in support of
retail exposures when quantifying the PD and
LGD of the segment.
(6) EAD for OTC derivative contracts, repostyle transactions, and eligible margin loans.
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(i) A State savings association must calculate
its EAD for an OTC derivative contract as
provided in paragraphs (c) and (d) of section
32 of this appendix. A State savings
association may take into account the riskreducing effects of financial collateral in
support of a repo-style transaction or eligible
margin loan and of any collateral in support
of a repo-style transaction that is included in
the State savings association’s VaR-based
measure under any applicable market risk
rule through an adjustment to EAD as
provided in paragraphs (b) and (d) of section
32 of this appendix. A State savings
association that takes collateral into account
through such an adjustment to EAD under
section 32 of this appendix may not reflect
such collateral in LGD.
(ii) A State savings association may
attribute an EAD of zero to:
(A) Derivative contracts that are publicly
traded on an exchange that requires the daily
receipt and payment of cash-variation
margin;
(B) Derivative contracts and repo-style
transactions that are outstanding with a
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qualifying central counterparty (but not for
those transactions that a qualifying central
counterparty has rejected); and
(C) Credit risk exposures to a qualifying
central counterparty in the form of clearing
deposits and posted collateral that arise from
transactions described in paragraph
(d)(6)(ii)(B) of this section.
(7) Effective maturity. An exposure’s M
must be no greater than five years and no less
than one year, except that an exposure’s M
must be no less than one day if the exposure
has an original maturity of less than one year
and is not part of a State savings association’s
ongoing financing of the obligor. An
exposure is not part of a State savings
association’s ongoing financing of the obligor
if the State savings association:
(i) Has a legal and practical ability not to
renew or roll over the exposure in the event
of credit deterioration of the obligor;
(ii) Makes an independent credit decision
at the inception of the exposure and at every
renewal or roll over; and
(iii) Has no substantial commercial
incentive to continue its credit relationship
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with the obligor in the event of credit
deterioration of the obligor.
(e) Phase 4—Calculation of risk-weighted
assets—(1) Non-defaulted exposures. (i) A
State savings association must calculate the
dollar risk-based capital requirement for each
of its wholesale exposures to a non-defaulted
obligor (except eligible guarantees and
eligible credit derivatives that hedge another
wholesale exposure and exposures to which
the State savings association applies the
double default treatment in section 34 of this
appendix) and segments of non-defaulted
retail exposures by inserting the assigned risk
parameters for the wholesale obligor and
exposure or retail segment into the
appropriate risk-based capital formula
specified in Table 2 and multiplying the
output of the formula (K) by the EAD of the
exposure or segment. Alternatively, a State
savings association may apply a 300 percent
risk weight to the EAD of an eligible margin
loan if the State savings association is not
able to meet the agencies’ requirements for
estimation of PD and LGD for the margin
loan.
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(ii) The sum of all the dollar risk-based
capital requirements for each wholesale
exposure to a non-defaulted obligor and
segment of non-defaulted retail exposures
calculated in paragraph (e)(1)(i) of this
section and in paragraph (e) of section 34 of
this appendix equals the total dollar riskbased capital requirement for those
exposures and segments.
(iii) The aggregate risk-weighted asset
amount for wholesale exposures to nondefaulted obligors and segments of nondefaulted retail exposures equals the total
dollar risk-based capital requirement
calculated in paragraph (e)(1)(ii) of this
section multiplied by 12.5.
(2) Wholesale exposures to defaulted
obligors and segments of defaulted retail
exposures. (i) The dollar risk-based capital
requirement for each wholesale exposure to
a defaulted obligor equals 0.08 multiplied by
the EAD of the exposure.
(ii) The dollar risk-based capital
requirement for a segment of defaulted retail
exposures equals 0.08 multiplied by the EAD
of the segment.
(iii) The sum of all the dollar risk-based
capital requirements for each wholesale
exposure to a defaulted obligor calculated in
paragraph (e)(2)(i) of this section plus the
dollar risk-based capital requirements for
each segment of defaulted retail exposures
calculated in paragraph (e)(2)(ii) of this
section equals the total dollar risk-based
capital requirement for those exposures and
segments.
(iv) The aggregate risk-weighted asset
amount for wholesale exposures to defaulted
obligors and segments of defaulted retail
exposures equals the total dollar risk-based
capital requirement calculated in paragraph
(e)(2)(iii) of this section multiplied by 12.5.
(3) Assets not included in a defined
exposure category. (i) A State savings
association may assign a risk-weighted asset
amount of zero to cash owned and held in
all offices of the State savings association or
in transit and for gold bullion held in the
State savings association’s own vaults, or
held in another State savings association’s
vaults on an allocated basis, to the extent the
gold bullion assets are offset by gold bullion
liabilities.
(ii) The risk-weighted asset amount for the
residual value of a retail lease exposure
equals such residual value.
(iii) The risk-weighted asset amount for
any other on-balance-sheet asset that does
not meet the definition of a wholesale, retail,
securitization, or equity exposure equals the
carrying value of the asset.
(4) Non-material portfolios of exposures.
The risk-weighted asset amount of a portfolio
of exposures for which the State savings
association has demonstrated to the FDIC’s
satisfaction that the portfolio (when
combined with all other portfolios of
exposures that the State savings association
seeks to treat under this paragraph) is not
material to the State savings association is
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the sum of the carrying values of on-balance
sheet exposures plus the notional amounts of
off-balance sheet exposures in the portfolio.
For purposes of this paragraph (e)(4), the
notional amount of an OTC derivative
contract that is not a credit derivative is the
EAD of the derivative as calculated in section
32 of this appendix.
Section 32. Counterparty Credit Risk of RepoStyle Transactions, Eligible Margin Loans,
and OTC Derivative Contracts
(a) In General. (1) This section describes
two methodologies—a collateral haircut
approach and an internal models
methodology—that a State savings
association may use instead of an LGD
estimation methodology to recognize the
benefits of financial collateral in mitigating
the counterparty credit risk of repo-style
transactions, eligible margin loans,
collateralized OTC derivative contracts, and
single product netting sets of such
transactions and to recognize the benefits of
any collateral in mitigating the counterparty
credit risk of repo-style transactions that are
included in a State savings association’s VaRbased measure under any applicable market
risk rule. A third methodology, the simple
VaR methodology, is available for single
product netting sets of repo-style transactions
and eligible margin loans.
(2) This section also describes the
methodology for calculating EAD for an OTC
derivative contract or a set of OTC derivative
contracts subject to a qualifying master
netting agreement. A State savings
association also may use the internal models
methodology to estimate EAD for qualifying
cross-product master netting agreements.
(3) A State savings association may only
use the standard supervisory haircut
approach with a minimum 10-business-day
holding period to recognize in EAD the
benefits of conforming residential mortgage
collateral that secures repo-style transactions
(other than repo-style transactions included
in the State savings association’s VaR-based
measure under any applicable market risk
rule), eligible margin loans, and OTC
derivative contracts.
(4) A State savings association may use any
combination of the three methodologies for
collateral recognition; however, it must use
the same methodology for similar exposures.
(b) EAD for eligible margin loans and repostyle transactions—(1) General. A State
savings association may recognize the credit
risk mitigation benefits of financial collateral
that secures an eligible margin loan, repostyle transaction, or single-product netting
set of such transactions by factoring the
collateral into its LGD estimates for the
exposure. Alternatively, a State savings
association may estimate an unsecured LGD
for the exposure, as well as for any repo-style
transaction that is included in the State
savings association’s VaR-based measure
under any applicable market risk rule, and
determine the EAD of the exposure using:
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(i) The collateral haircut approach
described in paragraph (b)(2) of this section;
(ii) For netting sets only, the simple VaR
methodology described in paragraph (b)(3) of
this section; or
(iii) The internal models methodology
described in paragraph (d) of this section.
(2) Collateral haircut approach—(i) EAD
equation. A State savings association may
determine EAD for an eligible margin loan,
repo-style transaction, or netting set by
setting EAD equal to max {0, [(SE¥SC) +
S(Es × Hs) + S(Efx × Hfx)]}, where:
(A) SE equals the value of the exposure (the
sum of the current market values of all
instruments, gold, and cash the State savings
association has lent, sold subject to
repurchase, or posted as collateral to the
counterparty under the transaction (or
netting set));
(B) SC equals the value of the collateral
(the sum of the current market values of all
instruments, gold, and cash the State savings
association has borrowed, purchased subject
to resale, or taken as collateral from the
counterparty under the transaction (or
netting set));
(C) Es equals the absolute value of the net
position in a given instrument or in gold
(where the net position in a given instrument
or in gold equals the sum of the current
market values of the instrument or gold the
State savings association has lent, sold
subject to repurchase, or posted as collateral
to the counterparty minus the sum of the
current market values of that same
instrument or gold the State savings
association has borrowed, purchased subject
to resale, or taken as collateral from the
counterparty);
(D) Hs equals the market price volatility
haircut appropriate to the instrument or gold
referenced in Es;
(E) Efx equals the absolute value of the net
position of instruments and cash in a
currency that is different from the settlement
currency (where the net position in a given
currency equals the sum of the current
market values of any instruments or cash in
the currency the State savings association has
lent, sold subject to repurchase, or posted as
collateral to the counterparty minus the sum
of the current market values of any
instruments or cash in the currency the State
savings association has borrowed, purchased
subject to resale, or taken as collateral from
the counterparty); and
(F) Hfx equals the haircut appropriate to
the mismatch between the currency
referenced in Efx and the settlement
currency.
(ii) Standard supervisory haircuts. (A)
Under the standard supervisory haircuts
approach:
(1) A State savings association must use the
haircuts for market price volatility (Hs) in
Table 3, as adjusted in certain circumstances
as provided in paragraph (b)(2)(ii)(A)(3) and
(4) of this section;
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TABLE 3—STANDARD SUPERVISORY MARKET PRICE VOLATILITY HAIRCUTS 3
Residual maturity for debt
securities
Two highest investment-grade rating categories for long-term ratings/
highest investment-grade rating category for short-term ratings.
≤ 1 year ........................................
>1 year, ≤ 5 years ........................
> 5 years .......................................
≤ 1 year ........................................
> 1 year, ≤ 5 years .......................
> 5 years .......................................
All ..................................................
Two lowest investment-grade rating categories for both short- and
long-term ratings.
One rating category below investment grade ......................................
Main index equities (including convertible bonds) and gold ...........................................................................
Other publicly traded equities (including convertible bonds), conforming residential mortgages, and nonfinancial collateral.
Mutual funds ....................................................................................................................................................
Cash on deposit with the State savings association (including a certificate of deposit issued by the State
savings association).
(2) For currency mismatches, a State
savings association must use a haircut for
foreign exchange rate volatility (Hfx) of 8
percent, as adjusted in certain circumstances
as provided in paragraph (b)(2)(ii)(A)(3) and
(4) of this section.
(3) For repo-style transactions, a State
savings association may multiply the
supervisory haircuts provided in paragraphs
(b)(2)(ii)(A)(1) and (2) of this section by the
square root of 1⁄2 (which equals 0.707107).
(4) A State savings association must adjust
the supervisory haircuts upward on the basis
of a holding period longer than ten business
days (for eligible margin loans) or five
business days (for repo-style transactions)
where and as appropriate to take into account
the illiquidity of an instrument.
(iii) Own internal estimates for haircuts.
With the prior written approval of the FDIC,
a State savings association may calculate
haircuts (Hs and Hfx) using its own internal
estimates of the volatilities of market prices
and foreign exchange rates.
(A) To receive FDIC approval to use its
own internal estimates, a State savings
association must satisfy the following
minimum quantitative standards:
(1) A State savings association must use a
99th percentile one-tailed confidence
interval.
(2) The minimum holding period for a
repo-style transaction is five business days
and for an eligible margin loan is ten
business days. When a State savings
association calculates an own-estimates
haircut on a TN-day holding period, which is
different from the minimum holding period
for the transaction type, the applicable
haircut (HM) is calculated using the following
square root of time formula:
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Issuers exempt
from the
3 basis point
floor
(i) TM equals 5 for repo-style transactions and
10 for eligible margin loans;
3 The market price volatility haircuts in Table 3
are based on a ten-business-day holding period.
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(ii) TN equals the holding period used by the
State savings association to derive HN;
and
(iii) HN equals the haircut based on the
holding period TN.
(3) A State savings association must adjust
holding periods upwards where and as
appropriate to take into account the
illiquidity of an instrument.
(4) The historical observation period must
be at least one year.
(5) A State savings association must update
its data sets and recompute haircuts no less
frequently than quarterly and must also
reassess data sets and haircuts whenever
market prices change materially.
(B) With respect to debt securities that
have an applicable external rating of
investment grade, a State savings association
may calculate haircuts for categories of
securities. For a category of securities, the
State savings association must calculate the
haircut on the basis of internal volatility
estimates for securities in that category that
are representative of the securities in that
category that the State savings association
has lent, sold subject to repurchase, posted
as collateral, borrowed, purchased subject to
resale, or taken as collateral. In determining
relevant categories, the State savings
association must at a minimum take into
account:
(1) The type of issuer of the security;
(2) The applicable external rating of the
security;
(3) The maturity of the security; and
(4) The interest rate sensitivity of the
security.
(C) With respect to debt securities that
have an applicable external rating of below
investment grade and equity securities, a
State savings association must calculate a
separate haircut for each individual security.
(D) Where an exposure or collateral
(whether in the form of cash or securities) is
denominated in a currency that differs from
the settlement currency, the State savings
association must calculate a separate
currency mismatch haircut for its net
position in each mismatched currency based
on estimated volatilities of foreign exchange
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Other issuers
0.005
0.02
0.04
0.01
0.03
0.06
0.15
0.01
0.04
0.08
0.02
0.06
0.12
0.25
0.15
0.25
Highest haircut applicable to any
security in which the fund can invest.
0
rates between the mismatched currency and
the settlement currency.
(E) A State savings association’s own
estimates of market price and foreign
exchange rate volatilities may not take into
account the correlations among securities
and foreign exchange rates on either the
exposure or collateral side of a transaction (or
netting set) or the correlations among
securities and foreign exchange rates between
the exposure and collateral sides of the
transaction (or netting set).
(3) Simple VaR methodology. With the
prior written approval of the FDIC, a State
savings association may estimate EAD for a
netting set using a VaR model that meets the
requirements in paragraph (b)(3)(iii) of this
section. In such event, the State savings
association must set EAD equal to max {0,
[(SE¥SC) + PFE]}, where:
(i) SE equals the value of the exposure (the
sum of the current market values of all
instruments, gold, and cash the State
savings association has lent, sold subject
to repurchase, or posted as collateral to
the counterparty under the netting set);
(ii) SC equals the value of the collateral (the
sum of the current market values of all
instruments, gold, and cash the State
savings association has borrowed,
purchased subject to resale, or taken as
collateral from the counterparty under
the netting set); and
(iii) PFE (potential future exposure) equals
the State savings association’s
empirically based best estimate of the
99th percentile, one-tailed confidence
interval for an increase in the value of
(SE¥SC) over a five-business-day
holding period for repo-style
transactions or over a ten-business-day
holding period for eligible margin loans
using a minimum one-year historical
observation period of price data
representing the instruments that the
State savings association has lent, sold
subject to repurchase, posted as
collateral, borrowed, purchased subject
to resale, or taken as collateral. The State
savings association must validate its VaR
model, including by establishing and
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Applicable external rating grade category for debt securities
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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations
maintaining a rigorous and regular backtesting regime.
(c) EAD for OTC derivative contracts. (1) A
State savings association must determine the
EAD for an OTC derivative contract that is
not subject to a qualifying master netting
agreement using the current exposure
methodology in paragraph (c)(5) of this
section or using the internal models
methodology described in paragraph (d) of
this section.
(2) A State savings association must
determine the EAD for multiple OTC
derivative contracts that are subject to a
qualifying master netting agreement using the
current exposure methodology in paragraph
(c)(6) of this section or using the internal
models methodology described in paragraph
(d) of this section.
(3) Counterparty credit risk for credit
derivatives. Notwithstanding the above, (i) a
State savings association that purchases a
credit derivative that is recognized under
section 33 or 34 of this appendix as a credit
risk mitigant for an exposure that is not a
covered position under any applicable
market risk rule need not compute a separate
counterparty credit risk capital requirement
under this section so long as the State savings
association does so consistently for all such
credit derivatives and either includes all or
excludes all such credit derivatives that are
subject to a master netting agreement from
any measure used to determine counterparty
credit risk exposure to all relevant
counterparties for risk-based capital
purposes.
(ii) A State savings association that is the
protection provider in a credit derivative
must treat the credit derivative as a
wholesale exposure to the reference obligor
and need not compute a counterparty credit
risk capital requirement for the credit
derivative under this section, so long as it
does so consistently for all such credit
derivatives and either includes all or
excludes all such credit derivatives that are
subject to a master netting agreement from
any measure used to determine counterparty
credit risk exposure to all relevant
counterparties for risk-based capital purposes
(unless the State savings association is
treating the credit derivative as a covered
position under any applicable market risk
rule, in which case the State savings
association must compute a supplemental
counterparty credit risk capital requirement
under this section).
(4) Counterparty credit risk for equity
derivatives. A State savings association must
treat an equity derivative contract as an
equity exposure and compute a risk-weighted
asset amount for the equity derivative
contract under part VI (unless the State
savings association is treating the contract as
a covered position under any applicable
market risk rule). In addition, if the State
savings association is treating the contract as
a covered position under any applicable
market risk rule and in certain other cases
described in section 55 of this appendix, the
State savings association must also calculate
a risk-based capital requirement for the
counterparty credit risk of an equity
derivative contract under this subpart.
(5) Single OTC derivative contract. Except
as modified by paragraph (c)(7) of this
section, the EAD for a single OTC derivative
contract that is not subject to a qualifying
master netting agreement is equal to the sum
of the State savings association’s current
credit exposure and potential future credit
exposure (PFE) on the derivative contract.
(i) Current credit exposure. The current
credit exposure for a single OTC derivative
contract is the greater of the mark-to-market
value of the derivative contract or zero.
(ii) PFE. The PFE for a single OTC
derivative contract, including an OTC
derivative contract with a negative mark-tomarket value, is calculated by multiplying
the notional principal amount of the
derivative contract by the appropriate
conversion factor in Table 4. For purposes of
calculating either the PFE under this
paragraph or the gross PFE under paragraph
(c)(6) of this section for exchange rate
contracts and other similar contracts in
which the notional principal amount is
equivalent to the cash flows, notional
principal amount is the net receipts to each
party falling due on each value date in each
currency. For any OTC derivative contract
that does not fall within one of the specified
categories in Table 4, the PFE must be
calculated using the ‘‘other’’ conversion
factors. A State savings association must use
an OTC derivative contract’s effective
notional principal amount (that is, its
apparent or stated notional principal amount
multiplied by any multiplier in the OTC
derivative contract) rather than its apparent
or stated notional principal amount in
calculating PFE. PFE of the protection
provider of a credit derivative is capped at
the net present value of the amount of unpaid
premiums.
TABLE 4—CONVERSION FACTOR MATRIX FOR OTC DERIVATIVE CONTRACTS 4
Remaining maturity 5
Interest rate
One year or less ........................
Over one to five years ...............
Over five years ...........................
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4 For an OTC derivative contract with multiple
exchanges of principal, the conversion factor is
multiplied by the number of remaining payments in
the derivative contract.
5 For an OTC derivative contract that is structured
such that on specified dates any outstanding
exposure is settled and the terms are reset so that
the market value of the contract is zero, the
remaining maturity equals the time until the next
reset date. For an interest rate derivative contract
with a remaining maturity of greater than one year
that meets these criteria, the minimum conversion
factor is 0.005.
6 A State savings association must use the column
labeled ‘‘Credit (investment-grade reference
obligor)’’ for a credit derivative whose reference
obligor has an outstanding unsecured long-term
debt security without credit enhancement that has
a long-term applicable external rating of at least
investment grade. A State savings association must
use the column labeled ‘‘Credit (non-investmentgrade reference obligor)’’ for all other credit
derivatives.
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17:13 Aug 04, 2011
Credit (investment-grade reference obligor) 6
0.01
0.05
0.075
0.05
0.05
0.05
0.00
0.005
0.015
(6) Multiple OTC derivative contracts
subject to a qualifying master netting
Jkt 223001
Credit (non-investment-grade
reference obligor)
Foreign
exchange
rate and gold
agreement. Except as modified by paragraph
(c)(7) of this section, the EAD for multiple
OTC derivative contracts subject to a
qualifying master netting agreement is equal
to the sum of the net current credit exposure
and the adjusted sum of the PFE exposure for
all OTC derivative contracts subject to the
qualifying master netting agreement.
(i) Net current credit exposure. The net
current credit exposure is the greater of:
(A) The net sum of all positive and
negative mark-to-market values of the
individual OTC derivative contracts subject
to the qualifying master netting agreement; or
(B) zero.
(ii) Adjusted sum of the PFE. The adjusted
sum of the PFE, Anet, is calculated as Anet
= (0.4×Agross)+(0.6×NGR×Agross), where:
(A) Agross = the gross PFE (that is, the sum
of the PFE amounts (as determined
under paragraph (c)(5)(ii) of this section)
for each individual OTC derivative
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Equity
0.10
0.10
0.10
0.06
0.08
0.10
Precious
metals (except gold)
0.07
0.07
0.08
Other
0.10
0.12
0.15
contract subject to the qualifying master
netting agreement); and
(B) NGR = the net to gross ratio (that is, the
ratio of the net current credit exposure
to the gross current credit exposure). In
calculating the NGR, the gross current
credit exposure equals the sum of the
positive current credit exposures (as
determined under paragraph (c)(5)(i) of
this section) of all individual OTC
derivative contracts subject to the
qualifying master netting agreement.
(7) Collateralized OTC derivative contracts.
A State savings association may recognize the
credit risk mitigation benefits of financial
collateral that secures an OTC derivative
contract or single-product netting set of OTC
derivatives by factoring the collateral into its
LGD estimates for the contract or netting set.
Alternatively, a State savings association may
recognize the credit risk mitigation benefits
of financial collateral that secures such a
contract or netting set that is marked to
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(that is, effective EPE is the time-weighted
average of effective EE where the weights are
the proportion that an individual effective EE
represents in a one-year time interval) where:
(1) Effective EEtk= max (Effective EEtk¥1,
EEtk) (that is, for a specific datetk,
effective EE is the greater of EE at that
date or the effective EE at the previous
date); and
(2)tk represents the kth future time period in
the model and there are n time periods
represented in the model over the first
year; and
(B) a = 1.4 except as provided in paragraph
(d)(6), or when the FDIC has determined
that the State savings association must
set a higher based on the State savings
association’s specific characteristics of
counterparty credit risk.
(iii) A State savings association may
include financial collateral currently posted
by the counterparty as collateral (but may not
include other forms of collateral) when
calculating EE.
(iv) If a State savings association hedges
some or all of the counterparty credit risk
associated with a netting set using an eligible
credit derivative, the State savings
association may take the reduction in
exposure to the counterparty into account
when estimating EE. If the State savings
association recognizes this reduction in
exposure to the counterparty in its estimate
of EE, it must also use its internal model to
estimate a separate EAD for the State savings
association’s exposure to the protection
provider of the credit derivative.
(3) To obtain the FDIC’s approval to
calculate the distributions of exposures upon
which the EAD calculation is based, the State
savings association must demonstrate to the
satisfaction of the FDIC that it has been using
for at least one year an internal model that
broadly meets the following minimum
standards, with which the State savings
association must maintain compliance:
(i) The model must have the systems
capability to estimate the expected exposure
to the counterparty on a daily basis (but is
not expected to estimate or report expected
exposure on a daily basis).
(ii) The model must estimate expected
exposure at enough future dates to reflect
accurately all the future cash flows of
contracts in the netting set.
(iii) The model must account for the
possible non-normality of the exposure
distribution, where appropriate.
(iv) The State savings association must
measure, monitor, and control current
counterparty exposure and the exposure to
the counterparty over the whole life of all
contracts in the netting set.
(v) The State savings association must be
able to measure and manage current
exposures gross and net of collateral held,
where appropriate. The State savings
association must estimate expected
exposures for OTC derivative contracts both
with and without the effect of collateral
agreements.
(vi) The State savings association must
have procedures to identify, monitor, and
control specific wrong-way risk throughout
the life of an exposure. Wrong-way risk in
this context is the risk that future exposure
to a counterparty will be high when the
counterparty’s probability of default is also
high.
(vii) The model must use current market
data to compute current exposures. When
estimating model parameters based on
historical data, at least three years of
historical data that cover a wide range of
economic conditions must be used and must
be updated quarterly or more frequently if
market conditions warrant. The State savings
association should consider using model
parameters based on forward-looking
measures, where appropriate.
(viii) A State savings association must
subject its internal model to an initial
validation and annual model review process.
The model review should consider whether
the inputs and risk factors, as well as the
model outputs, are appropriate.
(4) Maturity. (i) If the remaining maturity
of the exposure or the longest-dated contract
in the netting set is greater than one year, the
State savings association must set M for the
exposure or netting set equal to the lower of
five years or M(EPE),7 where:
(B) dfk is the risk-free discount factor for
future time period tk; and
(C) Dtk = tk¥ tk¥1.
(ii) If the remaining maturity of the
exposure or the longest-dated contract in the
netting set is one year or less, the State
savings association must set M for the
exposure or netting set equal to one year,
except as provided in paragraph (d)(7) of
section 31 of this appendix.
(5) Collateral agreements. A State savings
association may capture the effect on EAD of
a collateral agreement that requires receipt of
collateral when exposure to the counterparty
increases but may not capture the effect on
EAD of a collateral agreement that requires
receipt of collateral when counterparty credit
quality deteriorates. For this purpose, a
7 Alternatively, a State savings association that
uses an internal model to calculate a one-sided
credit valuation adjustment may use the effective
credit duration estimated by the model as M(EPE)
in place of the formula in paragraph (d)(4).
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ER05AU11.005</GPH>
for changes in the market value of a netting
set that are attributable to changes in market
variables to determine EE.
(ii) Under the internal models
methodology, EAD = a x effective EPE, or,
subject to FDIC approval as provided in
paragraph (d)(7), a more conservative
measure of EAD.
ER05AU11.004</GPH>
mstockstill on DSK4VPTVN1PROD with RULES2
market on a daily basis and subject to a daily
margin maintenance requirement by
estimating an unsecured LGD for the contract
or netting set and adjusting the EAD
calculated under paragraph (c)(5) or (c)(6) of
this section using the collateral haircut
approach in paragraph (b)(2) of this section.
The State savings association must substitute
the EAD calculated under paragraph (c)(5) or
(c)(6) of this section for SE in the equation
in paragraph (b)(2)(i) of this section and must
use a ten-business-day minimum holding
period (TM= 10).
(d) Internal models methodology. (1) With
prior written approval from the FDIC, a State
savings association may use the internal
models methodology in this paragraph (d) to
determine EAD for counterparty credit risk
for OTC derivative contracts (collateralized
or uncollateralized) and single-product
netting sets thereof, for eligible margin loans
and single-product netting sets thereof, and
for repo-style transactions and single-product
netting sets thereof. A State savings
association that uses the internal models
methodology for a particular transaction type
(OTC derivative contracts, eligible margin
loans, or repo-style transactions) must use
the internal models methodology for all
transactions of that transaction type. A State
savings association may choose to use the
internal models methodology for one or two
of these three types of exposures and not the
other types. A State savings association may
also use the internal models methodology for
OTC derivative contracts, eligible margin
loans, and repo-style transactions subject to
a qualifying cross-product netting agreement
if:
(i) The State savings association effectively
integrates the risk mitigating effects of crossproduct netting into its risk management and
other information technology systems; and
(ii) The State savings association obtains
the prior written approval of the FDIC. A
State savings association that uses the
internal models methodology for a
transaction type must receive approval from
the FDIC to cease using the methodology for
that transaction type or to make a material
change to its internal model.
(2) Under the internal models
methodology, a State savings association uses
an internal model to estimate the expected
exposure (EE) for a netting set and then
calculates EAD based on that EE.
(i) The State savings association must use
its internal model’s probability distribution
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collateral agreement means a legal contract
that specifies the time when, and
circumstances under which, the counterparty
is required to pledge collateral to the State
savings association for a single financial
contract or for all financial contracts in a
netting set and confers upon the State savings
association a perfected, first priority security
interest (notwithstanding the prior security
interest of any custodial agent), or the legal
equivalent thereof, in the collateral posted by
the counterparty under the agreement. This
security interest must provide the State
savings association with a right to close out
the financial positions and liquidate the
collateral upon an event of default of, or
failure to perform by, the counterparty under
the collateral agreement. A contract would
not satisfy this requirement if the State
savings association’s exercise of rights under
the agreement may be stayed or avoided
under applicable law in the relevant
jurisdictions. Two methods are available to
capture the effect of a collateral agreement:
(i) With prior written approval from the
FDIC, a State savings association may include
the effect of a collateral agreement within its
internal model used to calculate EAD. The
State savings association may set EAD equal
to the expected exposure at the end of the
margin period of risk. The margin period of
risk means, with respect to a netting set
subject to a collateral agreement, the time
period from the most recent exchange of
collateral with a counterparty until the next
required exchange of collateral plus the
period of time required to sell and realize the
proceeds of the least liquid collateral that can
be delivered under the terms of the collateral
agreement and, where applicable, the period
of time required to re-hedge the resulting
market risk, upon the default of the
counterparty. The minimum margin period of
risk is five business days for repo-style
transactions and ten business days for other
transactions when liquid financial collateral
is posted under a daily margin maintenance
requirement. This period should be extended
to cover any additional time between margin
calls; any potential closeout difficulties; any
delays in selling collateral, particularly if the
collateral is illiquid; and any impediments to
prompt re-hedging of any market risk.
(ii) A State savings association that can
model EPE without collateral agreements but
cannot achieve the higher level of modeling
sophistication to model EPE with collateral
agreements can set effective EPE for a
collateralized netting set equal to the lesser
of:
(A) The threshold, defined as the exposure
amount at which the counterparty is required
to post collateral under the collateral
agreement, if the threshold is positive, plus
an add-on that reflects the potential increase
in exposure of the netting set over the margin
period of risk. The add-on is computed as the
expected increase in the netting set’s
exposure beginning from current exposure of
zero over the margin period of risk. The
margin period of risk must be at least five
business days for netting sets consisting only
of repo-style transactions subject to daily remargining and daily marking-to-market, and
ten business days for all other netting sets;
or
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(B) Effective EPE without a collateral
agreement.
(6) Own estimate of alpha. With prior
written approval of the FDIC, a State savings
association may calculate alpha as the ratio
of economic capital from a full simulation of
counterparty exposure across counterparties
that incorporates a joint simulation of market
and credit risk factors (numerator) and
economic capital based on EPE
(denominator), subject to a floor of 1.2. For
purposes of this calculation, economic
capital is the unexpected losses for all
counterparty credit risks measured at a 99.9
percent confidence level over a one-year
horizon. To receive approval, the State
savings association must meet the following
minimum standards to the satisfaction of the
FDIC:
(i) The State savings association’s own
estimate of alpha must capture in the
numerator the effects of:
(A) The material sources of stochastic
dependency of distributions of market values
of transactions or portfolios of transactions
across counterparties;
(B) Volatilities and correlations of market
risk factors used in the joint simulation,
which must be related to the credit risk factor
used in the simulation to reflect potential
increases in volatility or correlation in an
economic downturn, where appropriate; and
(C) The granularity of exposures (that is,
the effect of a concentration in the proportion
of each counterparty’s exposure that is driven
by a particular risk factor).
(ii) The State savings association must
assess the potential model uncertainty in its
estimates of alpha.
(iii) The State savings association must
calculate the numerator and denominator of
alpha in a consistent fashion with respect to
modeling methodology, parameter
specifications, and portfolio composition.
(iv) The State savings association must
review and adjust as appropriate its estimates
of the numerator and denominator of alpha
on at least a quarterly basis and more
frequently when the composition of the
portfolio varies over time.
(7) Other measures of counterparty
exposure. With prior written approval of the
FDIC, a State savings association may set
EAD equal to a measure of counterparty
credit risk exposure, such as peak EAD, that
is more conservative than an alpha of 1.4 (or
higher under the terms of paragraph
(d)(2)(ii)(B) of this section) times EPE for
every counterparty whose EAD will be
measured under the alternative measure of
counterparty exposure. The State savings
association must demonstrate the
conservatism of the measure of counterparty
credit risk exposure used for EAD. For
material portfolios of new OTC derivative
products, the State savings association may
assume that the current exposure
methodology in paragraphs (c)(5) and (c)(6)
of this section meets the conservatism
requirement of this paragraph for a period
not to exceed 180 days. For immaterial
portfolios of OTC derivative contracts, the
State savings association generally may
assume that the current exposure
methodology in paragraphs (c)(5) and (c)(6)
of this section meets the conservatism
requirement of this paragraph.
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47793
Section 33. Guarantees and Credit
Derivatives: PD Substitution and LGD
Adjustment Approaches
(a) Scope. (1) This section applies to
wholesale exposures for which:
(i) Credit risk is fully covered by an eligible
guarantee or eligible credit derivative; or
(ii) Credit risk is covered on a pro rata basis
(that is, on a basis in which the State savings
association and the protection provider share
losses proportionately) by an eligible
guarantee or eligible credit derivative.
(2) Wholesale exposures on which there is
a tranching of credit risk (reflecting at least
two different levels of seniority) are
securitization exposures subject to the
securitization framework in part V.
(3) A State savings association may elect to
recognize the credit risk mitigation benefits
of an eligible guarantee or eligible credit
derivative covering an exposure described in
paragraph (a)(1) of this section by using the
PD substitution approach or the LGD
adjustment approach in paragraph (c) of this
section or, if the transaction qualifies, using
the double default treatment in section 34 of
this appendix. A State savings association’s
PD and LGD for the hedged exposure may not
be lower than the PD and LGD floors
described in paragraphs (d)(2) and (d)(3) of
section 31 of this appendix.
(4) If multiple eligible guarantees or
eligible credit derivatives cover a single
exposure described in paragraph (a)(1) of this
section, a State savings association may treat
the hedged exposure as multiple separate
exposures each covered by a single eligible
guarantee or eligible credit derivative and
may calculate a separate risk-based capital
requirement for each separate exposure as
described in paragraph (a)(3) of this section.
(5) If a single eligible guarantee or eligible
credit derivative covers multiple hedged
wholesale exposures described in paragraph
(a)(1) of this section, a State savings
association must treat each hedged exposure
as covered by a separate eligible guarantee or
eligible credit derivative and must calculate
a separate risk-based capital requirement for
each exposure as described in paragraph
(a)(3) of this section.
(6) A State savings association must use the
same risk parameters for calculating ECL as
it uses for calculating the risk-based capital
requirement for the exposure.
(b) Rules of recognition. (1) A State savings
association may only recognize the credit risk
mitigation benefits of eligible guarantees and
eligible credit derivatives.
(2) A State savings association may only
recognize the credit risk mitigation benefits
of an eligible credit derivative to hedge an
exposure that is different from the credit
derivative’s reference exposure used for
determining the derivative’s cash settlement
value, deliverable obligation, or occurrence
of a credit event if:
(i) The reference exposure ranks pari passu
(that is, equally) with or is junior to the
hedged exposure; and
(ii) The reference exposure and the hedged
exposure are exposures to the same legal
entity, and legally enforceable cross-default
or cross-acceleration clauses are in place to
assure payments under the credit derivative
are triggered when the obligor fails to pay
under the terms of the hedged exposure.
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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations
(c) Risk parameters for hedged exposures—
(1) PD substitution approach—(i) Full
coverage. If an eligible guarantee or eligible
credit derivative meets the conditions in
paragraphs (a) and (b) of this section and the
protection amount (P) of the guarantee or
credit derivative is greater than or equal to
the EAD of the hedged exposure, a State
savings association may recognize the
guarantee or credit derivative in determining
the State savings association’s risk-based
capital requirement for the hedged exposure
by substituting the PD associated with the
rating grade of the protection provider for the
PD associated with the rating grade of the
obligor in the risk-based capital formula
applicable to the guarantee or credit
derivative in Table 2 and using the
appropriate LGD as described in paragraph
(c)(1)(iii) of this section. If the State savings
association determines that full substitution
of the protection provider’s PD leads to an
inappropriate degree of risk mitigation, the
State savings association may substitute a
higher PD than that of the protection
provider.
(ii) Partial coverage. If an eligible guarantee
or eligible credit derivative meets the
conditions in paragraphs (a) and (b) of this
section and the protection amount (P) of the
guarantee or credit derivative is less than the
EAD of the hedged exposure, the State
savings association must treat the hedged
exposure as two separate exposures
(protected and unprotected) in order to
recognize the credit risk mitigation benefit of
the guarantee or credit derivative.
(A) The State savings association must
calculate its risk-based capital requirement
for the protected exposure under section 31
of this appendix, where PD is the protection
provider’s PD, LGD is determined under
paragraph (c)(1)(iii) of this section, and EAD
is P. If the State savings association
determines that full substitution leads to an
inappropriate degree of risk mitigation, the
State savings association may use a higher PD
than that of the protection provider.
(B) The State savings association must
calculate its risk-based capital requirement
for the unprotected exposure under section
31 of this appendix, where PD is the obligor’s
PD, LGD is the hedged exposure’s LGD (not
adjusted to reflect the guarantee or credit
derivative), and EAD is the EAD of the
original hedged exposure minus P.
(C) The treatment in this paragraph
(c)(1)(ii) is applicable when the credit risk of
a wholesale exposure is covered on a partial
pro rata basis or when an adjustment is made
to the effective notional amount of the
guarantee or credit derivative under
paragraph (d), (e), or (f) of this section.
(iii) LGD of hedged exposures. The LGD of
a hedged exposure under the PD substitution
approach is equal to:
(A) The lower of the LGD of the hedged
exposure (not adjusted to reflect the
guarantee or credit derivative) and the LGD
of the guarantee or credit derivative, if the
guarantee or credit derivative provides the
State savings association with the option to
receive immediate payout upon triggering the
protection; or
(B) The LGD of the guarantee or credit
derivative, if the guarantee or credit
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derivative does not provide the State savings
association with the option to receive
immediate payout upon triggering the
protection.
(2) LGD adjustment approach—(i) Full
coverage. If an eligible guarantee or eligible
credit derivative meets the conditions in
paragraphs (a) and (b) of this section and the
protection amount (P) of the guarantee or
credit derivative is greater than or equal to
the EAD of the hedged exposure, the State
savings association’s risk-based capital
requirement for the hedged exposure is the
greater of:
(A) The risk-based capital requirement for
the exposure as calculated under section 31
of this appendix, with the LGD of the
exposure adjusted to reflect the guarantee or
credit derivative; or
(B) The risk-based capital requirement for
a direct exposure to the protection provider
as calculated under section 31 of this
appendix, using the PD for the protection
provider, the LGD for the guarantee or credit
derivative, and an EAD equal to the EAD of
the hedged exposure.
(ii) Partial coverage. If an eligible guarantee
or eligible credit derivative meets the
conditions in paragraphs (a) and (b) of this
section and the protection amount (P) of the
guarantee or credit derivative is less than the
EAD of the hedged exposure, the State
savings association must treat the hedged
exposure as two separate exposures
(protected and unprotected) in order to
recognize the credit risk mitigation benefit of
the guarantee or credit derivative.
(A) The State savings association’s riskbased capital requirement for the protected
exposure would be the greater of:
(1) The risk-based capital requirement for
the protected exposure as calculated under
section 31 of this appendix, with the LGD of
the exposure adjusted to reflect the guarantee
or credit derivative and EAD set equal to P;
or
(2) The risk-based capital requirement for
a direct exposure to the guarantor as
calculated under section 31 of this appendix,
using the PD for the protection provider, the
LGD for the guarantee or credit derivative,
and an EAD set equal to P.
(B) The State savings association must
calculate its risk-based capital requirement
for the unprotected exposure under section
31 of this appendix, where PD is the obligor’s
PD, LGD is the hedged exposure’s LGD (not
adjusted to reflect the guarantee or credit
derivative), and EAD is the EAD of the
original hedged exposure minus P.
(3) M of hedged exposures. The M of the
hedged exposure is the same as the M of the
exposure if it were unhedged.
(d) Maturity mismatch. (1) A State savings
association that recognizes an eligible
guarantee or eligible credit derivative in
determining its risk-based capital
requirement for a hedged exposure must
adjust the effective notional amount of the
credit risk mitigant to reflect any maturity
mismatch between the hedged exposure and
the credit risk mitigant.
(2) A maturity mismatch occurs when the
residual maturity of a credit risk mitigant is
less than that of the hedged exposure(s).
(3) The residual maturity of a hedged
exposure is the longest possible remaining
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time before the obligor is scheduled to fulfill
its obligation on the exposure. If a credit risk
mitigant has embedded options that may
reduce its term, the State savings association
(protection purchaser) must use the shortest
possible residual maturity for the credit risk
mitigant. If a call is at the discretion of the
protection provider, the residual maturity of
the credit risk mitigant is at the first call date.
If the call is at the discretion of the State
savings association (protection purchaser),
but the terms of the arrangement at
origination of the credit risk mitigant contain
a positive incentive for the State savings
association to call the transaction before
contractual maturity, the remaining time to
the first call date is the residual maturity of
the credit risk mitigant. For example, where
there is a step-up in cost in conjunction with
a call feature or where the effective cost of
protection increases over time even if credit
quality remains the same or improves, the
residual maturity of the credit risk mitigant
will be the remaining time to the first call.
(4) A credit risk mitigant with a maturity
mismatch may be recognized only if its
original maturity is greater than or equal to
one year and its residual maturity is greater
than three months.
(5) When a maturity mismatch exists, the
State savings association must apply the
following adjustment to the effective notional
amount of the credit risk mitigant: Pm = E
× (t¥0.25)/(T¥0.25), where:
(i) Pm = effective notional amount of the
credit risk mitigant, adjusted for maturity
mismatch;
(ii) E = effective notional amount of the
credit risk mitigant;
(iii) t = the lesser of T or the residual
maturity of the credit risk mitigant, expressed
in years; and
(iv) T = the lesser of five or the residual
maturity of the hedged exposure, expressed
in years.
(e) Credit derivatives without restructuring
as a credit event. If a State savings
association recognizes an eligible credit
derivative that does not include as a credit
event a restructuring of the hedged exposure
involving forgiveness or postponement of
principal, interest, or fees that results in a
credit loss event (that is, a charge-off, specific
provision, or other similar debit to the profit
and loss account), the State savings
association must apply the following
adjustment to the effective notional amount
of the credit derivative: Pr = Pm × 0.60,
where:
(1) Pr = effective notional amount of the
credit risk mitigant, adjusted for lack of
restructuring event (and maturity mismatch,
if applicable); and
(2) Pm = effective notional amount of the
credit risk mitigant adjusted for maturity
mismatch (if applicable).
(f) Currency mismatch. (1) If a State savings
association recognizes an eligible guarantee
or eligible credit derivative that is
denominated in a currency different from
that in which the hedged exposure is
denominated, the State savings association
must apply the following formula to the
effective notional amount of the guarantee or
credit derivative: Pc = Pr × (1¥HFX), where:
(i) Pc = effective notional amount of the
credit risk mitigant, adjusted for currency
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Section 34. Guarantees and Credit
Derivatives: Double Default Treatment
(a) Eligibility and operational criteria for
double default treatment. A State savings
association may recognize the credit risk
mitigation benefits of a guarantee or credit
derivative covering an exposure described in
paragraph (a)(1) of section 33 of this
appendix by applying the double default
(2) PDg = PD of the protection provider.
(3) PDo = PD of the obligor of the hedged
exposure.
(4) LGDg = (i) The lower of the LGD of the
hedged exposure (not adjusted to reflect
the guarantee or credit derivative) and
the LGD of the guarantee or credit
derivative, if the guarantee or credit
derivative provides the State savings
association with the option to receive
immediate payout on triggering the
protection; or
(ii) The LGD of the guarantee or credit
derivative, if the guarantee or credit
derivative does not provide the State
savings association with the option to
receive immediate payout on triggering
the protection.
(5) rOS(asset value correlation of the obligor)
is calculated according to the
appropriate formula for (R) provided in
Table 2 in section 31 of this appendix,
with PD equal to PDo.
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treatment in this section if all the following
criteria are satisfied.
(1) The hedged exposure is fully covered
or covered on a pro rata basis by:
(i) An eligible guarantee issued by an
eligible double default guarantor; or
(ii) An eligible credit derivative that meets
the requirements of paragraph (b)(2) of
section 33 of this appendix and is issued by
an eligible double default guarantor.
(2) The guarantee or credit derivative is:
(i) An uncollateralized guarantee or
uncollateralized credit derivative (for
example, a credit default swap) that provides
protection with respect to a single reference
obligor; or
(ii) An nth-to-default credit derivative
(subject to the requirements of paragraph (m)
of section 42 of this appendix).
(3) The hedged exposure is a wholesale
exposure (other than a sovereign exposure).
(4) The obligor of the hedged exposure is
not:
(i) An eligible double default guarantor or
an affiliate of an eligible double default
guarantor; or
(ii) An affiliate of the guarantor.
(5) The State savings association does not
recognize any credit risk mitigation benefits
of the guarantee or credit derivative for the
hedged exposure other than through
application of the double default treatment as
provided in this section.
(6) The State savings association has
implemented a process (which has received
the prior, written approval of the FDIC) to
detect excessive correlation between the
creditworthiness of the obligor of the hedged
exposure and the protection provider. If
excessive correlation is present, the State
savings association may not use the double
default treatment for the hedged exposure.
(b) Full coverage. If the transaction meets
the criteria in paragraph (a) of this section
and the protection amount (P) of the
guarantee or credit derivative is at least equal
to the EAD of the hedged exposure, the State
savings association may determine its riskweighted asset amount for the hedged
exposure under paragraph (e) of this section.
(c) Partial coverage. If the transaction
meets the criteria in paragraph (a) of this
section and the protection amount (P) of the
guarantee or credit derivative is less than the
EAD of the hedged exposure, the State
savings association must treat the hedged
exposure as two separate exposures
(protected and unprotected) in order to
recognize double default treatment on the
protected portion of the exposure.
(1) For the protected exposure, the State
savings association must set EAD equal to P
and calculate its risk-weighted asset amount
as provided in paragraph (e) of this section.
(2) For the unprotected exposure, the State
savings association must set EAD equal to the
EAD of the original exposure minus P and
then calculate its risk-weighted asset amount
as provided in section 31 of this appendix.
(d) Mismatches. For any hedged exposure
to which a State savings association applies
double default treatment, the State savings
association must make applicable
adjustments to the protection amount as
required in paragraphs (d), (e), and (f) of
section 33 of this appendix.
(e) The double default dollar risk-based
capital requirement. The dollar risk-based
capital requirement for a hedged exposure to
which a State savings association has applied
double default treatment is KDD multiplied
by the EAD of the exposure. KDD is calculated
according to the following formula: KDD= Ko×
(0.15 + 160 × PDg),
(6) b (maturity adjustment coefficient) is
calculated according to the formula for b
provided in Table 2 in section 31 of this
appendix, with PD equal to the lesser of
PDo and PDg.
(7) M (maturity) is the effective maturity of
the guarantee or credit derivative, which
may not be less than one year or greater
than five years.
obligated to make a final transfer of one or
more currencies only if the other
counterparty has made a final transfer of one
or more currencies.
(3) Normal settlement period. A transaction
has a normal settlement period if the
contractual settlement period for the
transaction is equal to or less than the market
standard for the instrument underlying the
transaction and equal to or less than five
business days.
(4) Positive current exposure. The positive
current exposure of a State savings
association for a transaction is the difference
between the transaction value at the agreed
settlement price and the current market price
of the transaction, if the difference results in
a credit exposure of the State savings
association to the counterparty.
(b) Scope. This section applies to all
transactions involving securities, foreign
exchange instruments, and commodities that
have a risk of delayed settlement or delivery.
This section does not apply to:
Section 35. Risk-Based Capital Requirement
for Unsettled Transactions
(a) Definitions. For purposes of this
section:
(1) Delivery-versus-payment (DvP)
transaction means a securities or
commodities transaction in which the buyer
is obligated to make payment only if the
seller has made delivery of the securities or
commodities and the seller is obligated to
deliver the securities or commodities only if
the buyer has made payment.
(2) Payment-versus-payment (PvP)
transaction means a foreign exchange
transaction in which each counterparty is
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Where:
(1)
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ER05AU11.006</GPH>
mismatch (and maturity mismatch and lack
of restructuring event, if applicable);
(ii) Pr = effective notional amount of the
credit risk mitigant (adjusted for maturity
mismatch and lack of restructuring event, if
applicable); and
(iii) HFX= haircut appropriate for the
currency mismatch between the credit risk
mitigant and the hedged exposure.
(2) A State savings association must set
HFX equal to 8 percent unless it qualifies for
the use of and uses its own internal estimates
of foreign exchange volatility based on a tenbusiness-day holding period and daily
marking-to-market and remargining. A State
savings association qualifies for the use of its
own internal estimates of foreign exchange
volatility if it qualifies for:
(i) The own-estimates haircuts in
paragraph (b)(2)(iii) of section 32 of this
appendix;
(ii) The simple VaR methodology in
paragraph (b)(3) of section 32 of this
appendix; or
(iii) The internal models methodology in
paragraph (d) of section 32 of this appendix.
(3) A State savings association must adjust
HFX calculated in paragraph (f)(2) of this
section upward if the State savings
association revalues the guarantee or credit
derivative less frequently than once every ten
business days using the square root of time
formula provided in paragraph
(b)(2)(iii)(A)(2) of section 32 of this appendix.
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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations
(1) Transactions accepted by a qualifying
central counterparty that are subject to daily
marking-to-market and daily receipt and
payment of variation margin;
(2) Repo-style transactions, including
unsettled repo-style transactions (which are
addressed in sections 31 and 32 of this
appendix);
(3) One-way cash payments on OTC
derivative contracts (which are addressed in
sections 31 and 32 of this appendix); or
(4) Transactions with a contractual
settlement period that is longer than the
normal settlement period (which are treated
as OTC derivative contracts and addressed in
sections 31 and 32 of this appendix).
(c) System-wide failures. In the case of a
system-wide failure of a settlement or
clearing system, the FDIC may waive riskbased capital requirements for unsettled and
failed transactions until the situation is
rectified.
(d) Delivery-versus-payment (DvP) and
payment-versus-payment (PvP) transactions.
A State savings association must hold riskbased capital against any DvP or PvP
transaction with a normal settlement period
if the State savings association’s counterparty
has not made delivery or payment within five
business days after the settlement date. The
State savings association must determine its
risk-weighted asset amount for such a
transaction by multiplying the positive
current exposure of the transaction for the
State savings association by the appropriate
risk weight in Table 5.
TABLE 5—RISK WEIGHTS FOR UNSETTLED DVP AND PVP TRANSACTIONS
Number of business days
after contractual
settlement date
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From
From
From
46 or
Risk weight to be
applied to
positive current
exposure
(percent)
5 to 15 .....................
16 to 30 ...................
31 to 45 ...................
more ........................
100
625
937.5
1,250
(e) Non-DvP/non-PvP (non-delivery-versuspayment/non-payment-versus-payment)
transactions. (1) A State savings association
must hold risk-based capital against any nonDvP/non-PvP transaction with a normal
settlement period if the State savings
association has delivered cash, securities,
commodities, or currencies to its
counterparty but has not received its
corresponding deliverables by the end of the
same business day. The State savings
association must continue to hold risk-based
capital against the transaction until the State
savings association has received its
corresponding deliverables.
(2) From the business day after the State
savings association has made its delivery
until five business days after the
counterparty delivery is due, the State
savings association must calculate its riskbased capital requirement for the transaction
by treating the current market value of the
deliverables owed to the State savings
association as a wholesale exposure.
(i) A State savings association may assign
an obligor rating to a counterparty for which
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Part V. Risk-Weighted Assets for
Securitization Exposures
(1) The credit risk mitigant is financial
collateral, an eligible credit derivative from
an eligible securitization guarantor or an
eligible guarantee from an eligible
securitization guarantor;
(2) The State savings association transfers
credit risk associated with the underlying
exposures to third parties, and the terms and
conditions in the credit risk mitigants
employed do not include provisions that:
(i) Allow for the termination of the credit
protection due to deterioration in the credit
quality of the underlying exposures;
(ii) Require the State savings association to
alter or replace the underlying exposures to
improve the credit quality of the pool of
underlying exposures;
(iii) Increase the State savings association’s
cost of credit protection in response to
deterioration in the credit quality of the
underlying exposures;
(iv) Increase the yield payable to parties
other than the State savings association in
response to a deterioration in the credit
quality of the underlying exposures; or
(v) Provide for increases in a retained first
loss position or credit enhancement provided
by the State savings association after the
inception of the securitization;
(3) The State savings association obtains a
well-reasoned opinion from legal counsel
that confirms the enforceability of the credit
risk mitigant in all relevant jurisdictions; and
(4) Any clean-up calls relating to the
securitization are eligible clean-up calls.
Section 41. Operational Criteria for
Recognizing the Transfer of Risk
(a) Operational criteria for traditional
securitizations. A State savings association
that transfers exposures it has originated or
purchased to a securitization SPE or other
third party in connection with a traditional
securitization may exclude the exposures
from the calculation of its risk-weighted
assets only if each of the conditions in this
paragraph (a) is satisfied. A State savings
association that meets these conditions must
hold risk-based capital against any
securitization exposures it retains in
connection with the securitization. A State
savings association that fails to meet these
conditions must hold risk-based capital
against the transferred exposures as if they
had not been securitized and must deduct
from tier 1 capital any after-tax gain-on-sale
resulting from the transaction. The
conditions are:
(1) The transfer is considered a sale under
GAAP;
(2) The State savings association has
transferred to third parties credit risk
associated with the underlying exposures;
and
(3) Any clean-up calls relating to the
securitization are eligible clean-up calls.
(b) Operational criteria for synthetic
securitizations. For synthetic securitizations,
a State savings association may recognize for
risk-based capital purposes the use of a credit
risk mitigant to hedge underlying exposures
only if each of the conditions in this
paragraph (b) is satisfied. A State savings
association that fails to meet these conditions
must hold risk-based capital against the
underlying exposures as if they had not been
synthetically securitized. The conditions are:
Section 42. Risk-Based Capital Requirement
for Securitization Exposures
(a) Hierarchy of approaches. Except as
provided elsewhere in this section:
(1) A State savings association must deduct
from tier 1 capital any after-tax gain-on-sale
resulting from a securitization and must
deduct from total capital in accordance with
paragraph (c) of this section the portion of
any CEIO that does not constitute gain-onsale.
(2) If a securitization exposure does not
require deduction under paragraph (a)(1) of
this section and qualifies for the RatingsBased Approach in section 43 of this
appendix, a State savings association must
apply the Ratings-Based Approach to the
exposure.
(3) If a securitization exposure does not
require deduction under paragraph (a)(1) of
this section and does not qualify for the
Ratings-Based Approach, the State savings
association may either apply the Internal
Assessment Approach in section 44 of this
appendix to the exposure (if the State savings
association, the exposure, and the relevant
ABCP program qualify for the Internal
Assessment Approach) or the Supervisory
Formula Approach in section 45 of this
appendix to the exposure (if the State savings
association and the exposure qualify for the
Supervisory Formula Approach).
(4) If a securitization exposure does not
require deduction under paragraph (a)(1) of
this section and does not qualify for the
Ratings-Based Approach, the Internal
Assessment Approach, or the Supervisory
Formula Approach, the State savings
association must deduct the exposure from
total capital in accordance with paragraph (c)
of this section.
it is not otherwise required under this
appendix to assign an obligor rating on the
basis of the applicable external rating of any
outstanding unsecured long-term debt
security without credit enhancement issued
by the counterparty.
(ii) A State savings association may use a
45 percent LGD for the transaction rather
than estimating LGD for the transaction
provided the State savings association uses
the 45 percent LGD for all transactions
described in paragraphs (e)(1) and (e)(2) of
this section.
(iii) A State savings association may use a
100 percent risk weight for the transaction
provided the State savings association uses
this risk weight for all transactions described
in paragraphs (e)(1) and (e)(2) of this section.
(3) If the State savings association has not
received its deliverables by the fifth business
day after the counterparty delivery was due,
the State savings association must deduct the
current market value of the deliverables
owed to the State savings association 50
percent from tier 1 capital and 50 percent
from tier 2 capital.
(f) Total risk-weighted assets for unsettled
transactions. Total risk-weighted assets for
unsettled transactions is the sum of the riskweighted asset amounts of all DvP, PvP, and
non-DvP/non-PvP transactions.
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(5) If a securitization exposure is an OTC
derivative contract (other than a credit
derivative) that has a first priority claim on
the cash flows from the underlying exposures
(notwithstanding amounts due under interest
rate or currency derivative contracts, fees
due, or other similar payments), with
approval of the FDIC, a State savings
association may choose to set the riskweighted asset amount of the exposure equal
to the amount of the exposure as determined
in paragraph (e) of this section rather than
apply the hierarchy of approaches described
in paragraphs (a)(1) through (4) of this
section.
(b) Total risk-weighted assets for
securitization exposures. A State savings
association’s total risk-weighted assets for
securitization exposures is equal to the sum
of its risk-weighted assets calculated using
the Ratings-Based Approach in section 43 of
this appendix, the Internal Assessment
Approach in section 44 of this appendix, and
the Supervisory Formula Approach in
section 45 of this appendix, and its riskweighted assets amount for early
amortization provisions calculated in section
47 of this appendix.
(c) Deductions. (1) If a State savings
association must deduct a securitization
exposure from total capital, the State savings
association must take the deduction 50
percent from tier 1 capital and 50 percent
from tier 2 capital. If the amount deductible
from tier 2 capital exceeds the State savings
association’s tier 2 capital, the State savings
association must deduct the excess from tier
1 capital.
(2) A State savings association may
calculate any deduction from tier 1 capital
and tier 2 capital for a securitization
exposure net of any deferred tax liabilities
associated with the securitization exposure.
(d) Maximum risk-based capital
requirement. Regardless of any other
provisions of this subpart, unless one or more
underlying exposures does not meet the
definition of a wholesale, retail,
securitization, or equity exposure, the total
risk-based capital requirement for all
securitization exposures held by a single
State savings association associated with a
single securitization (including any riskbased capital requirements that relate to an
early amortization provision of the
securitization but excluding any risk-based
capital requirements that relate to the State
savings association’s gain-on-sale or CEIOs
associated with the securitization) may not
exceed the sum of:
(1) The State savings association’s total
risk-based capital requirement for the
underlying exposures as if the State savings
association directly held the underlying
exposures; and
(2) The total ECL of the underlying
exposures.
(e) Amount of a securitization exposure. (1)
The amount of an on-balance sheet
securitization exposure that is not a repostyle transaction, eligible margin loan, or
OTC derivative contract (other than a credit
derivative) is:
(i) The State savings association’s carrying
value minus any unrealized gains and plus
any unrealized losses on the exposure, if the
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exposure is a security classified as availablefor-sale; or
(ii) The State savings association’s carrying
value, if the exposure is not a security
classified as available-for-sale.
(2) The amount of an off-balance sheet
securitization exposure that is not an OTC
derivative contract (other than a credit
derivative) is the notional amount of the
exposure. For an off-balance-sheet
securitization exposure to an ABCP program,
such as a liquidity facility, the notional
amount may be reduced to the maximum
potential amount that the State savings
association could be required to fund given
the ABCP program’s current underlying
assets (calculated without regard to the
current credit quality of those assets).
(3) The amount of a securitization exposure
that is a repo-style transaction, eligible
margin loan, or OTC derivative contract
(other than a credit derivative) is the EAD of
the exposure as calculated in section 32 of
this appendix.
(f) Overlapping exposures. If a State
savings association has multiple
securitization exposures that provide
duplicative coverage of the underlying
exposures of a securitization (such as when
a State savings association provides a
program-wide credit enhancement and
multiple pool-specific liquidity facilities to
an ABCP program), the State savings
association is not required to hold
duplicative risk-based capital against the
overlapping position. Instead, the State
savings association may apply to the
overlapping position the applicable riskbased capital treatment that results in the
highest risk-based capital requirement.
(g) Securitizations of non-IRB exposures. If
a State savings association has a
securitization exposure where any
underlying exposure is not a wholesale
exposure, retail exposure, securitization
exposure, or equity exposure, the State
savings association must:
(1) If the State savings association is an
originating State savings association, deduct
from tier 1 capital any after-tax gain-on-sale
resulting from the securitization and deduct
from total capital in accordance with
paragraph (c) of this section the portion of
any CEIO that does not constitute gain-onsale;
(2) If the securitization exposure does not
require deduction under paragraph (g)(1),
apply the RBA in section 43 of this appendix
to the securitization exposure if the exposure
qualifies for the RBA;
(3) If the securitization exposure does not
require deduction under paragraph (g)(1) and
does not qualify for the RBA, apply the IAA
in section 44 of this appendix to the exposure
(if the State savings association, the
exposure, and the relevant ABCP program
qualify for the IAA); and
(4) If the securitization exposure does not
require deduction under paragraph (g)(1) and
does not qualify for the RBA or the IAA,
deduct the exposure from total capital in
accordance with paragraph (c) of this section.
(h) Implicit support. If a State savings
association provides support to a
securitization in excess of the State savings
association’s contractual obligation to
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provide credit support to the securitization
(implicit support):
(1) The State savings association must hold
regulatory capital against all of the
underlying exposures associated with the
securitization as if the exposures had not
been securitized and must deduct from tier
1 capital any after-tax gain-on-sale resulting
from the securitization; and
(2) The State savings association must
disclose publicly:
(i) That it has provided implicit support to
the securitization; and
(ii) The regulatory capital impact to the
State savings association of providing such
implicit support.
(i) Eligible servicer cash advance facilities.
Regardless of any other provisions of this
part, a State savings association is not
required to hold risk-based capital against the
undrawn portion of an eligible servicer cash
advance facility.
(j) Interest-only mortgage-backed
securities. Regardless of any other provisions
of this part, the risk weight for a non-creditenhancing interest-only mortgage-backed
security may not be less than 100 percent.
(k) Small-business loans and leases on
personal property transferred with recourse.
(1) Regardless of any other provisions of this
part, a State savings association that has
transferred small-business loans and leases
on personal property (small-business
obligations) with recourse must include in
risk-weighted assets only the contractual
amount of retained recourse if all the
following conditions are met:
(i) The transaction is a sale under GAAP.
(ii) The State savings association
establishes and maintains, pursuant to
GAAP, a non-capital reserve sufficient to
meet the State savings association’s
reasonably estimated liability under the
recourse arrangement.
(iii) The loans and leases are to businesses
that meet the criteria for a small-business
concern established by the Small Business
Administration under section 3(a) of the
Small Business Act (15 U.S.C. 632).
(iv) The State savings association is well
capitalized, as defined in the FDIC’s prompt
corrective action regulation at Subpart Y of
Part 390. For purposes of determining
whether a State savings association is well
capitalized for purposes of this paragraph,
the State savings association’s capital ratios
must be calculated without regard to the
capital treatment for transfers of smallbusiness obligations with recourse specified
in paragraph (k)(1) of this section.
(2) The total outstanding amount of
recourse retained by a State savings
association on transfers of small-business
obligations receiving the capital treatment
specified in paragraph (k)(1) of this section
cannot exceed 15 percent of the State savings
association’s total qualifying capital.
(3) If a State savings association ceases to
be well capitalized or exceeds the 15 percent
capital limitation, the preferential capital
treatment specified in paragraph (k)(1) of this
section will continue to apply to any
transfers of small-business obligations with
recourse that occurred during the time that
the State savings association was well
capitalized and did not exceed the capital
limit.
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(4) The risk-based capital ratios of the State
savings association must be calculated
without regard to the capital treatment for
transfers of small-business obligations with
recourse specified in paragraph (k)(1) of this
section as provided in 12 CFR
390.466(b)(5)(v).
(l) Nth-to-default credit derivatives—(1)
First-to-default credit derivatives—(i)
Protection purchaser. A State savings
association that obtains credit protection on
a group of underlying exposures through a
first-to-default credit derivative must
determine its risk-based capital requirement
for the underlying exposures as if the State
savings association synthetically securitized
the underlying exposure with the lowest riskbased capital requirement and had obtained
no credit risk mitigant on the other
underlying exposures.
(ii) Protection provider. A State savings
association that provides credit protection on
a group of underlying exposures through a
first-to-default credit derivative must
determine its risk-weighted asset amount for
the derivative by applying the RBA in section
43 of this appendix (if the derivative qualifies
for the RBA) or, if the derivative does not
qualify for the RBA, by setting its riskweighted asset amount for the derivative
equal to the product of:
(A) The protection amount of the
derivative;
(B) 12.5; and
(C) The sum of the risk-based capital
requirements of the individual underlying
exposures, up to a maximum of 100 percent.
(2) Second-or-subsequent-to-default credit
derivatives—(i) Protection purchaser. (A) A
State savings association that obtains credit
protection on a group of underlying
exposures through a nth-to-default credit
derivative (other than a first-to-default credit
derivative) may recognize the credit risk
mitigation benefits of the derivative only if:
(1) The State savings association also has
obtained credit protection on the same
underlying exposures in the form of firstthrough-(n-1)-to-default credit derivatives; or
requirement for a securitization exposure if
the exposure has one or more external or
inferred ratings (and may not use the RBA if
the exposure has no external or inferred
rating).
(b) Ratings-based approach. (1) A State
savings association must determine the riskweighted asset amount for a securitization
exposure by multiplying the amount of the
exposure (as defined in paragraph (e) of
section 42 of this appendix) by the
appropriate risk weight provided in Table 6
and Table 7.
(2) A State savings association must apply
the risk weights in Table 6 when the
securitization exposure’s applicable external
or applicable inferred rating represents a
long-term credit rating, and must apply the
risk weights in Table 7 when the
securitization exposure’s applicable external
or applicable inferred rating represents a
short-term credit rating.
(i) A State savings association must apply
the risk weights in column 1 of Table 6 or
Table 7 to the securitization exposure if:
(A) N (as calculated under paragraph (e)(6)
of section 45 of this appendix) is six or more
(for purposes of this section only, if the
notional number of underlying exposures is
25 or more or if all of the underlying
exposures are retail exposures, a State
savings association may assume that N is six
or more unless the State savings association
knows or has reason to know that N is less
than six); and
(B) The securitization exposure is a senior
securitization exposure.
(ii) A State savings association must apply
the risk weights in column 3 of Table 6 or
Table 7 to the securitization exposure if N is
less than six, regardless of the seniority of the
securitization exposure.
(iii) Otherwise, a State savings association
must apply the risk weights in column 2 of
Table 6 or Table 7.
(2) If n-1 of the underlying exposures have
already defaulted.
(B) If a State savings association satisfies
the requirements of paragraph (m)(2)(i)(A) of
this section, the State savings association
must determine its risk-based capital
requirement for the underlying exposures as
if the State savings association had only
synthetically securitized the underlying
exposure with the nth-lowest risk-based
capital requirement and had obtained no
credit risk mitigant on the other underlying
exposures.
(ii) Protection provider. A State savings
association that provides credit protection on
a group of underlying exposures through a
nth-to-default credit derivative (other than a
first-to-default credit derivative) must
determine its risk-weighted asset amount for
the derivative by applying the RBA in section
43 of this appendix (if the derivative qualifies
for the RBA) or, if the derivative does not
qualify for the RBA, by setting its riskweighted asset amount for the derivative
equal to the product of:
(A) The protection amount of the
derivative;
(B) 12.5; and
(C) The sum of the risk-based capital
requirements of the individual underlying
exposures (excluding the n-1 underlying
exposures with the lowest risk-based capital
requirements), up to a maximum of 100
percent.
Section 43. Ratings-Based Approach (RBA)
(a) Eligibility requirements for use of the
RBA—(1) Originating State savings
association. An originating State savings
association must use the RBA to calculate its
risk-based capital requirement for a
securitization exposure if the exposure has
two or more external ratings or inferred
ratings (and may not use the RBA if the
exposure has fewer than two external ratings
or inferred ratings).
(2) Investing State savings association. An
investing State savings association must use
the RBA to calculate its risk-based capital
TABLE 6—LONG-TERM CREDIT RATING RISK WEIGHTS UNDER RBA AND IAA
Column 1
Column 2
Column 3
Risk weights
for senior
securitization
exposures
backed by
granular pools
(percent)
Risk weights
for non-senior
securitization
exposures
backed by
granular pools
(percent)
Risk weights for
securitization
exposures
backed by
non-granular
pools
(percent)
Highest investment grade (for example, AAA) ................................................................
Second highest investment grade (for example, AA) .....................................................
Third-highest investment grade—positive designation (for example, A+) ......................
Third-highest investment grade (for example, A) ............................................................
Third-highest investment grade—negative designation (for example, A¥) ...................
7
8
10
12
20
12
15
18
20
35
20
25
35
Lowest investment grade—positive designation (for example, BBB+) ...........................
Lowest investment grade (for example, BBB) .................................................................
35
60
50
75
50
75
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Applicable external or inferred rating
(Illustrative rating example)
Lowest investment grade—negative designation (for example, BBB¥) ........................
One category below investment grade—positive designation (for example, BB+) .........
One category below investment grade (for example, BB) ..............................................
One category below investment grade—negative designation (for example, BB¥) ......
More than one category below investment grade ...........................................................
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100
250
425
650
Deduction from tier 1 and tier 2 capital.
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TABLE 7—SHORT-TERM CREDIT RATING RISK WEIGHTS UNDER RBA AND IAA
Column 1
Highest investment grade (for example, A1) ...................................................................
Second highest investment grade (for example, A2) ......................................................
Third highest investment grade (for example, A3) ..........................................................
Column 3
Risk weights
for senior
securitization
exposures
backed by
granular pools
(percent)
Applicable external or inferred rating
(Illustrative rating example)
Column 2
Risk weights
for non-senior
securitization
exposures
backed by
granular pools
(percent)
Risk weights for
securitization
exposures
backed by
non-granular
pools
(percent)
7
12
60
12
20
75
20
35
75
All other ratings ................................................................................................................
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Section 44. Internal Assessment Approach
(IAA)
(a) Eligibility requirements. A State savings
association may apply the IAA to calculate
the risk-weighted asset amount for a
securitization exposure that the State savings
association has to an ABCP program (such as
a liquidity facility or credit enhancement) if
the State savings association, the ABCP
program, and the exposure qualify for use of
the IAA.
(1) State savings association qualification
criteria. A State savings association qualifies
for use of the IAA if the State savings
association has received the prior written
approval of the FDIC. To receive such
approval, the State savings association must
demonstrate to the FDIC’s satisfaction that
the State savings association’s internal
assessment process meets the following
criteria:
(i) The State savings association’s internal
credit assessments of securitization
exposures must be based on publicly
available rating criteria used by an NRSRO.
(ii) The State savings association’s internal
credit assessments of securitization
exposures used for risk-based capital
purposes must be consistent with those used
in the State savings association’s internal risk
management process, management
information reporting systems, and capital
adequacy assessment process.
(iii) The State savings association’s internal
credit assessment process must have
sufficient granularity to identify gradations of
risk. Each of the State savings association’s
internal credit assessment categories must
correspond to an external rating of an
NRSRO.
(iv) The State savings association’s internal
credit assessment process, particularly the
stress test factors for determining credit
enhancement requirements, must be at least
as conservative as the most conservative of
the publicly available rating criteria of the
NRSROs that have provided external ratings
to the commercial paper issued by the ABCP
program.
(A) Where the commercial paper issued by
an ABCP program has an external rating from
two or more NRSROs and the different
NRSROs’ benchmark stress factors require
different levels of credit enhancement to
achieve the same external rating equivalent,
the State savings association must apply the
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NRSRO stress factor that requires the highest
level of credit enhancement.
(B) If any NRSRO that provides an external
rating to the ABCP program’s commercial
paper changes its methodology (including
stress factors), the State savings association
must evaluate whether to revise its internal
assessment process.
(v) The State savings association must have
an effective system of controls and oversight
that ensures compliance with these
operational requirements and maintains the
integrity and accuracy of the internal credit
assessments. The State savings association
must have an internal audit function
independent from the ABCP program
business line and internal credit assessment
process that assesses at least annually
whether the controls over the internal credit
assessment process function as intended.
(vi) The State savings association must
review and update each internal credit
assessment whenever new material
information is available, but no less
frequently than annually.
(vii) The State savings association must
validate its internal credit assessment process
on an ongoing basis and at least annually.
(2) ABCP-program qualification criteria.
An ABCP program qualifies for use of the
IAA if all commercial paper issued by the
ABCP program has an external rating.
(3) Exposure qualification criteria. A
securitization exposure qualifies for use of
the IAA if the exposure meets the following
criteria:
(i) The State savings association initially
rated the exposure at least the equivalent of
investment grade.
(ii) The ABCP program has robust credit
and investment guidelines (that is,
underwriting standards) for the exposures
underlying the securitization exposure.
(iii) The ABCP program performs a detailed
credit analysis of the sellers of the exposures
underlying the securitization exposure.
(iv) The ABCP program’s underwriting
policy for the exposures underlying the
securitization exposure establishes minimum
asset eligibility criteria that include the
prohibition of the purchase of assets that are
significantly past due or of assets that are
defaulted (that is, assets that have been
charged off or written down by the seller
prior to being placed into the ABCP program
or assets that would be charged off or written
down under the program’s governing
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Deduction from tier 1 and tier 2 capital.
contracts), as well as limitations on
concentration to individual obligors or
geographic areas and the tenor of the assets
to be purchased.
(v) The aggregate estimate of loss on the
exposures underlying the securitization
exposure considers all sources of potential
risk, such as credit and dilution risk.
(vi) Where relevant, the ABCP program
incorporates structural features into each
purchase of exposures underlying the
securitization exposure to mitigate potential
credit deterioration of the underlying
exposures. Such features may include winddown triggers specific to a pool of underlying
exposures.
(b) Mechanics. A State savings association
that elects to use the IAA to calculate the
risk-based capital requirement for any
securitization exposure must use the IAA to
calculate the risk-based capital requirements
for all securitization exposures that qualify
for the IAA approach. Under the IAA, a State
savings association must map its internal
assessment of such a securitization exposure
to an equivalent external rating from an
NRSRO. Under the IAA, a State savings
association must determine the risk-weighted
asset amount for such a securitization
exposure by multiplying the amount of the
exposure (as defined in paragraph (e) of
section 42 of this appendix) by the
appropriate risk weight in Table 6 and Table
7 in paragraph (b) of section 43 of this
appendix.
Section 45. Supervisory Formula Approach
(SFA)
(a) Eligibility requirements. A State savings
association may use the SFA to determine its
risk-based capital requirement for a
securitization exposure only if the State
savings association can calculate on an
ongoing basis each of the SFA parameters in
paragraph (e) of this section.
(b) Mechanics. Under the SFA, a
securitization exposure incurs a deduction
from total capital (as described in paragraph
(c) of section 42 of this appendix) and/or an
SFA risk-based capital requirement, as
determined in paragraph (c) of this section.
The risk-weighted asset amount for the
securitization exposure equals the SFA riskbased capital requirement for the exposure
multiplied by 12.5.
(c) The SFA risk-based capital
requirement. (1) If KIRB is greater than or
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(i) 0.0056 * T; or
(ii) S[L + T] ¥ S[L].
(3) If KIRB is greater than L and less than
L + T, the State savings association must
deduct from total capital an amount equal to
UE *TP * (KIRB¥ L), and the exposure’s SFA
risk-based capital requirement is UE
multiplied by TP multiplied by the greater of:
(i) 0.0056 * (T ¥ (KIRB¥ L)); or
(ii) S[L + T] ¥ S[KIRB].
(d) The supervisory formula:
(11) In these expressions, b[Y; a, b] refers
to the cumulative beta distribution with
parameters a and b evaluated at Y. In the case
where N = 1 and EWALGD = 100 percent,
S[Y] in formula (1) must be calculated with
K[Y] set equal to the product of KIRB and Y,
and d set equal to 1 ¥ KIRB.
(e) SFA parameters—(1) Amount of the
underlying exposures (UE). UE is the EAD of
any underlying exposures that are wholesale
and retail exposures (including the amount of
any funded spread accounts, cash collateral
accounts, and other similar funded credit
enhancements) plus the amount of any
underlying exposures that are securitization
exposures (as defined in paragraph (e) of
section 42 of this appendix) plus the adjusted
carrying value of any underlying exposures
that are equity exposures (as defined in
paragraph (b) of section 51 of this appendix).
(2) Tranche percentage (TP). TP is the ratio
of the amount of the State savings
association’s securitization exposure to the
amount of the tranche that contains the
securitization exposure.
(3) Capital requirement on underlying
exposures (KIRB). (i) KIRB is the ratio of:
(A) The sum of the risk-based capital
requirements for the underlying exposures
plus the expected credit losses of the
underlying exposures (as determined under
this appendix as if the underlying exposures
were directly held by the State savings
association); to
(B) UE.
(ii) The calculation of KIRB must reflect the
effects of any credit risk mitigant applied to
the underlying exposures (either to an
individual underlying exposure, to a group of
underlying exposures, or to the entire pool of
underlying exposures).
(iii) All assets related to the securitization
are treated as underlying exposures,
including assets in a reserve account (such as
a cash collateral account).
(4) Credit enhancement level (L). (i) L is the
ratio of:
(A) The amount of all securitization
exposures subordinated to the tranche that
contains the State savings association’s
securitization exposure; to
(B) UE.
(ii) A State savings association must
determine L before considering the effects of
any tranche-specific credit enhancements.
(iii) Any gain-on-sale or CEIO associated
with the securitization may not be included
in L.
(iv) Any reserve account funded by
accumulated cash flows from the underlying
exposures that is subordinated to the tranche
that contains the State savings association’s
securitization exposure may be included in
the numerator and denominator of L to the
extent cash has accumulated in the account.
Unfunded reserve accounts (that is, reserve
accounts that are to be funded from future
cash flows from the underlying exposures)
may not be included in the calculation of L.
(v) In some cases, the purchase price of
receivables will reflect a discount that
provides credit enhancement (for example,
first loss protection) for all or certain
tranches of the securitization. When this
arises, L should be calculated inclusive of
this discount if the discount provides credit
enhancement for the securitization exposure.
(5) Thickness of tranche (T). T is the ratio
of:
(i) The amount of the tranche that contains
the State savings association’s securitization
exposure; to
(ii) UE.
(6) Effective number of exposures (N). (i)
Unless the State savings association elects to
use the formula provided in paragraph (f) of
this section,
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equal to L + T, the entire exposure must be
deducted from total capital.
(2) If KIRB is less than or equal to L, the
exposure’s SFA risk-based capital
requirement is UE multiplied by TP
multiplied by the greater of:
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(2) Mixed collateral. Where the collateral is
a basket of different asset types or a basket
of assets denominated in different currencies,
the haircut on the basket will be
where ai is the current market value of the
asset in the basket divided by the current
market value of all assets in the basket and
Hi is the haircut applicable to that asset.
(3) Standard supervisory haircuts. Unless a
State savings association qualifies for use of
and uses own-estimates haircuts in paragraph
(b)(4) of this section:
(i) A State savings association must use the
collateral type haircuts (Hs) in Table 3;
(ii) A State savings association must use a
currency mismatch haircut (Hfx) of 8 percent
if the exposure and the collateral are
denominated in different currencies;
(iii) A State savings association must
multiply the supervisory haircuts obtained in
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paragraphs (b)(3)(i) and (ii) by the square root
of 6.5 (which equals 2.549510); and
(iv) A State savings association must adjust
the supervisory haircuts upward on the basis
of a holding period longer than 65 business
days where and as appropriate to take into
account the illiquidity of the collateral.
(4) Own estimates for haircuts. With the
prior written approval of the FDIC, a State
savings association may calculate haircuts
using its own internal estimates of market
price volatility and foreign exchange
volatility, subject to paragraph (b)(2)(iii) of
section 32 of this appendix. The minimum
holding period (TM) for securitization
exposures is 65 business days.
(c) Guarantees and credit derivatives—(1)
Limitations on recognition. A State savings
association may only recognize an eligible
guarantee or eligible credit derivative
provided by an eligible securitization
guarantor in determining the State savings
association’s risk-based capital requirement
for a securitization exposure.
(2) ECL for securitization exposures. When
a State savings association recognizes an
eligible guarantee or eligible credit derivative
provided by an eligible securitization
guarantor in determining the State savings
association’s risk-based capital requirement
for a securitization exposure, the State
savings association must also:
(i) Calculate ECL for the protected portion
of the exposure using the same risk
parameters that it uses for calculating the
risk-weighted asset amount of the exposure
as described in paragraph (c)(3) of this
section; and
(ii) Add the exposure’s ECL to the State
savings association’s total ECL.
(3) Rules of recognition. A State savings
association may recognize an eligible
guarantee or eligible credit derivative
provided by an eligible securitization
guarantor in determining the State savings
association’s risk-based capital requirement
for the securitization exposure as follows:
(i) Full coverage. If the protection amount
of the eligible guarantee or eligible credit
derivative equals or exceeds the amount of
the securitization exposure, the State savings
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Section 46. Recognition of Credit Risk
Mitigants for Securitization Exposures
(a) General. An originating State savings
association that has obtained a credit risk
mitigant to hedge its securitization exposure
to a synthetic or traditional securitization
that satisfies the operational criteria in
section 41 of this appendix may recognize
the credit risk mitigant, but only as provided
in this section. An investing State savings
association that has obtained a credit risk
mitigant to hedge a securitization exposure
may recognize the credit risk mitigant, but
only as provided in this section. A State
savings association that has used the RBA in
section 43 of this appendix or the IAA in
section 44 of this appendix to calculate its
risk-based capital requirement for a
securitization exposure whose external or
inferred rating (or equivalent internal rating
under the IAA) reflects the benefits of a
credit risk mitigant provided to the
associated securitization or that supports
some or all of the underlying exposures may
not use the credit risk mitigation rules in this
section to further reduce its risk-based capital
requirement for the exposure to reflect that
credit risk mitigant.
(b) Collateral—(1) Rules of recognition. A
State savings association may recognize
financial collateral in determining the State
savings association’s risk-based capital
requirement for a securitization exposure
(other than a repo-style transaction, an
eligible margin loan, or an OTC derivative
contract for which the State savings
association has reflected collateral in its
determination of exposure amount under
section 32 of this appendix) as follows. The
State savings association’s risk-based capital
requirement for the collateralized
securitization exposure is equal to the riskbased capital requirement for the
securitization exposure as calculated under
the RBA in section 43 of this appendix or
under the SFA in section 45 of this appendix
multiplied by the ratio of adjusted exposure
amount (SE*) to original exposure amount
(SE),
where:
(i) SE* = max {0, [SE—C x (1¥Hs¥Hfx)]};
(ii) SE = the amount of the securitization
exposure calculated under paragraph (e)
of section 42 of this appendix;
(iii) C = the current market value of the
collateral;
(iv) Hs = the haircut appropriate to the
collateral type; and
(v) Hfx = the haircut appropriate for any
currency mismatch between the
collateral and the exposure.
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Where:
(i) Cm is the ratio of the sum of the amounts
of the ‘m’ largest underlying exposures to
UE; and
(ii) The level of m is to be selected by the
State savings association.
(4) Alternatively, if only C1 is available and
C1 is no more than 0.03, the State savings
association may set EWALGD = 0.50 if
none of the underlying exposures is a
securitization exposure or EWALGD = 1
if one or more of the underlying
exposures is a securitization exposure
and may set N = 1/C1.
where LGDi represents the average LGD
associated with all exposures to the ith
obligor. In the case of a re-securitization, an
LGD of 100 percent must be assumed for the
underlying exposures that are themselves
securitization exposures.
(f) Simplified method for computing N and
EWALGD. (1) If all underlying exposures of
a securitization are retail exposures, a State
ER05AU11.009</GPH>
where EADi represents the EAD associated
with the ith instrument in the pool of
underlying exposures.
(ii) Multiple exposures to one obligor must
be treated as a single underlying exposure.
(iii) In the case of a re-securitization (that
is, a securitization in which some or all of
the underlying exposures are themselves
securitization exposures), the State savings
association must treat each underlying
exposure as a single underlying exposure and
must not look through to the originally
securitized underlying exposures.
savings association may apply the SFA using
the following simplifications:
(i) h = 0; and
(ii) v = 0.
(2) Under the conditions in paragraphs
(f)(3) and (f)(4) of this section, a State savings
association may employ a simplified method
for calculating N and EWALGD.
(3) If C1is no more than 0.03, a State
savings association may set EWALGD = 0.50
if none of the underlying exposures is a
securitization exposure or EWALGD = 1 if
one or more of the underlying exposures is
a securitization exposure, and may set N
equal to the following amount:
ER05AU11.008</GPH>
(7) Exposure-weighted average loss given
default (EWALGD). EWALGD is calculated
as:
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association may set the risk-weighted asset
amount for the securitization exposure equal
to the risk-weighted asset amount for a direct
exposure to the eligible securitization
guarantor (as determined in the wholesale
risk weight function described in section 31
of this appendix), using the State savings
association’s PD for the guarantor, the State
savings association’s LGD for the guarantee
or credit derivative, and an EAD equal to the
amount of the securitization exposure (as
determined in paragraph (e) of section 42 of
this appendix).
(ii) Partial coverage. If the protection
amount of the eligible guarantee or eligible
credit derivative is less than the amount of
the securitization exposure, the State savings
association may set the risk-weighted asset
amount for the securitization exposure equal
to the sum of:
(A) Covered portion. The risk-weighted
asset amount for a direct exposure to the
eligible securitization guarantor (as
determined in the wholesale risk weight
function described in section 31 of this
appendix), using the State savings
association’s PD for the guarantor, the State
savings association’s LGD for the guarantee
or credit derivative, and an EAD equal to the
protection amount of the credit risk mitigant;
and
(B) Uncovered portion. (1) 1.0 minus the
ratio of the protection amount of the eligible
guarantee or eligible credit derivative to the
amount of the securitization exposure);
multiplied by
(2) The risk-weighted asset amount for the
securitization exposure without the credit
risk mitigant (as determined in sections 42
through 45 of this appendix).
(4) Mismatches. The State savings
association must make applicable
adjustments to the protection amount as
required in paragraphs (d), (e), and (f) of
section 33 of this appendix for any hedged
securitization exposure and any more senior
securitization exposure that benefits from the
hedge. In the context of a synthetic
securitization, when an eligible guarantee or
eligible credit derivative covers multiple
hedged exposures that have different residual
maturities, the State savings association must
use the longest residual maturity of any of
the hedged exposures as the residual
maturity of all the hedged exposures.
Section 47. Risk-Based Capital Requirement
for Early Amortization Provisions
(a) General. (1) An originating State savings
association must hold risk-based capital
against the sum of the originating State
savings association’s interest and the
investors’ interest in a securitization that:
(i) Includes one or more underlying
exposures in which the borrower is permitted
to vary the drawn amount within an agreed
limit under a line of credit; and
(ii) Contains an early amortization
provision.
(2) For securitizations described in
paragraph (a)(1) of this section, an originating
State savings association must calculate the
risk-based capital requirement for the
originating State savings association’s
interest under sections 42 through 45 of this
appendix, and the risk-based capital
requirement for the investors’ interest under
paragraph (b) of this section.
(b) Risk-weighted asset amount for
investors’ interest. The originating State
savings association’s risk-weighted asset
amount for the investors’ interest in the
securitization is equal to the product of the
following 5 quantities:
(1) The investors’ interest EAD;
(2) The appropriate conversion factor in
paragraph (c) of this section;
(3) KIRB (as defined in paragraph (e)(3) of
section 45 of this appendix);
(4) 12.5; and
(5) The proportion of the underlying
exposures in which the borrower is permitted
to vary the drawn amount within an agreed
limit under a line of credit.
(c) Conversion factor. (1)(i) Except as
provided in paragraph (c)(2) of this section,
to calculate the appropriate conversion
factor, a State savings association must use
Table 8 for a securitization that contains a
controlled early amortization provision and
must use Table 9 for a securitization that
contains a non-controlled early amortization
provision. In circumstances where a
securitization contains a mix of retail and
nonretail exposures or a mix of committed
and uncommitted exposures, a State savings
association may take a pro rata approach to
determining the conversion factor for the
securitization’s early amortization provision.
If a pro rata approach is not feasible, a State
savings association must treat the mixed
securitization as a securitization of nonretail
exposures if a single underlying exposure is
a nonretail exposure and must treat the
mixed securitization as a securitization of
committed exposures if a single underlying
exposure is a committed exposure.
(ii) To find the appropriate conversion
factor in the tables, a State savings
association must divide the three-month
average annualized excess spread of the
securitization by the excess spread trapping
point in the securitization structure. In
securitizations that do not require excess
spread to be trapped, or that specify trapping
points based primarily on performance
measures other than the three-month average
annualized excess spread, the excess spread
trapping point is 4.5 percent.
TABLE 8—CONTROLLED EARLY AMORTIZATION PROVISIONS
Uncommitted
Retail Credit Lines ......................
Non-retail Credit Lines ................
Committed
Three-month average annualized excess spread Conversion Factor (CF) .....................................
133.33% of trapping point or more, 0% CF.
less than 133.33% to 100% of trapping point, 1% CF.
less than 100% to 75% of trapping point, 2% CF.
less than 75% to 50% of trapping point, 10% CF.
less than 50% to 25% of trapping point, 20% CF.
less than 25% of trapping point, 40% CF.
90% CF ............................................................................................................................................
90% CF.
90% CF.
TABLE 9—NON-CONTROLLED EARLY AMORTIZATION PROVISIONS
Uncommitted
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Retail Credit Lines ......................
Non-retail Credit Lines ................
Committed
Three-month average annualized excess spread Conversion Factor (CF) .....................................
133.33% of trapping point or more, 0% CF.
less than 133.33% to 100% of trapping point, 5% CF.
less than 100% to 75% of trapping point, 15% CF.
less than 75% to 50% of trapping point, 50% CF.
less than 50% of trapping point, 100% CF.
100% CF ..........................................................................................................................................
100% CF.
(2) For a securitization for which all or
substantially all of the underlying exposures
are residential mortgage exposures, a State
savings association may calculate the
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appropriate conversion factor using
paragraph (c)(1) of this section or may use a
conversion factor of 10 percent. If the State
savings association chooses to use a
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100% CF.
conversion factor of 10 percent, it must use
that conversion factor for all securitizations
for which all or substantially all of the
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underlying exposures are residential
mortgage exposures.
Part VI. Risk-Weighted Assets for Equity
Exposures
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Section 51. Introduction and Exposure
Measurement
(a) General. To calculate its risk-weighted
asset amounts for equity exposures that are
not equity exposures to investment funds, a
State savings association may apply either
the Simple Risk Weight Approach (SRWA) in
section 52 of this appendix or, if it qualifies
to do so, the Internal Models Approach (IMA)
in section 53 of this appendix. A State
savings association must use the lookthrough approaches in section 54 of this
appendix to calculate its risk-weighted asset
amounts for equity exposures to investment
funds.
(b) Adjusted carrying value. For purposes
of this part, the adjusted carrying value of an
equity exposure is:
(1) For the on-balance sheet component of
an equity exposure, the State savings
association’s carrying value of the exposure
reduced by any unrealized gains on the
exposure that are reflected in such carrying
value but excluded from the State savings
association’s tier 1 and tier 2 capital; and
(2) For the off-balance sheet component of
an equity exposure, the effective notional
principal amount of the exposure, the size of
which is equivalent to a hypothetical onbalance sheet position in the underlying
equity instrument that would evidence the
same change in fair value (measured in
dollars) for a given small change in the price
of the underlying equity instrument, minus
the adjusted carrying value of the on-balance
sheet component of the exposure as
calculated in paragraph (b)(1) of this section.
For unfunded equity commitments that are
unconditional, the effective notional
principal amount is the notional amount of
the commitment. For unfunded equity
commitments that are conditional, the
effective notional principal amount is the
State savings association’s best estimate of
the amount that would be funded under
economic downturn conditions.
Section 52. Simple Risk Weight Approach
(SRWA)
(a) General. Under the SRWA, a State
savings association’s aggregate risk-weighted
asset amount for its equity exposures is equal
to the sum of the risk-weighted asset amounts
for each of the State savings association’s
individual equity exposures (other than
equity exposures to an investment fund) as
determined in this section and the riskweighted asset amounts for each of the State
savings association’s individual equity
exposures to an investment fund as
determined in section 54 of this appendix.
(b) SRWA computation for individual
equity exposures. A State savings association
must determine the risk-weighted asset
amount for an individual equity exposure
(other than an equity exposure to an
investment fund) by multiplying the adjusted
carrying value of the equity exposure or the
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effective portion and ineffective portion of a
hedge pair (as defined in paragraph (c) of this
section) by the lowest applicable risk weight
in this paragraph (b).
(1) 0 percent risk weight equity exposures.
An equity exposure to an entity whose credit
exposures are exempt from the 0.03 percent
PD floor in paragraph (d)(2) of section 31 of
this appendix is assigned a 0 percent risk
weight.
(2) 20 percent risk weight equity exposures.
An equity exposure to a Federal Home Loan
Bank or Farmer Mac is assigned a 20 percent
risk weight.
(3) 100 percent risk weight equity
exposures. The following equity exposures
are assigned a 100 percent risk weight:
(i) An equity exposure that is designed
primarily to promote community welfare,
including the welfare of low- and moderateincome communities or families, such as by
providing services or jobs, excluding equity
exposures to an unconsolidated small
business investment company and equity
exposures held through a consolidated small
business investment company described in
section 302 of the Small Business Investment
Act of 1958 (15 U.S.C. 682).
(ii) Effective portion of hedge pairs. The
effective portion of a hedge pair.
(iii) Non-significant equity exposures.
Equity exposures, excluding exposures to an
investment firm that would meet the
definition of a traditional securitization were
it not for the FDIC’s application of paragraph
(8) of that definition and has greater than
immaterial leverage, to the extent that the
aggregate adjusted carrying value of the
exposures does not exceed 10 percent of the
State savings association’s tier 1 capital plus
tier 2 capital.
(A) To compute the aggregate adjusted
carrying value of a State savings association’s
equity exposures for purposes of this
paragraph (b)(3)(iii), the State savings
association may exclude equity exposures
described in paragraphs (b)(1), (b)(2), (b)(3)(i),
and (b)(3)(ii) of this section, the equity
exposure in a hedge pair with the smaller
adjusted carrying value, and a proportion of
each equity exposure to an investment fund
equal to the proportion of the assets of the
investment fund that are not equity
exposures or that meet the criterion of
paragraph (b)(3)(i) of this section. If a State
savings association does not know the actual
holdings of the investment fund, the State
savings association may calculate the
proportion of the assets of the fund that are
not equity exposures based on the terms of
the prospectus, partnership agreement, or
similar contract that defines the fund’s
permissible investments. If the sum of the
investment limits for all exposure classes
within the fund exceeds 100 percent, the
State savings association must assume for
purposes of this paragraph (b)(3)(iii) that the
investment fund invests to the maximum
extent possible in equity exposures.
(B) When determining which of a State
savings association’s equity exposures
qualify for a 100 percent risk weight under
this paragraph, a State savings association
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47803
first must include equity exposures to
unconsolidated small business investment
companies or held through consolidated
small business investment companies
described in section 302 of the Small
Business Investment Act of 1958 (15 U.S.C.
682), then must include publicly traded
equity exposures (including those held
indirectly through investment funds), and
then must include non-publicly traded equity
exposures (including those held indirectly
through investment funds).
(4) 300 percent risk weight equity
exposures. A publicly traded equity exposure
(other than an equity exposure described in
paragraph (b)(6) of this section and including
the ineffective portion of a hedge pair) is
assigned a 300 percent risk weight.
(5) 400 percent risk weight equity
exposures. An equity exposure (other than an
equity exposure described in paragraph (b)(6)
of this section) that is not publicly traded is
assigned a 400 percent risk weight.
(6) 600 percent risk weight equity
exposures. An equity exposure to an
investment firm that:
(i) Would meet the definition of a
traditional securitization were it not for the
FDIC’s application of paragraph (8) of that
definition; and
(ii) Has greater than immaterial leverage is
assigned a 600 percent risk weight.
(c) Hedge transactions —(1) Hedge pair. A
hedge pair is two equity exposures that form
an effective hedge so long as each equity
exposure is publicly traded or has a return
that is primarily based on a publicly traded
equity exposure.
(2) Effective hedge. Two equity exposures
form an effective hedge if the exposures
either have the same remaining maturity or
each has a remaining maturity of at least
three months; the hedge relationship is
formally documented in a prospective
manner (that is, before the State savings
association acquires at least one of the equity
exposures); the documentation specifies the
measure of effectiveness (E) the State savings
association will use for the hedge
relationship throughout the life of the
transaction; and the hedge relationship has
an E greater than or equal to 0.8. A State
savings association must measure E at least
quarterly and must use one of three
alternative measures of E:
(i) Under the dollar-offset method of
measuring effectiveness, the State savings
association must determine the ratio of value
change (RVC). The RVC is the ratio of the
cumulative sum of the periodic changes in
value of one equity exposure to the
cumulative sum of the periodic changes in
the value of the other equity exposure. If RVC
is positive, the hedge is not effective and E
equals 0. If RVC is negative and greater than
or equal to ¥1 (that is, between zero and
¥1), then E equals the absolute value of RVC.
If RVC is negative and less than ¥1, then E
equals 2 plus RVC.
(ii) Under the variability-reduction method
of measuring effectiveness:
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(A) Xt = At¥ Bt;
(B) At = the value at time t of one exposure
in a hedge pair; and
(C) Bt = the value at time t of the other
exposure in a hedge pair.
(iii) Under the regression method of
measuring effectiveness, E equals the
coefficient of determination of a regression in
which the change in value of one exposure
in a hedge pair is the dependent variable and
the change in value of the other exposure in
a hedge pair is the independent variable.
However, if the estimated regression
coefficient is positive, then the value of E is
zero.
(3) The effective portion of a hedge pair is
E multiplied by the greater of the adjusted
carrying values of the equity exposures
forming a hedge pair.
(4) The ineffective portion of a hedge pair
is (1–E) multiplied by the greater of the
adjusted carrying values of the equity
exposures forming a hedge pair.
Section 53. Internal Models Approach (IMA)
(a) General. A State savings association
may calculate its risk-weighted asset amount
for equity exposures using the IMA by
modeling publicly traded and non-publicly
traded equity exposures (in accordance with
paragraph (c) of this section) or by modeling
only publicly traded equity exposures (in
accordance with paragraph (d) of this
section).
(b) Qualifying criteria. To qualify to use the
IMA to calculate risk-based capital
requirements for equity exposures, a State
savings association must receive prior
written approval from the FDIC. To receive
such approval, the State savings association
must demonstrate to the FDIC’s satisfaction
that the State savings association meets the
following criteria:
(1) The State savings association must have
one or more models that:
(i) Assess the potential decline in value of
its modeled equity exposures;
(ii) Are commensurate with the size,
complexity, and composition of the State
savings association’s modeled equity
exposures; and
(iii) Adequately capture both general
market risk and idiosyncratic risk.
(2) The State savings association’s model
must produce an estimate of potential losses
for its modeled equity exposures that is no
less than the estimate of potential losses
produced by a VaR methodology employing
a 99.0 percent, one-tailed confidence interval
of the distribution of quarterly returns for a
benchmark portfolio of equity exposures
comparable to the State savings association’s
modeled equity exposures using a long-term
sample period.
(3) The number of risk factors and
exposures in the sample and the data period
used for quantification in the State savings
association’s model and benchmarking
exercise must be sufficient to provide
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confidence in the accuracy and robustness of
the State savings association’s estimates.
(4) The State savings association’s model
and benchmarking process must incorporate
data that are relevant in representing the risk
profile of the State savings association’s
modeled equity exposures, and must include
data from at least one equity market cycle
containing adverse market movements
relevant to the risk profile of the State
savings association’s modeled equity
exposures. In addition, the State savings
association’s benchmarking exercise must be
based on daily market prices for the
benchmark portfolio. If the State savings
association’s model uses a scenario
methodology, the State savings association
must demonstrate that the model produces a
conservative estimate of potential losses on
the State savings association’s modeled
equity exposures over a relevant long-term
market cycle. If the State savings association
employs risk factor models, the State savings
association must demonstrate through
empirical analysis the appropriateness of the
risk factors used.
(5) The State savings association must be
able to demonstrate, using theoretical
arguments and empirical evidence, that any
proxies used in the modeling process are
comparable to the State savings association’s
modeled equity exposures and that the State
savings association has made appropriate
adjustments for differences. The State savings
association must derive any proxies for its
modeled equity exposures and benchmark
portfolio using historical market data that are
relevant to the State savings association’s
modeled equity exposures and benchmark
portfolio (or, where not, must use
appropriately adjusted data), and such
proxies must be robust estimates of the risk
of the State savings association’s modeled
equity exposures.
(c) Risk-weighted assets calculation for a
State savings association modeling publicly
traded and non-publicly traded equity
exposures. If a State savings association
models publicly traded and non-publicly
traded equity exposures, the State savings
association’s aggregate risk-weighted asset
amount for its equity exposures is equal to
the sum of:
(1) The risk-weighted asset amount of each
equity exposure that qualifies for a 0 percent,
20 percent, or 100 percent risk weight under
paragraphs (b)(1) through (b)(3)(i) of section
52 (as determined under section 52 of this
appendix) and each equity exposure to an
investment fund (as determined under
section 54 of this appendix); and
(2) The greater of:
(i) The estimate of potential losses on the
State savings association’s equity exposures
(other than equity exposures referenced in
paragraph (c)(1) of this section) generated by
the State savings association’s internal equity
exposure model multiplied by 12.5; or
(ii) The sum of:
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(A) 200 percent multiplied by the aggregate
adjusted carrying value of the State savings
association’s publicly traded equity
exposures that do not belong to a hedge pair,
do not qualify for a 0 percent, 20 percent, or
100 percent risk weight under paragraphs
(b)(1) through (b)(3)(i) of section 52 of this
appendix, and are not equity exposures to an
investment fund;
(B) 200 percent multiplied by the aggregate
ineffective portion of all hedge pairs; and
(C) 300 percent multiplied by the aggregate
adjusted carrying value of the State savings
association’s equity exposures that are not
publicly traded, do not qualify for a 0
percent, 20 percent, or 100 percent risk
weight under paragraphs (b)(1) through
(b)(3)(i) of section 52 of this appendix, and
are not equity exposures to an investment
fund.
(d) Risk-weighted assets calculation for a
State savings association using the IMA only
for publicly traded equity exposures. If a
State savings association models only
publicly traded equity exposures, the State
savings association’s aggregate risk-weighted
asset amount for its equity exposures is equal
to the sum of:
(1) The risk-weighted asset amount of each
equity exposure that qualifies for a 0 percent,
20 percent, or 100 percent risk weight under
paragraphs (b)(1) through (b)(3)(i) of section
52 (as determined under section 52 of this
appendix), each equity exposure that
qualifies for a 400 percent risk weight under
paragraph (b)(5) of section 52 or a 600
percent risk weight under paragraph (b)(6) of
section 52 (as determined under section 52
of this appendix), and each equity exposure
to an investment fund (as determined under
section 54 of this appendix); and
(2) The greater of:
(i) The estimate of potential losses on the
State savings association’s equity exposures
(other than equity exposures referenced in
paragraph (d)(1) of this section) generated by
the State savings association’s internal equity
exposure model multiplied by 12.5; or
(ii) The sum of:
(A) 200 percent multiplied by the aggregate
adjusted carrying value of the State savings
association’s publicly traded equity
exposures that do not belong to a hedge pair,
do not qualify for a 0 percent, 20 percent, or
100 percent risk weight under paragraphs
(b)(1) through (b)(3)(i) of section 52 of this
appendix, and are not equity exposures to an
investment fund; and
(B) 200 percent multiplied by the aggregate
ineffective portion of all hedge pairs.
Section 54. Equity Exposures to Investment
Funds
(a) Available approaches. (1) Unless the
exposure meets the requirements for a
community development equity exposure in
paragraph (b)(3)(i) of section 52 of this
appendix, a State savings association must
determine the risk-weighted asset amount of
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an equity exposure to an investment fund
under the Full Look-Through Approach in
paragraph (b) of this section, the Simple
Modified Look-Through Approach in
paragraph (c) of this section, the Alternative
Modified Look-Through Approach in
paragraph (d) of this section, or, if the
investment fund qualifies for the Money
Market Fund Approach, the Money Market
Fund Approach in paragraph (e) of this
section.
(2) The risk-weighted asset amount of an
equity exposure to an investment fund that
meets the requirements for a community
development equity exposure in paragraph
(b)(3)(i) of section 52 of this appendix is its
adjusted carrying value.
(3) If an equity exposure to an investment
fund is part of a hedge pair and the State
savings association does not use the Full
Look-Through Approach, the State savings
association may use the ineffective portion of
the hedge pair as determined under
paragraph (c) of section 52 of this appendix
as the adjusted carrying value for the equity
exposure to the investment fund. The riskweighted asset amount of the effective
portion of the hedge pair is equal to its
adjusted carrying value.
(b) Full Look-Through Approach. A State
savings association that is able to calculate a
risk-weighted asset amount for its
proportional ownership share of each
exposure held by the investment fund (as
calculated under this appendix as if the
proportional ownership share of each
exposure were held directly by the State
savings association) may either:
(1) Set the risk-weighted asset amount of
the State savings association’s exposure to
the fund equal to the product of:
(i) The aggregate risk-weighted asset
amounts of the exposures held by the fund
as if they were held directly by the State
savings association; and
47805
(ii) The State savings association’s
proportional ownership share of the fund; or
(2) Include the State savings association’s
proportional ownership share of each
exposure held by the fund in the State
savings association’s IMA.
(c) Simple Modified Look-Through
Approach. Under this approach, the riskweighted asset amount for a State savings
association’s equity exposure to an
investment fund equals the adjusted carrying
value of the equity exposure multiplied by
the highest risk weight in Table 10 that
applies to any exposure the fund is permitted
to hold under its prospectus, partnership
agreement, or similar contract that defines
the fund’s permissible investments
(excluding derivative contracts that are used
for hedging rather than speculative purposes
and that do not constitute a material portion
of the fund’s exposures).
TABLE 10—MODIFIED LOOK-THROUGH APPROACHES FOR EQUITY EXPOSURES TO INVESTMENT FUNDS
Risk weight
Exposure class
0 percent ..............................
Sovereign exposures with a long-term applicable external rating in the highest investment-grade rating category
and sovereign exposures of the United States.
Non-sovereign exposures with a long-term applicable external rating in the highest or second-highest investmentgrade rating category; exposures with a short-term applicable external rating in the highest investment-grade
rating category; and exposures to, or guaranteed by, depository institutions, foreign banks (as defined in 12
CFR 211.2), or securities firms subject to consolidated supervision and regulation comparable to that imposed
on U.S. securities broker-dealers that are repo-style transactions or bankers’ acceptances.
Exposures with a long-term applicable external rating in the third-highest investment-grade rating category or a
short-term applicable external rating in the second-highest investment-grade rating category.
Exposures with a long-term or short-term applicable external rating in the lowest investment-grade rating category.
Exposures with a long-term applicable external rating one rating category below investment grade.
Publicly traded equity exposures.
Non-publicly traded equity exposures; exposures with a long-term applicable external rating two rating categories
or more below investment grade; and exposures without an external rating (excluding publicly traded equity exposures).
OTC derivative contracts and exposures that must be deducted from regulatory capital or receive a risk weight
greater than 400 percent under this appendix.
20 percent ............................
50 percent ............................
100 percent ..........................
200 percent ..........................
300 percent ..........................
400 percent ..........................
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1,250 percent .......................
(d) Alternative Modified Look-Through
Approach. Under this approach, a State
savings association may assign the adjusted
carrying value of an equity exposure to an
investment fund on a pro rata basis to
different risk weight categories in Table 10
based on the investment limits in the fund’s
prospectus, partnership agreement, or similar
contract that defines the fund’s permissible
investments. The risk-weighted asset amount
for the State savings association’s equity
exposure to the investment fund equals the
sum of each portion of the adjusted carrying
value assigned to an exposure class
multiplied by the applicable risk weight. If
the sum of the investment limits for exposure
classes within the fund exceeds 100 percent,
the State savings association must assume
that the fund invests to the maximum extent
permitted under its investment limits in the
exposure class with the highest risk weight
under Table 10, and continues to make
investments in order of the exposure class
with the next highest risk weight under Table
10 until the maximum total investment level
is reached. If more than one exposure class
applies to an exposure, the State savings
association must use the highest applicable
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risk weight. A State savings association may
exclude derivative contracts held by the fund
that are used for hedging rather than for
speculative purposes and do not constitute a
material portion of the fund’s exposures.
(e) Money Market Fund Approach. The
risk-weighted asset amount for a State
savings association’s equity exposure to an
investment fund that is a money market fund
subject to 17 CFR 270.2a–7 and that has an
applicable external rating in the highest
investment-grade rating category equals the
adjusted carrying value of the equity
exposure multiplied by 7 percent.
Section 55. Equity Derivative Contracts
Under the IMA, in addition to holding riskbased capital against an equity derivative
contract under this part, a State savings
association must hold risk-based capital
against the counterparty credit risk in the
equity derivative contract by also treating the
equity derivative contract as a wholesale
exposure and computing a supplemental
risk-weighted asset amount for the contract
under part IV. Under the SRWA, a State
savings association may choose not to hold
risk-based capital against the counterparty
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credit risk of equity derivative contracts, as
long as it does so for all such contracts.
Where the equity derivative contracts are
subject to a qualified master netting
agreement, a State savings association using
the SRWA must either include all or exclude
all of the contracts from any measure used to
determine counterparty credit risk exposure.
Part VII. Risk-Weighted Assets for
Operational Risk
Section 61. Qualification Requirements for
Incorporation of Operational Risk Mitigants
(a) Qualification to use operational risk
mitigants. A State savings association may
adjust its estimate of operational risk
exposure to reflect qualifying operational risk
mitigants if:
(1) The State savings association’s
operational risk quantification system is able
to generate an estimate of the State savings
association’s operational risk exposure
(which does not incorporate qualifying
operational risk mitigants) and an estimate of
the State savings association’s operational
risk exposure adjusted to incorporate
qualifying operational risk mitigants; and
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(2) The State savings association’s
methodology for incorporating the effects of
insurance, if the State savings association
uses insurance as an operational risk
mitigant, captures through appropriate
discounts to the amount of risk mitigation:
(i) The residual term of the policy, where
less than one year;
(ii) The cancellation terms of the policy,
where less than one year;
(iii) The policy’s timeliness of payment;
(iv) The uncertainty of payment by the
provider of the policy; and
(v) Mismatches in coverage between the
policy and the hedged operational loss event.
(b) Qualifying operational risk mitigants.
Qualifying operational risk mitigants are:
(1) Insurance that:
(i) Is provided by an unaffiliated company
that has a claims payment ability that is rated
in one of the three highest rating categories
by a NRSRO;
(ii) Has an initial term of at least one year
and a residual term of more than 90 days;
(iii) Has a minimum notice period for
cancellation by the provider of 90 days;
(iv) Has no exclusions or limitations based
upon regulatory action or for the receiver or
liquidator of a failed depository institution;
and
(v) Is explicitly mapped to a potential
operational loss event; and
(2) Operational risk mitigants other than
insurance for which the FDIC has given prior
written approval. In evaluating an
operational risk mitigant other than
insurance, the FDIC will consider whether
the operational risk mitigant covers potential
operational losses in a manner equivalent to
holding regulatory capital.
Section 62. Mechanics of Risk-Weighted
Asset Calculation
(a) If a State savings association does not
qualify to use or does not have qualifying
operational risk mitigants, the State savings
association’s dollar risk-based capital
requirement for operational risk is its
operational risk exposure minus eligible
operational risk offsets (if any).
(b) If a State savings association qualifies
to use operational risk mitigants and has
qualifying operational risk mitigants, the
State savings association’s dollar risk-based
capital requirement for operational risk is the
greater of:
(1) The State savings association’s
operational risk exposure adjusted for
qualifying operational risk mitigants minus
eligible operational risk offsets (if any); or
(2) 0.8 multiplied by the difference
between:
(i) The State savings association’s
operational risk exposure; and
(ii) Eligible operational risk offsets (if any).
(c) The State savings association’s riskweighted asset amount for operational risk
equals the State savings association’s dollar
risk-based capital requirement for operational
risk determined under paragraph (a) or (b) of
this section multiplied by 12.5.
Part VIII. Disclosure
Section 71. Disclosure Requirements
(a) Each State savings association must
publicly disclose each quarter its total and
tier 1 risk-based capital ratios and their
components (that is, tier 1 capital, tier 2
capital, total qualifying capital, and total riskweighted assets).8
(b) A State savings association must
comply with paragraph (c) of section 71 of
this appendix unless it is a consolidated
subsidiary of a depository institution or bank
holding company that is subject to these
requirements.
(c)(1) Each consolidated State savings
association described in paragraph (b) of this
section that is not a subsidiary of a non-U.S.
banking organization that is subject to
comparable public disclosure requirements
in its home jurisdiction and has successfully
completed its parallel run must provide
timely public disclosures each calendar
quarter of the information in tables 11.1
through 11.11 of this appendix. If a
significant change occurs, such that the most
recent reported amounts are no longer
reflective of the State savings association’s
capital adequacy and risk profile, then a brief
discussion of this change and its likely
impact must be provided as soon as
practicable thereafter. Qualitative disclosures
that typically do not change each quarter (for
example, a general summary of the State
savings association’s risk management
objectives and policies, reporting system, and
definitions) may be disclosed annually,
provided any significant changes to these are
disclosed in the interim. Management is
encouraged to provide all of the disclosures
required by this appendix in one place on the
State savings association’s public Web site.9
The State savings association must make
these disclosures publicly available for each
of the last three years (twelve quarters) or
such shorter period since it began its first
floor period.
(2) Each State savings association is
required to have a formal disclosure policy
approved by the board of directors that
addresses its approach for determining the
disclosures it makes. The policy must
address the associated internal controls and
disclosure controls and procedures. The
board of directors and senior management are
responsible for establishing and maintaining
an effective internal control structure over
financial reporting, including the disclosures
required by this appendix, and must ensure
that appropriate review of the disclosures
takes place. One or more senior officers of the
State savings association must attest that the
disclosures required by this appendix meet
the requirements of this appendix.
(3) If a State savings association believes
that disclosure of specific commercial or
financial information would prejudice
seriously its position by making public
information that is either proprietary or
confidential in nature, the State savings
association need not disclose those specific
items, but must disclose more general
information about the subject matter of the
requirement, together with the fact that, and
the reason why, the specific items of
information have not been disclosed.
TABLE 11.1—SCOPE OF APPLICATION
Qualitative Disclosures ...................
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Quantitative Disclosures .................
(a) The name of the top corporate entity in the group to which the appendix applies.
(b) An outline of differences in the basis of consolidation for accounting and regulatory purposes, with a
brief description of the entities 10 within the group that are fully consolidated; that are deconsolidated and
deducted; for which the regulatory capital requirement is deducted; and that are neither consolidated nor
deducted (for example, where the investment is risk-weighted).
(c) Any restrictions, or other major impediments, on transfer of funds or regulatory capital within the group.
(d) The aggregate amount of surplus capital of insurance subsidiaries (whether deducted or subjected to
an alternative method) included in the regulatory capital of the consolidated group.
(e) The aggregate amount by which actual regulatory capital is less than the minimum regulatory capital
requirement in all subsidiaries with regulatory capital requirements and the name(s) of the subsidiaries
with such deficiencies.
8 Other public disclosure requirements continue
to apply—for example, Federal securities law and
regulatory reporting requirements.
9 Alternatively, a State savings association may
provide the disclosures in more than one place, as
some of them may be included in public financial
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reports (for example, in Management’s Discussion
and Analysis included in SEC filings) or other
regulatory reports. The State savings association
must provide a summary table on its public Web
site that specifically indicates where all the
disclosures may be found (for example, regulatory
report schedules, page numbers in annual reports).
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10 Entities include securities, insurance and other
financial subsidiaries, commercial subsidiaries
(where permitted), and significant minority equity
investments in insurance, financial and commercial
entities.
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TABLE 11.2—CAPITAL STRUCTURE
Qualitative Disclosures ...................
Quantitative Disclosures .................
(a) Summary information on the terms and conditions of the main features of all capital instruments, especially in the case of innovative, complex or hybrid capital instruments.
(b) The amount of tier 1 capital, with separate disclosure of:
• Common stock/surplus;
• Retained earnings;
• Minority interests in the equity of subsidiaries;
• Regulatory calculation differences deducted from tier 1 capital; 11 and
• Other amounts deducted from tier 1 capital, including goodwill and certain intangibles.
(c) The total amount of tier 2 capital.
(d) Other deductions from capital.12
(e) Total eligible capital.
TABLE 11.3—CAPITAL ADEQUACY
Qualitative Disclosures ...................
Quantitative Disclosures .................
(a) A summary discussion of the State savings association’s approach to assessing the adequacy of its
capital to support current and future activities.
(b) Risk-weighted assets for credit risk from:
• Wholesale exposures;
• Residential mortgage exposures;
• Qualifying revolving exposures;
• Other retail exposures;
• Securitization exposures;
• Equity exposures;
• Equity exposures subject to the simple risk weight approach; and
• Equity exposures subject to the internal models approach.
(c) Risk-weighted assets for market risk as calculated under any applicable market risk rule: 13
• Standardized approach for specific risk; and
• Internal models approach for specific risk.
(d) Risk-weighted assets for operational risk.
(e) Total and tier 1 risk-based capital ratios: 14
• For the top consolidated group; and
• For each DI subsidiary.
General Qualitative Disclosure Requirement
For each separate risk area described in
tables 11.4 through 11.11, the State savings
association must describe its risk
management objectives and policies,
including:
• Strategies and processes;
• The structure and organization of the
relevant risk management function;
• The scope and nature of risk reporting
and/or measurement systems;
• Policies for hedging and/or mitigating
risk and strategies and processes for
monitoring the continuing effectiveness of
hedges/mitigants.
TABLE 11.4 15—CREDIT RISK: GENERAL DISCLOSURES
Qualitative Disclosures ...................
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Quantitative Disclosures .................
(a) The general qualitative disclosure requirement with respect to credit risk (excluding counterparty credit
risk disclosed in accordance with Table 11.6), including:
• Definitions of past due and impaired (for accounting purposes);
• Description of approaches followed for allowances, including statistical methods used where applicable; and
• Discussion of the State savings association’s credit risk management policy.
(b) Total credit risk exposures and average credit risk exposures, after accounting offsets in accordance
with GAAP,16 and without taking into account the effects of credit risk mitigation techniques (for example, collateral and netting), over the period broken down by major types of credit exposure.17
(c) Geographic 18 distribution of exposures, broken down in significant areas by major types of credit exposure.
(d) Industry or counterparty type distribution of exposures, broken down by major types of credit exposure.
(e) Remaining contractual maturity breakdown (for example, one year or less) of the whole portfolio, broken down by major types of credit exposure.
(f) By major industry or counterparty type:
• Amount of impaired loans;
• Amount of past due loans; 19
11 Representing 50 percent of the amount, if any,
by which total expected credit losses as calculated
within the IRB approach exceed eligible credit
reserves, which must be deducted from tier 1
capital.
12 Including 50 percent of the amount, if any, by
which total expected credit losses as calculated
within the IRB approach exceed eligible credit
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reserves, which must be deducted from tier 2
capital.
13 Risk-weighted assets determined under any
applicable market risk rule are to be disclosed only
for the approaches used.
14 Total risk-weighted assets should also be
disclosed.
15 Table 4 does not include equity exposures.
16 For example, FASB Interpretations 39 and 41.
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17 For example, State savings associations could
apply a breakdown similar to that used for
accounting purposes.
18 Geographical areas may comprise individual
countries, groups of countries, or regions within
countries.
19 A State savings association is encouraged also
to provide an analysis of the aging of past-due
loans.
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TABLE 11.4 15—CREDIT RISK: GENERAL DISCLOSURES—Continued
• Allowances; and
• Charge-offs during the period.
(g) Amount of impaired loans and, if available, the amount of past due loans broken down by significant
geographic areas including, if practical, the amounts of allowances related to each geographical area.20
(h) Reconciliation of changes in the allowance for loan and lease losses.21
Such a breakdown might, for instance, be
(a) loans, off-balance sheet commitments, and
other non-derivative off-balance sheet
exposures, (b) debt securities, and (c) OTC
derivatives.
A State savings association might choose to
define the geographical areas based on the
way the company’s portfolio is
geographically managed. The criteria used to
allocate the loans to geographical areas must
be specified.
TABLE 11.5—CREDIT RISK: DISCLOSURES FOR PORTFOLIOS SUBJECT TO IRB RISK-BASED CAPITAL FORMULAS
Qualitative Disclosures
Quantitative Disclosures: Risk assessment.
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Quantitative Disclosures: Historical
results.
(a) Explanation and review of the:
• Structure of internal rating systems and relation between internal and external ratings;
• Use of risk parameter estimates other than for regulatory capital purposes;
• Process for managing and recognizing credit risk mitigation (see table 11.7); and
• Control mechanisms for the rating system, including discussion of independence, accountability, and
rating systems review.
(b) Description of the internal ratings process, provided separately for the following:
• Wholesale category;
• Retail subcategories;
• Residential mortgage exposures;
• Qualifying revolving exposures; and
• Other retail exposures.
For each category and subcategory the description should include:
• The types of exposure included in the category/subcategories; and
• The definitions, methods and data for estimation and validation of PD, LGD, and EAD, including assumptions employed in the derivation of these variables.22
(c) For wholesale exposures, present the following information across a sufficient number of PD grades
(including default) to allow for a meaningful differentiation of credit risk: 23
• Total EAD; 24
• Exposure-weighted average LGD (percentage);
• Exposure-weighted average risk weight; and
• Amount of undrawn commitments and exposure-weighted average EAD for wholesale exposures.
For each retail subcategory, present the disclosures outlined above across a sufficient number of segments to allow for a meaningful differentiation of credit risk.
(d) Actual losses in the preceding period for each category and subcategory and how this differs from past
experience. A discussion of the factors that impacted the loss experience in the preceding period—for
example, has the State savings association experienced higher than average default rates, loss rates or
EADs.
(e) State savings association’s estimates compared against actual outcomes over a longer period.25 At a
minimum, this should include information on estimates of losses against actual losses in the wholesale
category and each retail subcategory over a period sufficient to allow for a meaningful assessment of
the performance of the internal rating processes for each category/subcategory.26 Where appropriate,
the State savings association should further decompose this to provide analysis of PD, LGD, and EAD
outcomes against estimates provided in the quantitative risk assessment disclosures above.27
20 The portion of general allowance that is not
allocated to a geographical area should be disclosed
separately.
21 The reconciliation should include the
following: a description of the allowance; the
opening balance of the allowance; charge-offs taken
against the allowance during the period; amounts
provided (or reversed) for estimated probable loan
losses during the period; any other adjustments (for
example, exchange rate differences, business
combinations, acquisitions and disposals of
subsidiaries), including transfers between
allowances; and the closing balance of the
allowance. Charge-offs and recoveries that have
been recorded directly to the income statement
should be disclosed separately.
22 This disclosure does not require a detailed
description of the model in full—it should provide
the reader with a broad overview of the model
approach, describing definitions of the variables
and methods for estimating and validating those
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variables set out in the quantitative risk disclosures
below. This should be done for each of the four
category/subcategories. The State savings
association should disclose any significant
differences in approach to estimating these
variables within each category/subcategories.
23 The PD, LGD and EAD disclosures in Table
11.5(c) should reflect the effects of collateral,
qualifying master netting agreements, eligible
guarantees and eligible credit derivatives as defined
in part I. Disclosure of each PD grade should
include the exposure-weighted average PD for each
grade. Where a State savings association aggregates
PD grades for the purposes of disclosure, this
should be a representative breakdown of the
distribution of PD grades used for regulatory capital
purposes.
24 Outstanding loans and EAD on undrawn
commitments can be presented on a combined basis
for these disclosures.
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25 These disclosures are a way of further
informing the reader about the reliability of the
information provided in the ‘‘quantitative
disclosures: risk assessment’’ over the long run. The
disclosures are requirements from year-end 2010; in
the meantime, early adoption is encouraged. The
phased implementation is to allow a State savings
association sufficient time to build up a longer run
of data that will make these disclosures meaningful.
26 This regulation is not prescriptive about the
period used for this assessment. Upon
implementation, it might be expected that a State
savings association would provide these disclosures
for as long a run of data as possible—for example,
if a State savings association has 10 years of data,
it might choose to disclose the average default rates
for each PD grade over that 10-year period. Annual
amounts need not be disclosed.
27 A State savings association should provide this
further decomposition where it will allow users
greater insight into the reliability of the estimates
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47809
TABLE 11.6—GENERAL DISCLOSURE FOR COUNTERPARTY CREDIT RISK OF OTC DERIVATIVE CONTRACTS, REPO-STYLE
TRANSACTIONS, AND ELIGIBLE MARGIN LOANS
Qualitative Disclosures ...................
Quantitative Disclosures .................
(a) The general qualitative disclosure requirement with respect to OTC derivatives, eligible margin loans,
and repo-style transactions, including:
• Discussion of methodology used to assign economic capital and credit limits for counterparty credit
exposures;
• Discussion of policies for securing collateral, valuing and managing collateral, and establishing credit
reserves;
• Discussion of the primary types of collateral taken;
• Discussion of policies with respect to wrong-way risk exposures; and
• Discussion of the impact of the amount of collateral the State savings association would have to provide if the State savings association were to receive a credit rating downgrade.
(b) Gross positive fair value of contracts, netting benefits, netted current credit exposure, collateral held (including type, for example, cash, government securities), and net unsecured credit exposure.28 Also report measures for EAD used for regulatory capital for these transactions, the notional value of credit derivative hedges purchased for counterparty credit risk protection, and, for State savings associations not
using the internal models methodology in section 32(d) of this appendix, the distribution of current credit
exposure by types of credit exposure.29
(c) Notional amount of purchased and sold credit derivatives, segregated between use for the State savings association’s own credit portfolio and for its intermediation activities, including the distribution of the
credit derivative products used, broken down further by protection bought and sold within each product
group.
(d) The estimate of alpha if the State savings association has received supervisory approval to estimate
alpha.
TABLE 11.7—CREDIT RISK MITIGATION 30 31 32
Qualitative Disclosures ...................
Quantitative Disclosures .................
(a) The general qualitative disclosure requirement with respect to credit risk mitigation including:
• Policies and processes for, and an indication of the extent to which the State savings association uses,
on- and off-balance sheet netting;
• Policies and processes for collateral valuation and management;
• A description of the main types of collateral taken by the State savings association;
• The main types of guarantors/credit derivative counterparties and their creditworthiness; and
• Information about (market or credit) risk concentrations within the mitigation taken.
(b) For each separately disclosed portfolio, the total exposure (after, where applicable, on-or off-balance
sheet netting) that is covered by guarantees/credit derivatives.
TABLE 11.8—SECURITIZATION
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Qualitative Disclosures ...................
(a) The general qualitative disclosure requirement with respect to securitization (including synthetics), including a discussion of:
• The State savings association’s objectives relating to securitization activity, including the extent to
which these activities transfer credit risk of the underlying exposures away from the State savings association to other entities;
• The roles played by the State savings association in the securitization process 33 and an indication of
the extent of the State savings association’s involvement in each of them; and
• The regulatory capital approaches (for example, RBA, IAA and SFA) that the State savings association follows for its securitization activities.
(b) Summary of the State savings association’s accounting policies for securitization activities, including:
• Whether the transactions are treated as sales or financings;
• Recognition of gain-on-sale;
• Key assumptions for valuing retained interests, including any significant changes since the last reporting period and the impact of such changes; and
provided in the ‘‘quantitative disclosures: risk
assessment.’’ In particular, it should provide this
information where there are material differences
between its estimates of PD, LGD or EAD compared
to actual outcomes over the long run. The State
savings association should also provide
explanations for such differences.
28 Net unsecured credit exposure is the credit
exposure after considering the benefits from legally
enforceable netting agreements and collateral
arrangements, without taking into account haircuts
for price volatility, liquidity, etc.
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29 This may include interest rate derivative
contracts, foreign exchange derivative contracts,
equity derivative contracts, credit derivatives,
commodity or other derivative contracts, repo-style
transactions, and eligible margin loans.
30 At a minimum, a State savings association must
provide the disclosures in Table 11.7 in relation to
credit risk mitigation that has been recognized for
the purposes of reducing capital requirements
under this appendix. Where relevant, State savings
associations are encouraged to give further
information about mitigants that have not been
recognized for that purpose.
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31 Credit derivatives that are treated, for the
purposes of this appendix, as synthetic
securitization exposures should be excluded from
the credit risk mitigation disclosures and included
within those relating to securitization.
32 Counterparty credit risk-related exposures
disclosed pursuant to Table 11.6 should be
excluded from the credit risk mitigation disclosures
in Table 11.7.
33 For example: originator, investor, servicer,
provider of credit enhancement, sponsor of asset
backed commercial paper facility, liquidity
provider, or swap provider.
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TABLE 11.8—SECURITIZATION—Continued
Quantitative Disclosures .................
• Treatment of synthetic securitizations.
(c) Names of NRSROs used for securitizations and the types of securitization exposure for which each
agency is used.
(d) The total outstanding exposures securitized by the State savings association in securitizations that
meet the operational criteria in section 41 of this appendix (broken down into traditional/synthetic), by
underlying exposure type.34 35 36
(e) For exposures securitized by the State savings association in securitizations that meet the operational
criteria in Section 41 of this appendix:
• Amount of securitized assets that are impaired/past due; and
• Losses recognized by the State savings association during the current period 37 broken down by exposure type.
(f) Aggregate amount of securitization exposures broken down by underlying exposure type.
(g) Aggregate amount of securitization exposures and the associated IRB capital requirements for these
exposures broken down into a meaningful number of risk weight bands. Exposures that have been deducted from capital should be disclosed separately by type of underlying asset.
(h) For securitizations subject to the early amortization treatment, the following items by underlying asset
type for securitized facilities:
• The aggregate drawn exposures attributed to the seller’s and investors’ interests; and
• The aggregate IRB capital charges incurred by the State savings association against the investors’
shares of drawn balances and undrawn lines.
(i) Summary of current year’s securitization activity, including the amount of exposures securitized (by exposure type), and recognized gain or loss on sale by asset type.
TABLE 11.9—OPERATIONAL RISK
Qualitative Disclosures ...................
(a) The general qualitative disclosure requirement for operational risk.
(b) Description of the AMA, including a discussion of relevant internal and external factors considered in
the State savings association’s measurement approach.
(c) A description of the use of insurance for the purpose of mitigating operational risk.
TABLE 11.10—EQUITIES NOT SUBJECT TO MARKET RISK RULE
Qualitative Disclosures ...................
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Quantitative Disclosures .................
(a) The general qualitative disclosure requirement with respect to equity risk, including:
• Differentiation between holdings on which capital gains are expected and those held for other objectives, including for relationship and strategic reasons; and
• Discussion of important policies covering the valuation of and accounting for equity holdings in the
banking book. This includes the accounting techniques and valuation methodologies used, including key
assumptions and practices affecting valuation as well as significant changes in these practices.
(b) Value disclosed in the balance sheet of investments, as well as the fair value of those investments; for
quoted securities, a comparison to publicly-quoted share values where the share price is materially different from fair value.
(c) The types and nature of investments, including the amount that is:
• Publicly traded; and
• Non-publicly traded.
(d) The cumulative realized gains (losses) arising from sales and liquidations in the reporting period.
(e) • Total unrealized gains (losses) 38
• Total latent revaluation gains (losses) 39
• Any amounts of the above included in tier 1 and/or tier 2 capital.
(f) Capital requirements broken down by appropriate equity groupings, consistent with the State savings
association’s methodology, as well as the aggregate amounts and the type of equity investments subject
to any supervisory transition regarding regulatory capital requirements.40
34 Underlying exposure types may include, for
example, one- to four-family residential loans,
home equity lines, credit card receivables, and auto
loans.
35 Securitization transactions in which the
originating State savings association does not retain
any securitization exposure should be shown
separately but need only be reported for the year
of inception.
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36 Where relevant, a State savings association is
encouraged to differentiate between exposures
resulting from activities in which they act only as
sponsors, and exposures that result from all other
State savings association securitization activities.
37 For example, charge-offs/allowances (if the
assets remain on the State savings association’s
balance sheet) or write-downs of I/O strips and
other residual interests.
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38 Unrealized gains (losses) recognized in the
balance sheet but not through earnings.
39 Unrealized gains (losses) not recognized either
in the balance sheet or through earnings.
40 This disclosure should include a breakdown of
equities that are subject to the 0 percent, 20 percent,
100 percent, 300 percent, 400 percent, and 600
percent risk weights, as applicable.
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TABLE 11.11—INTEREST RATE RISK FOR NON-TRADING ACTIVITIES
Qualitative Disclosures ...................
Quantitative Disclosures .................
(a) The general qualitative disclosure requirement, including the nature of interest rate risk for non-trading
activities and key assumptions, including assumptions regarding loan prepayments and behavior of nonmaturity deposits, and frequency of measurement of interest rate risk for non-trading activities.
(b) The increase (decline) in earnings or economic value (or relevant measure used by management) for
upward and downward rate shocks according to management’s method for measuring interest rate risk
for non-trading activities, broken down by currency (as appropriate).
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Part IX—Transition Provisions
Section 81. Optional Transition Provisions
Related to the Implementation of
Consolidation Requirements Under FAS 167
(a) Scope, applicability, and purpose. This
section 81 provides optional transition
provisions for a State savings association that
is required for financial and regulatory
reporting purposes, as a result of its
implementation of Statement of Financial
Accounting Standards No. 167, Amendments
to FASB Interpretation No. 46(R) (FAS 167),
to consolidate certain variable interest
entities (VIEs) as defined under GAAP. These
transition provisions apply through the end
of the fourth quarter following the date of a
State savings association’s implementation of
FAS 167 (implementation date).
(b) Exclusion period.
(1) Exclusion of risk-weighted assets for the
first and second quarters. For the first two
quarters after the implementation date
(exclusion period), including for the two
calendar quarter-end regulatory report dates
within those quarters, a State savings
association may exclude from risk-weighted
assets:
(i) Subject to the limitations in paragraph
(d) of section 81, assets held by a VIE,
provided that the following conditions are
met:
(A) The VIE existed prior to the
implementation date,
(B) The State savings association did not
consolidate the VIE on its balance sheet for
calendar quarter-end regulatory report dates
prior to the implementation date,
(C) The State savings association must
consolidate the VIE on its balance sheet
beginning as of the implementation date as
a result of its implementation of FAS 167,
and
(D) The State savings association excludes
all assets held by VIEs described in
paragraphs (b)(1)(i)(A) through (C) of this
section 81; and
(ii) Subject to the limitations in paragraph
(d) of this section 81, assets held by a VIE
that is a consolidated ABCP program,
provided that the following conditions are
met:
(A) The State savings association is the
sponsor of the ABCP program,
(B) Prior to the implementation date, the
State savings association consolidated the
VIE onto its balance sheet under GAAP and
excluded the VIE’s assets from the State
savings association’s risk-weighted assets,
and
(C) The State savings association chooses
to exclude all assets held by ABCP program
VIEs described in paragraphs (b)(1)(ii)(A) and
(B) of this section 81.
(2) Risk-weighted assets during exclusion
period. During the exclusion period,
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including for the two calendar quarter-end
regulatory report dates within the exclusion
period, a State savings association adopting
the optional provisions in paragraph (b) of
this section must calculate risk-weighted
assets for its contractual exposures to the
VIEs referenced in paragraph (b)(1) of this
section 81 on the implementation date and
include this calculated amount in riskweighted assets. Such contractual exposures
may include direct-credit substitutes,
recourse obligations, residual interests,
liquidity facilities, and loans.
(3) Inclusion of ALLL in tier 2 capital for
the first and second quarters. During the
exclusion period, including for the two
calendar quarter-end regulatory report dates
within the exclusion period, a State savings
association that excludes VIE assets from
risk-weighted assets pursuant to paragraph
(b)(1) of this section 81 may include in tier
2 capital the full amount of the ALLL
calculated as of the implementation date that
is attributable to the assets it excludes
pursuant to paragraph (b)(1) of this section 81
(inclusion amount). The amount of ALLL
includable in tier 2 capital in accordance
with this paragraph shall not be subject to the
limitations set forth in section 13(A)(2) and
13(b) of this Appendix.
(c) Phase-in period.
(1) Exclusion amount. For purposes of this
paragraph (c), exclusion amount is defined as
the amount of risk-weighted assets excluded
in paragraph (b)(1) of this section as of the
implementation date.
(2) Risk-weighted assets for the third and
fourth quarters. A State savings association
that excludes assets of consolidated VIEs
from risk-weighted assets pursuant to
paragraph (b)(1) of this section may, for the
third and fourth quarters after the
implementation date (phase-in period),
including for the two calendar quarter-end
regulatory report dates within those quarters,
exclude from risk-weighted assets 50 percent
of the exclusion amount, provided that the
State savings association may not include in
risk-weighted assets pursuant to this
paragraph an amount less than the aggregate
risk-weighted assets calculated pursuant to
paragraph (b)(2) of this section 81.
(3) Inclusion of ALLL in tier 2 capital for
the third and fourth quarters. A State savings
association that excludes assets of
consolidated VIEs from risk-weighted assets
pursuant to paragraph (c)(2) of this section
may, for the phase-in period, include in tier
2 capital 50 percent of the inclusion amount
it included in tier 2 capital, during the
exclusion period, notwithstanding the limit
on including ALLL in tier 2 capital in section
13(a)(2) and 13(b) of this Appendix.
(d) Implicit recourse limitation.
Notwithstanding any other provision in this
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section 81, assets held by a VIE to which the
State savings association has provided
recourse through credit enhancement beyond
any contractual obligation to support assets
it has sold may not be excluded from riskweighted assets.
PART 391—FORMER OFFICE OF
THRIFT SUPERVISION REGULATIONS
Subpart A—Security Procedures
Sec.
391.1
391.2
391.3
391.4
391.5
Authority, purpose, and scope.
Designation of security officer.
Security program.
Report.
Protection of customer information.
Subpart B—Safety and Soundness
Guidelines and Compliance Procedures
391.10 Authority, purpose, scope, and
preservation of existing authority.
391.11 Determination and notification of
failure to meet safety and soundness
standards and request for compliance
plan.
391.12 Filing of safety and soundness
compliance plan.
391.13 Issuance of orders to correct
deficiencies and to take or refrain from
taking other actions.
391.14 Enforcement of orders. Appendix A
to Subpart B of Part 391—Interagency
Guidelines Establishing Standards for
Safety and Soundness Appendix B to
Subpart B of Part 391—Interagency
Guidelines Establishing Information
Security Standards
Subpart C—Fair Credit Reporting
391.20 Examples.
391.21 Disposal of consumer information.
391.22 Duties regarding the detection,
prevention, and mitigation of identity
theft.
391.23 Duties of card issuers regarding
changes of address. Appendix to Subpart
C of Part 391—Interagency Guidelines on
Identity Theft Detection, Prevention, and
Mitigation
Subpart D—Loans in Areas Having Special
Flood Hazards
391.30 Authority, purpose, and scope.
391.31 Definitions.
391.32 Requirement to purchase flood
insurance where available.
391.33 Exemptions.
391.34 Escrow requirement.
391.35 Required use of standard flood
hazard determination form.
391.36 Forced placement of flood
insurance.
391.37 Determination fees.
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391.38 Notice of special flood hazards and
availability of Federal disaster relief
assistance.
391.39 Notice of servicer’s identity.
Appendix to Subpart D of Part 391—
Sample Form of Notice of Special Flood
Hazards and Availability of Federal
Disaster Relief Assistance
Subpart E—Acquisition of Control of State
Savings Associations
391.40 Scope of subpart.
391.41 Definitions.
391.42 Acquisition of control of State
savings associations.
391.43 Control.
391.44 Certifications of ownership.
391.45 Procedural requirements.
391.46 Determination by the FDIC. 391.47
391.47 [Reserved]
391.48 Rebuttal of control agreement.
Authority: 12 U.S.C. 1819 (Tenth).
Subpart A also issued under 12 U.S.C.
1462a; 1463; 1464; 1828; 1831p–1; 1881–
1884; 15 U.S.C. 1681w; 15 U.S.C. 6801; 6805.
Subpart B also issued under 12 U.S.C.
1462a; 1463; 1464; 1828; 1831p–1; 1881–
1884; 15 U.S.C.1681w; 15 U.S.C. 6801; 6805.
Subpart C also issued under 12 U.S.C.
1462a; 1463; 1464; 1828; 1831p–1; and 1881–
1884; 15 U.S.C. 1681m; 1681w.
Subpart D also issued under 12 U.S.C.
1462; 1462a; 1463; 1464; 42 U.S.C. 4012a;
4104a; 4104b; 4106; 4128.
Subpart E also issued under 12 U.S.C.
1467a; 1468; 1817; 1831i.
Subpart A—Security Procedures
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§ 391.1
Authority, purpose, and scope.
(a) This subpart is issued by the
Federal Deposit Insurance Corporation
(FDIC) under section 3 of the Bank
Protection Act of 1968 (12 U.S.C 1828),
and sections 501 and 505(b)(1) of the
Gramm-Leach-Bliley Act (15 U.S.C.
6801 and 6805(b)(1)), and section 628 of
the Fair Credit Reporting Act (15 U.S.C.
1681w). This subpart is applicable to
State savings associations. It requires
each State savings association to adopt
appropriate security procedures to
discourage robberies, burglaries, and
larcenies and to assist in the
identification and prosecution of
persons who commit such acts. Section
391.5 is applicable to State savings
associations and their subsidiaries
(except brokers, dealers, persons
providing insurance, investment
companies, and investment advisers).
Section 391.5 requires covered
institutions to establish and implement
appropriate administrative, technical,
and physical safeguards to protect the
security, confidentiality, and integrity of
customer information.
(b) It is the responsibility of a State
savings association’s board of directors
to comply with this regulation and
ensure that a written security program
for the State savings association’s main
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office and branches is developed and
implemented.
§ 391.2
Designation of security officer.
Within 30 days after the effective date
of insurance of accounts, the board of
directors of each State savings
association shall designate a security
officer who shall have the authority,
subject to the approval of the board of
directors, to develop, within a
reasonable time but no later than 180
days, and to administer a written
security program for each of the State
savings association’s offices.
§ 391.3
Security program.
(a) Contents of security program. The
security program shall:
(1) Establish procedures for opening
and closing for business and for the
safekeeping of all currency, negotiable
securities, and similar valuables at all
times;
(2) Establish procedures that will
assist in identifying persons committing
crimes against the State savings
association and that will preserve
evidence that may aid in their
identification and prosecution. Such
procedures may include, but are not
limited to:
(i) Maintaining a camera that records
activity in the office;
(ii) Using identification devices, such
as prerecorded serial-numbered bills, or
chemical and electronic devices; and
(iii) Retaining a record of any robbery,
burglary, or larceny committed against
the State savings association;
(3) Provide for initial and periodic
training of officers and employees in
their responsibilities under the security
program and in proper employee
conduct during and after a burglary,
robbery, or larceny; and
(4) Provide for selecting, testing,
operating and maintaining appropriate
security devices, as specified in
paragraph (b) of this section.
(b) Security devices. Each State
savings association shall have, at a
minimum, the following security
devices:
(1) A means of protecting cash and
other liquid assets, such as a vault, safe,
or other secure space;
(2) A lighting system for illuminating,
during the hours of darkness, the area
around the vault, if the vault is visible
from outside the office;
(3) Tamper-resistant locks on exterior
doors and exterior windows that may be
opened;
(4) An alarm system or other
appropriate device for promptly
notifying the nearest responsible law
enforcement officers of an attempted or
perpetrated robbery or burglary; and
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(5) Such other devices as the security
officer determines to be appropriate,
taking into consideration:
(i) The incidence of crimes against
financial institutions in the area;
(ii) The amount of currency and other
valuables exposed to robbery, burglary,
or larceny;
(iii) The distance of the office from
the nearest responsible law enforcement
officers;
(iv) The cost of the security devices;
(v) Other security measures in effect
at the office; and
(vi) The physical characteristics of the
structure of the office and its
surroundings.
§ 391.4
Report.
The security officer for each State
savings association shall report at least
annually to the State savings
association’s board of directors on the
implementation, administration, and
effectiveness of the security program.
§ 391.5 Protection of customer
information.
State savings associations and their
subsidiaries (except brokers, dealers,
persons providing insurance,
investment companies, and investment
advisers) must comply with the
Interagency Guidelines Establishing
Information Security Standards set forth
in appendix B to subpart B. Supplement
A to appendix B to subpart B provides
interpretive guidance.
Subpart B—Safety and Soundness
Guidelines and Compliance
Procedures
§ 391.10 Authority, purpose, scope, and
preservation of existing authority.
(a) Authority. This subpart and the
Guidelines in Appendices A and B to
this subpart are issued by the FDIC
under section 39 (section 39) of the
Federal Deposit Insurance Act (FDI Act)
(12 U.S.C. 1831p–1) as added by section
132 of the Federal Deposit Insurance
Corporation Improvement Act of 1991
(FDICIA) (Pub. L. 102–242, 105 Stat.
2236 (1991)), and as amended by section
956 of the Housing and Community
Development Act of 1992 (Pub. L. 102–
550, 106 Stat. 3895 (1992)), and as
amended by section 318 of the
Community Development Banking Act
of 1994 (Pub. L. 103–325, 108 Stat. 2160
(1994)). Appendix B to this subpart is
further issued under sections 501(b) and
505 of the Gramm-Leach-Bliley Act
(Pub. L. 106–102, 113 Stat. 1338 (1999)).
(b) Purpose. Section 39 of the FDI Act
requires the FDIC to establish safety and
soundness standards. Pursuant to
section 39, a State savings association
may be required to submit a compliance
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plan if it is not in compliance with a
safety and soundness standard
established by guideline under section
39(a) or (b). An enforceable order under
section 8 of the FDI Act may be issued
if, after being notified that it is in
violation of a safety and soundness
standard prescribed under section 39,
the State savings association fails to
submit an acceptable compliance plan
or fails in any material respect to
implement an accepted plan. This
subpart establishes procedures for
submission and review of safety and
soundness compliance plans and for
issuance and review of orders pursuant
to section 39. Interagency Guidelines
Establishing Standards for Safety and
Soundness pursuant to section 39 of the
FDI Act are set forth in Appendix A to
this subpart. Interagency Guidelines
Establishing Information Security
Standards are set forth in appendix B to
this subpart.
(c) Scope. This subpart and the
Interagency Guidelines Establishing
Standards for Safety and Soundness as
set forth at appendix A to this subpart
and the Interagency Guidelines
Establishing Information Security
Standards at appendix B to this subpart
implement the provisions of section 39
of the FDI Act as they apply to State
savings associations.
(d) Preservation of existing authority.
Neither section 39 of the FDI Act nor
this subpart in any way limits the
authority of the FDIC under any other
provision of law to take supervisory
actions to address unsafe or unsound
practices, violations of law, unsafe or
unsound conditions, or other practices.
Action under section 39 and this
subpart may be taken independently of,
in conjunction with, or in addition to
any other enforcement action available
to the FDIC.
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§ 391.11 Determination and notification of
failure to meet safety and soundness
standards and request for compliance plan.
(a) Determination. The FDIC may,
based upon an examination, inspection,
or any other information that becomes
available to the FDIC, determine that a
State savings association has failed to
satisfy the safety and soundness
standards contained in the Interagency
Guidelines Establishing Standards for
Safety and Soundness as set forth in
appendix A to this subpart or the
Interagency Guidelines Establishing
Information Security Standards as set
forth in appendix B to this subpart.
(b) Request for compliance plan. If the
FDIC determines that a State savings
association has failed to meet a safety
and soundness standard pursuant to
paragraph (a) of this section, the FDIC
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may request by letter or through a report
of examination, the submission of a
compliance plan. The State savings
association shall be deemed to have
notice of the request three days after
mailing or delivery of the letter or report
of examination by the FDIC.
§ 391.12 Filing of safety and soundness
compliance plan.
(a) Schedule for filing compliance
plan—(1) In general. A State savings
association shall file a written safety
and soundness compliance plan with
the FDIC within 30 days of receiving a
request for a compliance plan pursuant
to § 391.11(b), unless the FDIC notifies
the State savings association in writing
that the plan is to be filed within a
different period.
(2) Other plans. If a State savings
association is obligated to file, or is
currently operating under, a capital
restoration plan submitted pursuant to
section 38 of the FDI Act (12 U.S.C.
1831o), a cease-and-desist order entered
into pursuant to section 8 of the FDI
Act, a formal or informal agreement, or
a response to a report of examination, it
may, with the permission of the FDIC,
submit a compliance plan under this
section as part of that plan, order,
agreement, or response, subject to the
deadline provided in paragraph (a)(1) of
this section.
(b) Contents of plan. The compliance
plan shall include a description of the
steps the State savings association will
take to correct the deficiency and the
time within which those steps will be
taken.
(c) Review of safety and soundness
compliance plans. Within 30 days after
receiving a safety and soundness
compliance plan under this subpart, the
FDIC shall provide written notice to the
State savings association of whether the
plan has been approved or seek
additional information from the State
savings association regarding the plan.
The FDIC may extend the time within
which notice regarding approval of a
plan will be provided.
(d) Failure to submit or implement a
compliance plan. If a State savings
association fails to submit an acceptable
plan within the time specified by the
FDIC or fails in any material respect to
implement a compliance plan, then the
FDIC shall, by order, require the State
savings association to correct the
deficiency and may take further actions
provided in section 39(e)(2)(B) of the
FDI Act. Pursuant to section 39(e)(3),
the FDIC may be required to take certain
actions if the State savings association
commenced operations or experienced a
change in control within the previous
24-month period, or the State savings
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47813
association experienced extraordinary
growth during the previous 18-month
period.
(e) Amendment of compliance plan. A
State savings association that has filed
an approved compliance plan may, after
prior written notice to and approval by
the FDIC, amend the plan to reflect a
change in circumstance. Until such time
as a proposed amendment has been
approved, the State savings association
shall implement the compliance plan as
previously approved.
§ 391.13 Issuance of orders to correct
deficiencies and to take or refrain from
taking other actions.
(a) Notice of intent to issue order—
(1) In general. The FDIC shall provide a
State savings association prior written
notice of the FDIC’s intention to issue
an order requiring the State savings
association to correct a safety and
soundness deficiency or to take or
refrain from taking other actions
pursuant to section 39 of the FDI Act.
The State savings association shall have
such time to respond to a proposed
order as provided by the FDIC under
paragraph (c) of this section.
(2) Immediate issuance of final order.
If the FDIC finds it necessary in order
to carry out the purposes of section 39
of the FDI Act, the FDIC may, without
providing the notice prescribed in
paragraph (a)(1) of this section, issue an
order requiring a State savings
association immediately to take actions
to correct a safety and soundness
deficiency or to take or refrain from
taking other actions pursuant to section
39. A State savings association that is
subject to such an immediately effective
order may submit a written appeal of
the order to the FDIC. Such an appeal
must be received by the FDIC within 14
calendar days of the issuance of the
order, unless the FDIC permits a longer
period. The FDIC shall consider any
such appeal, if filed in a timely manner,
within 60 days of receiving the appeal.
During such period of review, the order
shall remain in effect unless the FDIC,
in its sole discretion, stays the
effectiveness of the order.
(b) Contents of notice. A notice of
intent to issue an order shall include:
(1) A statement of the safety and
soundness deficiency or deficiencies
that have been identified at the State
savings association;
(2) A description of any restrictions,
prohibitions, or affirmative actions that
the FDIC proposes to impose or require;
(3) The proposed date when such
restrictions or prohibitions would be
effective or the proposed date for
completion of any required action; and
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(4) The date by which the State
savings association subject to the order
may file with the FDIC a written
response to the notice.
(c) Response to notice— (1) Time for
response. A State savings association
may file a written response to a notice
of intent to issue an order within the
time period set by the FDIC. Such a
response must be received by the FDIC
within 14 calendar days from the date
of the notice unless the FDIC determines
that a different period is appropriate in
light of the safety and soundness of the
State savings association or other
relevant circumstances.
(2) Contents of response. The
response should include:
(i) An explanation why the action
proposed by the FDIC is not an
appropriate exercise of discretion under
section 39 of the FDI Act;
(ii) Any recommended modification
of the proposed order; and
(iii) Any other relevant information,
mitigating circumstances,
documentation, or other evidence in
support of the position of the State
savings association regarding the
proposed order.
(d) The FDIC’s consideration of
response. After considering the
response, the FDIC may:
(1) Issue the order as proposed or in
modified form;
(2) Determine not to issue the order
and so notify the State savings
association; or
(3) Seek additional information or
clarification of the response from the
State savings association, or any other
relevant source.
(e) Failure to file response. Failure by
a State savings association to file with
the FDIC, within the specified time
period, a written response to a proposed
order shall constitute a waiver of the
opportunity to respond and shall
constitute consent to the issuance of the
order.
(f) Request for modification or
rescission of order. Any State savings
association that is subject to an order
under this subpart may, upon a change
in circumstances, request in writing that
the FDIC reconsider the terms of the
order, and may propose that the order
be rescinded or modified. Unless
otherwise ordered by the FDIC, the
order shall continue in place while such
request is pending before the FDIC.
§ 391.14
Enforcement of orders.
(a) Judicial remedies. Whenever a
State savings association fails to comply
with an order issued under section 39
of the FDI Act, the FDIC may seek
enforcement of the order in the
appropriate United States district court
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pursuant to section 8(i)(1) of the FDI
Act.
(b) Administrative remedies. Pursuant
to section 8(i)(2)(A) of the FDI Act, the
FDIC may assess a civil money penalty
against any State savings association
that violates or otherwise fails to
comply with any final order issued
under section 39 and against any State
savings association-affiliated party who
participates in such violation or
noncompliance.
(c) Other enforcement action. In
addition to the actions described in
paragraphs (a) and (b) of this section,
the FDIC may seek enforcement of the
provisions of section 39 of the FDI Act
or this part through any other judicial or
administrative proceeding authorized by
law.
Appendix A to Subpart B of Part 391—
Interagency Guidelines Establishing
Standards for Safety and Soundness
I. Introduction
A. Preservation of existing authority.
B. Definitions.
II. Operational and Managerial Standards
A. Internal controls and information
systems.
B. Internal audit system.
C. Loan documentation.
D. Credit underwriting.
E. Interest rate exposure.
F. Asset growth.
G. Asset quality.
H. Earnings.
I. Compensation, fees and benefits.
III. Prohibition on Compensation That
Constitutes an Unsafe and Unsound
Practice
A. Excessive compensation.
B. Compensation leading to material
financial loss.
I. Introduction
i. Section 39 of the Federal Deposit
Insurance Act 1 (FDI Act) requires each
Federal banking agency (collectively, the
agencies) to establish certain safety and
soundness standards by regulation or by
guideline for all insured depository
institutions. Under section 39, the agencies
must establish three types of standards: (1)
Operational and managerial standards; (2)
compensation standards; and (3) such
standards relating to asset quality, earnings,
and stock valuation as they determine to be
appropriate.
ii. Section 39(a) requires the agencies to
establish operational and managerial
standards relating to: (1) Internal controls,
information systems and internal audit
1 Section 39 of the Federal Deposit Insurance Act
(12 U.S.C. 1831p–1) was added by section 132 of
the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA), Public Law
102–242, 105 Stat. 2236 (1991), and amended by
section 956 of the Housing and Community
Development Act of 1992, Public Law 102–550, 106
Stat. 3895 (1992) and section 318 of the Riegle
Community Development and Regulatory
Improvement Act of 1994, Public Law 103–325, 108
Stat. 2160 (1994).
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systems, in accordance with section 36 of the
FDI Act (12 U.S.C. 1831m); (2) loan
documentation; (3) credit underwriting; (4)
interest rate exposure; (5) asset growth; and
(6) compensation, fees, and benefits, in
accordance with subsection (c) of section 39.
Section 39(b) requires the agencies to
establish standards relating to asset quality,
earnings, and stock valuation that the
agencies determine to be appropriate.
iii. Section 39(c) requires the agencies to
establish standards prohibiting as an unsafe
and unsound practice any compensatory
arrangement that would provide any
executive officer, employee, director, or
principal shareholder of the institution with
excessive compensation, fees or benefits and
any compensatory arrangement that could
lead to material financial loss to an
institution. Section 39(c) also requires that
the agencies establish standards that specify
when compensation is excessive.
iv. If an agency determines that an
institution fails to meet any standard
established by guideline under subsection (a)
or (b) of section 39, the agency may require
the institution to submit to the agency an
acceptable plan to achieve compliance with
the standard. In the event that an institution
fails to submit an acceptable plan within the
time allowed by the agency or fails in any
material respect to implement an accepted
plan, the agency must, by order, require the
institution to correct the deficiency. The
agency may, and in some cases must, take
other supervisory actions until the deficiency
has been corrected.
v. The agencies have adopted amendments
to their rules and regulations to establish
deadlines for submission and review of
compliance plans.2
vi. The following Guidelines set out the
safety and soundness standards that the
agencies use to identify and address
problems at insured depository institutions
before capital becomes impaired. The
agencies believe that the standards adopted
in these Guidelines serve this end without
dictating how institutions must be managed
and operated. These standards are designed
to identify potential safety and soundness
concerns and ensure that action is taken to
address those concerns before they pose a
risk to the Deposit Insurance Fund.
A. Preservation of Existing Authority
Neither section 39 nor these Guidelines in
any way limits the authority of the agencies
to address unsafe or unsound practices,
violations of law, unsafe or unsound
conditions, or other practices. Action under
section 39 and these Guidelines may be taken
independently of, in conjunction with, or in
addition to any other enforcement action
available to the agencies. Nothing in these
Guidelines limits the authority of the FDIC
pursuant to section 38(i)(2)(F) of the FDI Act
(12 U.S.C. 1831(o)) and Part 325 of Title 12
of the Code of Federal Regulations.
2 For the Office of the Comptroller of the
Currency, these regulations appear at 12 CFR part
30; for the Board of Governors of the Federal
Reserve System, these regulations appear at 12 CFR
part 263; for the Federal Deposit Insurance
Corporation, these regulations appear at 12 CFR
part 308, subpart R, and subpart B of part 391.
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B. Definitions
1. In general. For purposes of these
Guidelines, except as modified in the
Guidelines or unless the context otherwise
requires, the terms used have the same
meanings as set forth in sections 3 and 39 of
the FDI Act (12 U.S.C. 1813 and 1831p–1).
2. Board of directors, in the case of a statelicensed insured branch of a foreign bank and
in the case of a federal branch of a foreign
bank, means the managing official in charge
of the insured foreign branch.
3. Compensation means all direct and
indirect payments or benefits, both cash and
non-cash, granted to or for the benefit of any
executive officer, employee, director, or
principal shareholder, including but not
limited to payments or benefits derived from
an employment contract, compensation or
benefit agreement, fee arrangement,
perquisite, stock option plan,
postemployment benefit, or other
compensatory arrangement.
4. Director shall have the meaning
described in 12 CFR 215.2(d).3
5. Executive officer shall have the meaning
described in 12 CFR 215.2(e).4
6. Principal shareholder shall have the
meaning described in 12 CFR 215.2(m).5
II. Operational and Managerial Standards
A. Internal controls and information
systems. An institution should have internal
controls and information systems that are
appropriate to the size of the institution and
the nature, scope and risk of its activities and
that provide for:
1. An organizational structure that
establishes clear lines of authority and
responsibility for monitoring adherence to
established policies;
2. Effective risk assessment;
3. Timely and accurate financial,
operational and regulatory reports;
4. Adequate procedures to safeguard and
manage assets; and
5. Compliance with applicable laws and
regulations.
B. Internal audit system. An institution
should have an internal audit system that is
appropriate to the size of the institution and
the nature and scope of its activities and that
provides for:
1. Adequate monitoring of the system of
internal controls through an internal audit
function. For an institution whose size,
complexity or scope of operations does not
warrant a full scale internal audit function,
a system of independent reviews of key
internal controls may be used;
2. Independence and objectivity;
3. Qualified persons;
4. Adequate testing and review of
information systems;
5. Adequate documentation of tests and
findings and any corrective actions;
6. Verification and review of management
actions to address material weaknesses; and
3 In applying these definitions for State savings
associations, State savings associations shall use the
terms ‘‘State savings association’’ and ‘‘insured
State savings association’’ in place of the terms
‘‘member bank’’ and ‘‘insured bank’’.
4 See footnote 3 in section I.B.4. of this appendix.
5 See footnote 3 in section I.B.4. of this appendix.
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7. Review by the institution’s audit
committee or board of directors of the
effectiveness of the internal audit systems.
C. Loan documentation. An institution
should establish and maintain loan
documentation practices that:
1. Enable the institution to make an
informed lending decision and to assess risk,
as necessary, on an ongoing basis;
2. Identify the purpose of a loan and the
source of repayment, and assess the ability of
the borrower to repay the indebtedness in a
timely manner;
3. Ensure that any claim against a borrower
is legally enforceable;
4. Demonstrate appropriate administration
and monitoring of a loan; and
5. Take account of the size and complexity
of a loan.
D. Credit underwriting. An institution
should establish and maintain prudent credit
underwriting practices that:
1. Are commensurate with the types of
loans the institution will make and consider
the terms and conditions under which they
will be made;
2. Consider the nature of the markets in
which loans will be made;
3. Provide for consideration, prior to credit
commitment, of the borrower’s overall
financial condition and resources, the
financial responsibility of any guarantor, the
nature and value of any underlying collateral,
and the borrower’s character and willingness
to repay as agreed;
4. Establish a system of independent,
ongoing credit review and appropriate
communication to management and to the
board of directors;
5. Take adequate account of concentration
of credit risk; and
6. Are appropriate to the size of the
institution and the nature and scope of its
activities.
E. Interest rate exposure. An institution
should:
1. Manage interest rate risk in a manner
that is appropriate to the size of the
institution and the complexity of its assets
and liabilities; and
2. Provide for periodic reporting to
management and the board of directors
regarding interest rate risk with adequate
information for management and the board of
directors to assess the level of risk.
F. Asset growth. An institution’s asset
growth should be prudent and consider:
1. The source, volatility and use of the
funds that support asset growth;
2. Any increase in credit risk or interest
rate risk as a result of growth; and
3. The effect of growth on the institution’s
capital.
G. Asset quality. An insured depository
institution should establish and maintain a
system that is commensurate with the
institution’s size and the nature and scope of
its operations to identify problem assets and
prevent deterioration in those assets. The
institution should:
1. Conduct periodic asset quality reviews
to identify problem assets;
2. Estimate the inherent losses in those
assets and establish reserves that are
sufficient to absorb estimated losses;
3. Compare problem asset totals to capital;
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4. Take appropriate corrective action to
resolve problem assets;
5. Consider the size and potential risks of
material asset concentrations; and
6. Provide periodic asset reports with
adequate information for management and
the board of directors to assess the level of
asset risk.
H. Earnings. An insured depository
institution should establish and maintain a
system that is commensurate with the
institution’s size and the nature and scope of
its operations to evaluate and monitor
earnings and ensure that earnings are
sufficient to maintain adequate capital and
reserves. The institution should:
1. Compare recent earnings trends relative
to equity, assets, or other commonly used
benchmarks to the institution’s historical
results and those of its peers;
2. Evaluate the adequacy of earnings given
the size, complexity, and risk profile of the
institution’s assets and operations;
3. Assess the source, volatility, and
sustainability of earnings, including the
effect of nonrecurring or extraordinary
income or expense;
4. Take steps to ensure that earnings are
sufficient to maintain adequate capital and
reserves after considering the institution’s
asset quality and growth rate; and
5. Provide periodic earnings reports with
adequate information for management and
the board of directors to assess earnings
performance.
I. Compensation, fees and benefits. An
institution should maintain safeguards to
prevent the payment of compensation, fees,
and benefits that are excessive or that could
lead to material financial loss to the
institution.
III. Prohibition on Compensation That
Constitutes an Unsafe and Unsound Practice
A. Excessive Compensation
Excessive compensation is prohibited as an
unsafe and unsound practice. Compensation
shall be considered excessive when amounts
paid are unreasonable or disproportionate to
the services performed by an executive
officer, employee, director, or principal
shareholder, considering the following:
1. The combined value of all cash and noncash benefits provided to the individual;
2. The compensation history of the
individual and other individuals with
comparable expertise at the institution;
3. The financial condition of the
institution;
4. Comparable compensation practices at
comparable institutions, based upon such
factors as asset size, geographic location, and
the complexity of the loan portfolio or other
assets;
5. For postemployment benefits, the
projected total cost and benefit to the
institution;
6. Any connection between the individual
and any fraudulent act or omission, breach of
trust or fiduciary duty, or insider abuse with
regard to the institution; and
7. Any other factors the agencies
determines to be relevant.
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B. Compensation Leading to Material
Financial Loss
Compensation that could lead to material
financial loss to an institution is prohibited
as an unsafe and unsound practice.
Appendix B to Subpart B of Part 391—
Interagency Guidelines Establishing
Information Security Standards
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Table of Contents
I. Introduction
A. Scope
B. Preservation of Existing Authority
C. Definitions
II. Standards for Safeguarding Customer
Information
A. Information Security Program
B. Objectives
III. Development and Implementation of
Customer Information Security Program
A. Involve the Board of Directors
B. Assess Risk
C. Manage and Control Risk
D. Oversee Service Provider Arrangements
E. Adjust the Program
F. Report to the Board
G. Implement the Standards
I. Introduction
The Interagency Guidelines Establishing
Information Security Standards (Guidelines)
set forth standards pursuant to section 39(a)
of the Federal Deposit Insurance Act (12
U.S.C. 1831p–1), and sections 501 and 505(b)
of the Gramm-Leach-Bliley Act (15 U.S.C.
6801 and 6805(b)). These Guidelines address
standards for developing and implementing
administrative, technical, and physical
safeguards to protect the security,
confidentiality, and integrity of customer
information. These Guidelines also address
standards with respect to the proper disposal
of consumer information, pursuant to section
628 of the Fair Credit Reporting Act (15
U.S.C. 1681w).
A. Scope. The Guidelines apply to
customer information maintained by or on
behalf of entities over which FDIC has
authority. For purposes of this appendix,
these entities are State savings associations
whose deposits are FDIC-insured and any
subsidiaries of such State savings
associations, except brokers, dealers, persons
providing insurance, investment companies,
and investment advisers. This appendix
refers to such entities as ‘‘you’’. These
Guidelines also apply to the proper disposal
of consumer information by or on behalf of
such entities.
B. Preservation of Existing Authority.
Neither section 39 nor these Guidelines in
any way limit FDIC’s authority to address
unsafe or unsound practices, violations of
law, unsafe or unsound conditions, or other
practices. FDIC may take action under
section 39 and these Guidelines
independently of, in conjunction with, or in
addition to, any other enforcement action
available to FDIC.
C. Definitions. 1. Except as modified in the
Guidelines, or unless the context otherwise
requires, the terms used in these Guidelines
have the same meanings as set forth in
sections 3 and 39 of the Federal Deposit
Insurance Act (12 U.S.C. 1813 and 1831p–1).
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2. For purposes of the Guidelines, the
following definitions apply:
a. Consumer information means any record
about an individual, whether in paper,
electronic, or other form, that is a consumer
report or is derived from a consumer report
and that is maintained or otherwise
possessed by you or on your behalf for a
business purpose. Consumer information also
means a compilation of such records. The
term does not include any record that does
not identify an individual.
i. Examples. (1) Consumer information
includes:
(A) A consumer report that a State savings
association obtains;
(B) Information from a consumer report
that you obtain from your affiliate after the
consumer has been given a notice and has
elected not to opt out of that sharing;
(C) Information from a consumer report
that you obtain about an individual who
applies for but does not receive a loan,
including any loan sought by an individual
for a business purpose;
(D) Information from a consumer report
that you obtain about an individual who
guarantees a loan (including a loan to a
business entity); or
(E) Information from a consumer report
that you obtain about an employee or
prospective employee.
(2) Consumer information does not
include:
(A) Aggregate information, such as the
mean credit score, derived from a group of
consumer reports; or
(B) Blind data, such as payment history on
accounts that are not personally identifiable,
that may be used for developing credit
scoring models or for other purposes.
b. Consumer report has the same meaning
as set forth in the Fair Credit Reporting Act,
15 U.S.C. 1681a(d).
c. Customer means any consumer who has
a customer relationship with you.
d. Customer information means any record
containing nonpublic personal information
about a customer, whether in paper,
electronic, or other form, that you maintain
or that is maintained on your behalf.
e. Customer information systems means
any methods used to access, collect, store,
use, transmit, protect, or dispose of customer
information.
f. Service provider means any person or
entity that maintains, processes, or otherwise
is permitted access to customer information
or consumer information, through its
provision of services directly to you.
II. Standards for Information Security
A. Information Security Program. You shall
implement a comprehensive written
information security program that includes
administrative, technical, and physical
safeguards appropriate to your size and
complexity and the nature and scope of your
activities. While all parts of your
organization are not required to implement a
uniform set of policies, all elements of your
information security program must be
coordinated.
B. Objectives. Your information security
program shall be designed to:
1. Ensure the security and confidentiality
of customer information;
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2. Protect against any anticipated threats or
hazards to the security or integrity of such
information;
3. Protect against unauthorized access to or
use of such information that could result in
substantial harm or inconvenience to any
customer; and
4. Ensure the proper disposal of customer
information and consumer information.
III. Development and Implementation of
Information Security Program
A. Involve the Board of Directors. Your
board of directors or an appropriate
committee of the board shall:
1. Approve your written information
security program; and
2. Oversee the development,
implementation, and maintenance of your
information security program, including
assigning specific responsibility for its
implementation and reviewing reports from
management.
B. Assess Risk. You shall:
1. Identify reasonably foreseeable internal
and external threats that could result in
unauthorized disclosure, misuse, alteration,
or destruction of customer information or
customer information systems.
2. Assess the likelihood and potential
damage of these threats, taking into
consideration the sensitivity of customer
information.
3. Assess the sufficiency of policies,
procedures, customer information systems,
and other arrangements in place to control
risks.
C. Manage and Control Risk. You shall:
1. Design your information security
program to control the identified risks,
commensurate with the sensitivity of the
information as well as the complexity and
scope of your activities. You must consider
whether the following security measures are
appropriate for you and, if so, adopt those
measures you conclude are appropriate:
a. Access controls on customer information
systems, including controls to authenticate
and permit access only to authorized
individuals and controls to prevent
employees from providing customer
information to unauthorized individuals who
may seek to obtain this information through
fraudulent means.
b. Access restrictions at physical locations
containing customer information, such as
buildings, computer facilities, and records
storage facilities to permit access only to
authorized individuals;
c. Encryption of electronic customer
information, including while in transit or in
storage on networks or systems to which
unauthorized individuals may have access;
d. Procedures designed to ensure that
customer information system modifications
are consistent with your information security
program;
e. Dual control procedures, segregation of
duties, and employee background checks for
employees with responsibilities for or access
to customer information;
f. Monitoring systems and procedures to
detect actual and attempted attacks on or
intrusions into customer information
systems;
g. Response programs that specify actions
for you to take when you suspect or detect
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that unauthorized individuals have gained
access to customer information systems,
including appropriate reports to regulatory
and law enforcement agencies; and
h. Measures to protect against destruction,
loss, or damage of customer information due
to potential environmental hazards, such as
fire and water damage or technological
failures.
2. Train staff to implement your
information security program.
3. Regularly test the key controls, systems
and procedures of the information security
program. The frequency and nature of such
tests should be determined by your risk
assessment. Tests should be conducted or
reviewed by independent third parties or
staff independent of those that develop or
maintain the security programs.
4. Develop, implement, and maintain, as
part of your information security program,
appropriate measures to properly dispose of
customer information and consumer
information in accordance with each of the
requirements in this paragraph III.
D. Oversee Service Provider Arrangements.
You shall:
1. Exercise appropriate due diligence in
selecting your service providers;
2. Require your service providers by
contract to implement appropriate measures
designed to meet the objectives of these
Guidelines; and
3. Where indicated by your risk
assessment, monitor your service providers
to confirm that they have satisfied their
obligations as required by paragraph D.2. As
part of this monitoring, you should review
audits, summaries of test results, or other
equivalent evaluations of your service
providers.
E. Adjust the Program. You shall monitor,
evaluate, and adjust, as appropriate, the
information security program in light of any
relevant changes in technology, the
sensitivity of your customer information,
internal or external threats to information,
and your own changing business
arrangements, such as mergers and
acquisitions, alliances and joint ventures,
outsourcing arrangements, and changes to
customer information systems.
F. Report to the Board. You shall report to
your board or an appropriate committee of
the board at least annually. This report
should describe the overall status of the
information security program and your
compliance with these Guidelines. The
reports should discuss material matters
related to your program, addressing issues
such as: risk assessment; risk management
and control decisions; service provider
arrangements; results of testing; security
breaches or violations and management’s
responses; and recommendations for changes
in the information security program.
G. Implement the Standards. 1. Effective
date. You must implement an information
security program pursuant to these
Guidelines by July 1, 2001.
2. Two-year grandfathering of agreements
with service providers. Until July 1, 2003, a
contract that you have entered into with a
service provider to perform services for you
or functions on your behalf satisfies the
provisions of paragraph III.D., even if the
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contract does not include a requirement that
the servicer maintain the security and
confidentiality of customer information, as
long as you entered into the contract on or
before March 5, 2001.
3. Effective date for measures relating to
the disposal of consumer information. You
must satisfy these Guidelines with respect to
the proper disposal of consumer information
by July 1, 2005.
4. Exception for existing agreements with
service providers relating to the disposal of
consumer information. Notwithstanding the
requirement in paragraph III.G.3., your
contracts with service providers that have
access to consumer information and that may
dispose of consumer information, entered
into before July 1, 2005, must comply with
the provisions of the Guidelines relating to
the proper disposal of consumer information
by July 1, 2006.
Supplement to Appendix B of Part
391—Interagency Guidance on
Response Programs for Unauthorized
Access to Customer Information and
Customer Notice
I. Background
This Guidance 1 interprets section 501(b) of
the Gramm-Leach-Bliley Act (‘‘GLBA’’) and
the Interagency Guidelines Establishing
Information Security Standards (the
‘‘Security Guidelines’’) 2 and describes
response programs, including customer
notification procedures, that a financial
institution should develop and implement to
address unauthorized access to or use of
customer information that could result in
substantial harm or inconvenience to a
customer. The scope of, and definitions of
terms used in, this Guidance are identical to
those of the Security Guidelines. For
example, the term ‘‘customer information’’ is
the same term used in the Security
Guidelines, and means any record containing
nonpublic personal information about a
customer, whether in paper, electronic, or
other form, maintained by or on behalf of the
institution.
A. Interagency Security Guidelines
Section 501(b) of the GLBA required the
Agencies to establish appropriate standards
for financial institutions subject to their
jurisdiction that include administrative,
technical, and physical safeguards, to protect
the security and confidentiality of customer
information.
Accordingly, the Agencies issued Security
Guidelines requiring every financial
institution to have an information security
program designed to:
1. Ensure the security and confidentiality
of customer information;
1 This Guidance is being jointly issued by the
Board of Governors of the Federal Reserve System
(Board), the Federal Deposit Insurance Corporation
(FDIC), and the Office of the Comptroller of the
Currency (OCC).
2 12 CFR part 30, app. B (OCC); 12 CFR part 208,
app. D–2 and part 225, app. F (Board); 12 CFR part
364, app. A and app. B of Subpart B of Part 391
(FDIC). The ‘‘Interagency Guidelines Establishing
Information Security Standards’’ were formerly
known as ‘‘The Interagency Guidelines Establishing
Standards for Safeguarding Customer Information.’’
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2. Protect against any anticipated threats or
hazards to the security or integrity of such
information; and
3. Protect against unauthorized access to or
use of such information that could result in
substantial harm or inconvenience to any
customer.
B. Risk Assessment and Controls
1. The Security Guidelines direct every
financial institution to assess the following
risks, among others, when developing its
information security program:
a. Reasonably foreseeable internal and
external threats that could result in
unauthorized disclosure, misuse, alteration,
or destruction of customer information or
customer information systems;
b. The likelihood and potential damage of
threats, taking into consideration the
sensitivity of customer information; and
c. The sufficiency of policies, procedures,
customer information systems, and other
arrangements in place to control risks.3
2. Following the assessment of these risks,
the Security Guidelines require a financial
institution to design a program to address the
identified risks. The particular security
measures an institution should adopt will
depend upon the risks presented by the
complexity and scope of its business. At a
minimum, the financial institution is
required to consider the specific security
measures enumerated in the Security
Guidelines,4 and adopt those that are
appropriate for the institution, including:
a. Access controls on customer information
systems, including controls to authenticate
and permit access only to authorized
individuals and controls to prevent
employees from providing customer
information to unauthorized individuals who
may seek to obtain this information through
fraudulent means;
b. Background checks for employees with
responsibilities for access to customer
information; and
c. Response programs that specify actions
to be taken when the financial institution
suspects or detects that unauthorized
individuals have gained access to customer
information systems, including appropriate
reports to regulatory and law enforcement
agencies.5
C. Service Providers
The Security Guidelines direct every
financial institution to require its service
providers by contract to implement
appropriate measures designed to protect
against unauthorized access to or use of
customer information that could result in
substantial harm or inconvenience to any
customer.6
3 See
Security Guidelines, III.B.
Security Guidelines, III.C.
5 See Security Guidelines, III.C.
6 See Security Guidelines, II.B. and III.D. Further,
the Agencies note that, in addition to contractual
obligations to a financial institution, a service
provider may be required to implement its own
comprehensive information security program in
accordance with the Safeguards Rule promulgated
by the Federal Trade Commission (‘‘FTC’’), 16 CFR
part 314.
4 See
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II. Response Program
Millions of Americans, throughout the
country, have been victims of identity theft.7
Identity thieves misuse personal information
they obtain from a number of sources,
including financial institutions, to perpetrate
identity theft. Therefore, financial
institutions should take preventative
measures to safeguard customer information
against attempts to gain unauthorized access
to the information. For example, financial
institutions should place access controls on
customer information systems and conduct
background checks for employees who are
authorized to access customer information.8
However, every financial institution should
also develop and implement a risk-based
response program to address incidents of
unauthorized access to customer information
in customer information systems 9 that occur
nonetheless. A response program should be
a key part of an institution’s information
security program.10 The program should be
appropriate to the size and complexity of the
institution and the nature and scope of its
activities.
In addition, each institution should be able
to address incidents of unauthorized access
to customer information in customer
information systems maintained by its
domestic and foreign service providers.
Therefore, consistent with the obligations in
the Guidelines that relate to these
arrangements, and with existing guidance on
this topic issued by the Agencies,11 an
institution’s contract with its service
provider should require the service provider
to take appropriate actions to address
incidents of unauthorized access to the
financial institution’s customer information,
including notification to the institution as
7 The FTC estimates that nearly 10 million
Americans discovered they were victims of some
form of identity theft in 2002. See The Federal
Trade Commission, Identity Theft Survey Report,
(September 2003), available at https://www.ftc.gov/
os/2003/09/synovatereport.pdf.
8 Institutions should also conduct background
checks of employees to ensure that the institution
does not violate 12 U.S.C. 1829, which prohibits an
institution from hiring an individual convicted of
certain criminal offenses or who is subject to a
prohibition order under 12 U.S.C. 1818(e)(6).
9 Under the Guidelines, an institution’s customer
information systems consist of all of the methods
used to access, collect, store, use, transmit, protect,
or dispose of customer information, including the
systems maintained by its service providers. See
Security Guidelines, I.C.2.d (I.C.2.c for FDIC).
10 See FFIEC Information Technology
Examination Handbook, Information Security
Booklet, Dec. 2002 available at https://www.ffiec.
gov/ffiecinfobase/html_pages/infosec_book_
frame.htm. Federal Reserve SR 97–32, Sound
Practice Guidance for Information Security for
Networks, Dec. 4, 1997; OCC Bulletin 2000–14,
‘‘Infrastructure Threats—Intrusion Risks’’ (May 15,
2000), for additional guidance on preventing,
detecting, and responding to intrusions into
financial institution computer systems.
11 See Federal Reserve SR Ltr. 00–04, Outsourcing
of Information and Transaction Processing, Feb. 9,
2000; OCC Bulletin 2001–47, ‘‘Third-Party
Relationships Risk Management Principles,’’ Nov.
1, 2001; FDIC FIL 68–99, Risk Assessment Tools
and Practices for Information System Security, July
7, 1999; Thrift Bulletin 82a, Third Party
Arrangements, Sept. 1, 2004.
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soon as possible of any such incident, to
enable the institution to expeditiously
implement its response program.
A. Components of a Response Program
1. At a minimum, an institution’s response
program should contain procedures for the
following:
a. Assessing the nature and scope of an
incident, and identifying what customer
information systems and types of customer
information have been accessed or misused;
b. Notifying its primary Federal regulator
as soon as possible when the institution
becomes aware of an incident involving
unauthorized access to or use of sensitive
customer information, as defined below;
c. Consistent with the Agencies’
Suspicious Activity Report (‘‘SAR’’)
regulations,12 notifying appropriate law
enforcement authorities, in addition to filing
a timely SAR in situations involving Federal
criminal violations requiring immediate
attention, such as when a reportable violation
is ongoing;
d. Taking appropriate steps to contain and
control the incident to prevent further
unauthorized access to or use of customer
information, for example, by monitoring,
freezing, or closing affected accounts, while
preserving records and other evidence;13 and
e. Notifying customers when warranted.
2. Where an incident of unauthorized
access to customer information involves
customer information systems maintained by
an institution’s service providers, it is the
responsibility of the financial institution to
notify the institution’s customers and
regulator. However, an institution may
authorize or contract with its service
provider to notify the institution’s customers
or regulator on its behalf.
III. Customer Notice
Financial institutions have an affirmative
duty to protect their customers’ information
against unauthorized access or use. Notifying
12 An institution’s obligation to file a SAR is set
out in the Agencies’ SAR regulations and Agency
guidance. See 12 CFR 21.11 (national banks,
Federal branches and agencies); 12 CFR 208.62
(State member banks); 12 CFR 211.5(k) (Edge and
agreement corporations); 12 CFR 211.24(f)
(uninsured State branches and agencies of foreign
banks); 12 CFR 225.4(f) (bank holding companies
and their nonbank subsidiaries); 12 CFR part 353
(State non-member banks); and 390.355 (State
savings associations). National banks must file
SARs in connection with computer intrusions and
other computer crimes. See OCC Bulletin 2000–14,
‘‘Infrastructure Threats—Intrusion Risks’’ (May 15,
2000); Advisory Letter 97–9, ‘‘Reporting Computer
Related Crimes’’ (November 19, 1997) (general
guidance still applicable though instructions for
new SAR form published in 65 FR 1229, 1230
(January 7, 2000)). See also Federal Reserve SR 01–
11, Identity Theft and Pretext Calling, Apr. 26,
2001; SR 97–28, Guidance Concerning Reporting of
Computer Related Crimes by Financial Institutions,
Nov. 6, 1997; FDIC FIL 48–2000, Suspicious
Activity Reports, July 14, 2000; FIL 47–97,
Preparation of Suspicious Activity Reports, May 6,
1997; CEO Memorandum 139, Identity Theft and
Pretext Calling, May 4, 2001; CEO Memorandum
126, New Suspicious Activity Report Form, July 5,
2000.
13 See FFIEC Information Technology
Examination Handbook, Information Security
Booklet, Dec. 2002, pp. 68–74.
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customers of a security incident involving
the unauthorized access or use of the
customer’s information in accordance with
the standard set forth below is a key part of
that duty. Timely notification of customers is
important to manage an institution’s
reputation risk. Effective notice also may
reduce an institution’s legal risk, assist in
maintaining good customer relations, and
enable the institution’s customers to take
steps to protect themselves against the
consequences of identity theft. When
customer notification is warranted, an
institution may not forgo notifying its
customers of an incident because the
institution believes that it may be potentially
embarrassed or inconvenienced by doing so.
A. Standard for Providing Notice
When a financial institution becomes
aware of an incident of unauthorized access
to sensitive customer information, the
institution should conduct a reasonable
investigation to promptly determine the
likelihood that the information has been or
will be misused. If the institution determines
that misuse of its information about a
customer has occurred or is reasonably
possible, it should notify the affected
customer as soon as possible. Customer
notice may be delayed if an appropriate law
enforcement agency determines that
notification will interfere with a criminal
investigation and provides the institution
with a written request for the delay.
However, the institution should notify its
customers as soon as notification will no
longer interfere with the investigation.
1. Sensitive Customer Information
Under the Guidelines, an institution must
protect against unauthorized access to or use
of customer information that could result in
substantial harm or inconvenience to any
customer. Substantial harm or inconvenience
is most likely to result from improper access
to sensitive customer information because
this type of information is most likely to be
misused, as in the commission of identity
theft. For purposes of this Guidance,
sensitive customer information means a
customer’s name, address, or telephone
number, in conjunction with the customer’s
social security number, driver’s license
number, account number, credit or debit card
number, or a personal identification number
or password that would permit access to the
customer’s account. Sensitive customer
information also includes any combination of
components of customer information that
would allow someone to log onto or access
the customer’s account, such as user name
and password or password and account
number.
2. Affected Customers
If a financial institution, based upon its
investigation, can determine from its logs or
other data precisely which customers’
information has been improperly accessed, it
may limit notification to those customers
with regard to whom the institution
determines that misuse of their information
has occurred or is reasonably possible.
However, there may be situations where the
institution determines that a group of files
has been accessed improperly, but is unable
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to identify which specific customers’
information has been accessed. If the
circumstances of the unauthorized access
lead the institution to determine that misuse
of the information is reasonably possible, it
should notify all customers in the group.
receive it. For example, the institution may
choose to contact all customers affected by
telephone or by mail, or by electronic mail
for those customers for whom it has a valid
e-mail address and who have agreed to
receive communications electronically.
B. Content of Customer Notice
1. Customer notice should be given in a
clear and conspicuous manner. The notice
should describe the incident in general terms
and the type of customer information that
was the subject of unauthorized access or
use. It also should generally describe what
the institution has done to protect the
customers’ information from further
unauthorized access. In addition, it should
include a telephone number that customers
can call for further information and
assistance.14 The notice also should remind
customers of the need to remain vigilant over
the next twelve to twenty-four months, and
to promptly report incidents of suspected
identity theft to the institution. The notice
should include the following additional
items, when appropriate:
a. A recommendation that the customer
review account statements and immediately
report any suspicious activity to the
institution;
b. A description of fraud alerts and an
explanation of how the customer may place
a fraud alert in the customer’s consumer
reports to put the customer’s creditors on
notice that the customer may be a victim of
fraud;
c. A recommendation that the customer
periodically obtain credit reports from each
nationwide credit reporting agency and have
information relating to fraudulent
transactions deleted;
d. An explanation of how the customer
may obtain a credit report free of charge; and
e. Information about the availability of the
FTC’s online guidance regarding steps a
consumer can take to protect against identity
theft. The notice should encourage the
customer to report any incidents of identity
theft to the FTC, and should provide the
FTC’s Web site address and toll-free
telephone number that customers may use to
obtain the identity theft guidance and report
suspected incidents of identity theft.15
2. The Agencies encourage financial
institutions to notify the nationwide
consumer reporting agencies prior to sending
notices to a large number of customers that
include contact information for the reporting
agencies.
Subpart C—Fair Credit Reporting
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C. Delivery of Customer Notice
Customer notice should be delivered in
any manner designed to ensure that a
customer can reasonably be expected to
14 The institution should, therefore, ensure that it
has reasonable policies and procedures in place,
including trained personnel, to respond
appropriately to customer inquiries and requests for
assistance.
15 Currently, the FTC Web site for the ID Theft
brochure and the FTC Hotline phone number are
https://www.consumer.gov/idtheft and 1–877–
IDTHEFT. The institution may also refer customers
to any materials developed pursuant to section
151(b) of the FACT Act (educational materials
developed by the FTC to teach the public how to
prevent identity theft).
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§ 391.20
Examples.
The examples in this subpart are not
exclusive. Compliance with an example,
to the extent applicable, constitutes
compliance with this subpart. Examples
in a section illustrate only the issue
described in the section and do not
illustrate any other issue that may arise
in this subpart.
§ 391.21 Disposal of consumer
information.
(a) Scope. This section applies to
State savings associations whose
deposits are insured by the Federal
Deposit Insurance Corporation (defined
as ‘‘you’’).
(b) In general. You must properly
dispose of any consumer information
that you maintain or otherwise possess
in accordance with the Interagency
Guidelines Establishing Information
Security Standards, to the extent that
you are covered by the scope of the
Guidelines.
(c) Rule of construction. Nothing in
this section shall be construed to:
(1) Require you to maintain or destroy
any record pertaining to a consumer that
is not imposed under any other law; or
(2) Alter or affect any requirement
imposed under any other provision of
law to maintain or destroy such a
record.
§ 391.22 Duties regarding the detection,
prevention, and mitigation of identity theft.
(a) Scope. This section applies to a
financial institution or creditor that is a
State savings association whose deposits
are insured by the Federal Deposit
Insurance Corporation.
(b) Definitions. For purposes of this
section and the appendix to subpart C
of part 391, the following definitions
apply:
(1) Account means a continuing
relationship established by a person
with a financial institution or creditor to
obtain a product or service for personal,
family, household or business purposes.
Account includes:
(i) An extension of credit, such as the
purchase of property or services
involving a deferred payment; and
(ii) A deposit account.
(2) The term board of directors
includes:
(i) In the case of a branch or agency
of a foreign bank, the managing official
in charge of the branch or agency; and
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47819
(ii) In the case of any other creditor
that does not have a board of directors,
a designated employee at the level of
senior management.
(3) Covered account means:
(i) An account that a financial
institution or creditor offers or
maintains, primarily for personal,
family, or household purposes, that
involves or is designed to permit
multiple payments or transactions, such
as a credit card account, mortgage loan,
automobile loan, margin account, cell
phone account, utility account,
checking account, or savings account;
and
(ii) Any other account that the
financial institution or creditor offers or
maintains for which there is a
reasonably foreseeable risk to customers
or to the safety and soundness of the
financial institution or creditor from
identity theft, including financial,
operational, compliance, reputation, or
litigation risks.
(4) Credit has the same meaning as in
15 U.S.C. 1681a(r)(5).
(5) Creditor has the same meaning as
in 15 U.S.C. 1681a(r)(5), and includes
lenders such as banks, finance
companies, automobile dealers,
mortgage brokers, utility companies,
and telecommunications companies.
(6) Customer means a person that has
a covered account with a financial
institution or creditor.
(7) Financial institution has the same
meaning as in 15 U.S.C. 1681a(t).
(8) Identity theft has the same
meaning as in 16 CFR 603.2(a).
(9) Red Flag means a pattern, practice,
or specific activity that indicates the
possible existence of identity theft.
(10) Service provider means a person
that provides a service directly to the
financial institution or creditor.
(c) Periodic identification of covered
accounts. Each financial institution or
creditor must periodically determine
whether it offers or maintains covered
accounts. As a part of this
determination, a financial institution or
creditor must conduct a risk assessment
to determine whether it offers or
maintains covered accounts described
in paragraph (b)(3)(ii) of this section,
taking into consideration:
(1) The methods it provides to open
its accounts;
(2) The methods it provides to access
its accounts; and
(3) Its previous experiences with
identity theft.
(d) Establishment of an Identity Theft
Prevention Program —(1) Program
requirement. Each financial institution
or creditor that offers or maintains one
or more covered accounts must develop
and implement a written Identity Theft
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Prevention Program (Program) that is
designed to detect, prevent, and mitigate
identity theft in connection with the
opening of a covered account or any
existing covered account. The Program
must be appropriate to the size and
complexity of the financial institution
or creditor and the nature and scope of
its activities.
(2) Elements of the Program. The
Program must include reasonable
policies and procedures to:
(i) Identify relevant Red Flags for the
covered accounts that the financial
institution or creditor offers or
maintains, and incorporate those Red
Flags into its Program;
(ii) Detect Red Flags that have been
incorporated into the Program of the
financial institution or creditor;
(iii) Respond appropriately to any Red
Flags that are detected pursuant to
paragraph (d)(2)(ii) of this section to
prevent and mitigate identity theft; and
(iv) Ensure the Program (including the
Red Flags determined to be relevant) is
updated periodically, to reflect changes
in risks to customers and to the safety
and soundness of the financial
institution or creditor from identity
theft.
(e) Administration of the Program.
Each financial institution or creditor
that is required to implement a Program
must provide for the continued
administration of the Program and must:
(1) Obtain approval of the initial
written Program from either its board of
directors or an appropriate committee of
the board of directors;
(2) Involve the board of directors, an
appropriate committee thereof, or a
designated employee at the level of
senior management in the oversight,
development, implementation and
administration of the Program;
(3) Train staff, as necessary, to
effectively implement the Program; and
(4) Exercise appropriate and effective
oversight of service provider
arrangements.
(f) Guidelines. Each financial
institution or creditor that is required to
implement a Program must consider the
guidelines in the appendix to this
subpart and include in its Program those
guidelines that are appropriate.
(2) Clear and conspicuous means
reasonably understandable and
designed to call attention to the nature
and significance of the information
presented.
(c) Address validation requirements.
A card issuer must establish and
implement reasonable policies and
procedures to assess the validity of a
change of address if it receives
notification of a change of address for a
consumer’s debit or credit card account
and, within a short period of time
afterwards (during at least the first 30
days after it receives such notification),
the card issuer receives a request for an
additional or replacement card for the
same account. Under these
circumstances, the card issuer may not
issue an additional or replacement card,
until, in accordance with its reasonable
policies and procedures and for the
purpose of assessing the validity of the
change of address, the card issuer:
(1)(i) Notifies the cardholder of the
request:
(A) At the cardholder’s former
address; or
(B) By any other means of
communication that the card issuer and
the cardholder have previously agreed
to use; and
(ii) Provides to the cardholder a
reasonable means of promptly reporting
incorrect address changes; or
(2) Otherwise assesses the validity of
the change of address in accordance
with the policies and procedures the
card issuer has established pursuant to
§ 391.22.
(d) Alternative timing of address
validation. A card issuer may satisfy the
requirements of paragraph (c) of this
section if it validates an address
pursuant to the methods in paragraph
(c)(1) or (c)(2) of this section when it
receives an address change notification,
before it receives a request for an
additional or replacement card.
(e) Form of notice. Any written or
electronic notice that the card issuer
provides under this paragraph must be
clear and conspicuous and provided
separately from its regular
correspondence with the cardholder.
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§ 391.23 Duties of card issuers regarding
changes of address.
(a) Scope. This section applies to an
issuer of a debit or credit card (card
issuer) that is a State savings association
whose deposits are insured by the
Federal Deposit Insurance Corporation.
(b) Definitions. For purposes of this
section:
(1) Cardholder means a consumer
who has been issued a credit or debit
card.
Appendix to Subpart C of Part 391—
Interagency Guidelines on Identity
Theft Detection, Prevention, and
Mitigation
Section 391.22 requires each financial
institution and creditor that offers or
maintains one or more covered accounts, as
defined in § 391.22(b)(3), to develop and
provide for the continued administration of
a written Program to detect, prevent, and
mitigate identity theft in connection with the
opening of a covered account or any existing
covered account. These guidelines are
intended to assist financial institutions and
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creditors in the formulation and maintenance
of a Program that satisfies the requirements
of § 391.22.
I. The Program
In designing its Program, a financial
institution or creditor may incorporate, as
appropriate, its existing policies, procedures,
and other arrangements that control
reasonably foreseeable risks to customers or
to the safety and soundness of the financial
institution or creditor from identity theft.
II. Identifying Relevant Red Flags
(a) Risk Factors. A financial institution or
creditor should consider the following factors
in identifying relevant Red Flags for covered
accounts, as appropriate:
(1) The types of covered accounts it offers
or maintains;
(2) The methods it provides to open its
covered accounts;
(3) The methods it provides to access its
covered accounts; and
(4) Its previous experiences with identity
theft.
(b) Sources of Red Flags. Financial
institutions and creditors should incorporate
relevant Red Flags from sources such as:
(1) Incidents of identity theft that the
financial institution or creditor has
experienced;
(2) Methods of identity theft that the
financial institution or creditor has identified
that reflect changes in identity theft risks;
and
(3) Applicable supervisory guidance.
(c) Categories of Red Flags. The Program
should include relevant Red Flags from the
following categories, as appropriate.
Examples of Red Flags from each of these
categories are appended as Supplement A to
this Appendix.
(1) Alerts, notifications, or other warnings
received from consumer reporting agencies or
service providers, such as fraud detection
services;
(2) The presentation of suspicious
documents;
(3) The presentation of suspicious personal
identifying information, such as a suspicious
address change;
(4) The unusual use of, or other suspicious
activity related to, a covered account; and
(5) Notice from customers, victims of
identity theft, law enforcement authorities, or
other persons regarding possible identity
theft in connection with covered accounts
held by the financial institution or creditor.
III. Detecting Red Flags
The Program’s policies and procedures
should address the detection of Red Flags in
connection with the opening of covered
accounts and existing covered accounts, such
as by:
(a) Obtaining identifying information
about, and verifying the identity of, a person
opening a covered account, for example,
using the policies and procedures regarding
identification and verification set forth in the
Customer Identification Program rules
implementing 31 U.S.C. 5318(l) (31 CFR
103.121); and
(b) Authenticating customers, monitoring
transactions, and verifying the validity of
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change of address requests, in the case of
existing covered accounts.
IV. Preventing and Mitigating Identity Theft
The Program’s policies and procedures
should provide for appropriate responses to
the Red Flags the financial institution or
creditor has detected that are commensurate
with the degree of risk posed. In determining
an appropriate response, a financial
institution or creditor should consider
aggravating factors that may heighten the risk
of identity theft, such as a data security
incident that results in unauthorized access
to a customer’s account records held by the
financial institution, creditor, or third party,
or notice that a customer has provided
information related to a covered account held
by the financial institution or creditor to
someone fraudulently claiming to represent
the financial institution or creditor or to a
fraudulent Web site. Appropriate responses
may include the following:
(a) Monitoring a covered account for
evidence of identity theft;
(b) Contacting the customer;
(c) Changing any passwords, security
codes, or other security devices that permit
access to a covered account;
(d) Reopening a covered account with a
new account number;
(e) Not opening a new covered account;
(f) Closing an existing covered account;
(g) Not attempting to collect on a covered
account or not selling a covered account to
a debt collector;
(h) Notifying law enforcement; or
(i) Determining that no response is
warranted under the particular
circumstances.
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V. Updating the Program
Financial institutions and creditors should
update the Program (including the Red Flags
determined to be relevant) periodically, to
reflect changes in risks to customers or to the
safety and soundness of the financial
institution or creditor from identity theft,
based on factors such as:
(a) The experiences of the financial
institution or creditor with identity theft;
(b) Changes in methods of identity theft;
(c) Changes in methods to detect, prevent,
and mitigate identity theft;
(d) Changes in the types of accounts that
the financial institution or creditor offers or
maintains; and
(e) Changes in the business arrangements
of the financial institution or creditor,
including mergers, acquisitions, alliances,
joint ventures, and service provider
arrangements.
VI. Methods for Administering the Program
(a) Oversight of Program. Oversight by the
board of directors, an appropriate committee
of the board, or a designated employee at the
level of senior management should include:
(1) Assigning specific responsibility for the
Program’s implementation;
(2) Reviewing reports prepared by staff
regarding compliance by the financial
institution or creditor with § 391.22; and
(3) Approving material changes to the
Program as necessary to address changing
identity theft risks.
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(b) Reports. (1) In general. Staff of the
financial institution or creditor responsible
for development, implementation, and
administration of its Program should report
to the board of directors, an appropriate
committee of the board, or a designated
employee at the level of senior management,
at least annually, on compliance by the
financial institution or creditor with § 391.22.
(2) Contents of report. The report should
address material matters related to the
Program and evaluate issues such as: The
effectiveness of the policies and procedures
of the financial institution or creditor in
addressing the risk of identity theft in
connection with the opening of covered
accounts and with respect to existing covered
accounts; service provider arrangements;
significant incidents involving identity theft
and management’s response; and
recommendations for material changes to the
Program.
(c) Oversight of service provider
arrangements. Whenever a financial
institution or creditor engages a service
provider to perform an activity in connection
with one or more covered accounts the
financial institution or creditor should take
steps to ensure that the activity of the service
provider is conducted in accordance with
reasonable policies and procedures designed
to detect, prevent, and mitigate the risk of
identity theft. For example, a financial
institution or creditor could require the
service provider by contract to have policies
and procedures to detect relevant Red Flags
that may arise in the performance of the
service provider’s activities, and either report
the Red Flags to the financial institution or
creditor, or to take appropriate steps to
prevent or mitigate identity theft.
VII. Other Applicable Legal Requirements
Financial institutions and creditors should
be mindful of other related legal
requirements that may be applicable, such as:
(a) For financial institutions and creditors
that are subject to 31 U.S.C. 5318(g), filing a
Suspicious Activity Report in accordance
with applicable law and regulation;
(b) Implementing any requirements under
15 U.S.C. 1681c–1(h) regarding the
circumstances under which credit may be
extended when the financial institution or
creditor detects a fraud or active duty alert;
(c) Implementing any requirements for
furnishers of information to consumer
reporting agencies under 15 U.S.C. 1681s–2,
for example, to correct or update inaccurate
or incomplete information, and to not report
information that the furnisher has reasonable
cause to believe is inaccurate; and
(d) Complying with the prohibitions in 15
U.S.C. 1681m on the sale, transfer, and
placement for collection of certain debts
resulting from identity theft.
Supplement A to Appendix to Subpart
C of Part 391
In addition to incorporating Red Flags from
the sources recommended in section II.b. of
the Guidelines in this Appendix, each
financial institution or creditor may consider
incorporating into its Program, whether
singly or in combination, Red Flags from the
following illustrative examples in connection
with covered accounts:
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47821
Alerts, Notifications or Warnings from a
Consumer Reporting Agency
1. A fraud or active duty alert is included
with a consumer report.
2. A consumer reporting agency provides a
notice of credit freeze in response to a
request for a consumer report.
3. A consumer reporting agency provides a
notice of address discrepancy;
4. A consumer report indicates a pattern of
activity that is inconsistent with the history
and usual pattern of activity of an applicant
or customer, such as:
a. A recent and significant increase in the
volume of inquiries;
b. An unusual number of recently
established credit relationships;
c. A material change in the use of credit,
especially with respect to recently
established credit relationships; or
d. An account that was closed for cause or
identified for abuse of account privileges by
a financial institution or creditor.
Suspicious Documents
5. Documents provided for identification
appear to have been altered or forged.
6. The photograph or physical description
on the identification is not consistent with
the appearance of the applicant or customer
presenting the identification.
7. Other information on the identification
is not consistent with information provided
by the person opening a new covered account
or customer presenting the identification.
8. Other information on the identification
is not consistent with readily accessible
information that is on file with the financial
institution or creditor, such as a signature
card or a recent check.
9. An application appears to have been
altered or forged, or gives the appearance of
having been destroyed and reassembled.
Suspicious Personal Identifying Information
10. Personal identifying information
provided is inconsistent when compared
against external information sources used by
the financial institution or creditor. For
example:
a. The address does not match any address
in the consumer report; or
b. The Social Security Number (SSN) has
not been issued, or is listed on the Social
Security Administration’s Death Master File.
11. Personal identifying information
provided by the customer is not consistent
with other personal identifying information
provided by the customer. For example, there
is a lack of correlation between the SSN
range and date of birth.
12. Personal identifying information
provided is associated with known
fraudulent activity as indicated by internal or
third-party sources used by the financial
institution or creditor. For example:
a. The address on an application is the
same as the address provided on a fraudulent
application; or
b. The phone number on an application is
the same as the number provided on a
fraudulent application.
13. Personal identifying information
provided is of a type commonly associated
with fraudulent activity as indicated by
internal or third-party sources used by the
financial institution or creditor. For example:
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a. The address on an application is
fictitious, a mail drop, or a prison; or
b. The phone number is invalid, or is
associated with a pager or answering service.
14. The SSN provided is the same as that
submitted by other persons opening an
account or other customers.
15. The address or telephone number
provided is the same as or similar to the
address or telephone number submitted by
an unusually large number of other persons
opening accounts or by other customers.
16. The person opening the covered
account or the customer fails to provide all
required personal identifying information on
an application or in response to notification
that the application is incomplete.
17. Personal identifying information
provided is not consistent with personal
identifying information that is on file with
the financial institution or creditor.
18. For financial institutions and creditors
that use challenge questions, the person
opening the covered account or the customer
cannot provide authenticating information
beyond that which generally would be
available from a wallet or consumer report.
Unusual Use of, or Suspicious Activity
Related to, the Covered Account
19. Shortly following the notice of a change
of address for a covered account, the
institution or creditor receives a request for
a new, additional, or replacement card or a
cell phone, or for the addition of authorized
users on the account.
20. A new revolving credit account is used
in a manner commonly associated with
known patterns of fraud. For example:
a. The majority of available credit is used
for cash advances or merchandise that is
easily convertible to cash (e.g., electronics
equipment or jewelry); or
b. The customer fails to make the first
payment or makes an initial payment but no
subsequent payments.
21. A covered account is used in a manner
that is not consistent with established
patterns of activity on the account. There is,
for example:
a. Nonpayment when there is no history of
late or missed payments;
b. A material increase in the use of
available credit;
c. A material change in purchasing or
spending patterns;
d. A material change in electronic fund
transfer patterns in connection with a deposit
account; or
e. A material change in telephone call
patterns in connection with a cellular phone
account.
22. A covered account that has been
inactive for a reasonably lengthy period of
time is used (taking into consideration the
type of account, the expected pattern of usage
and other relevant factors).
23. Mail sent to the customer is returned
repeatedly as undeliverable although
transactions continue to be conducted in
connection with the customer’s covered
account.
24. The financial institution or creditor is
notified that the customer is not receiving
paper account statements.
25. The financial institution or creditor is
notified of unauthorized charges or
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transactions in connection with a customer’s
covered account.
Notice from Customers, Victims of Identity
Theft, Law Enforcement Authorities, or Other
Persons Regarding Possible Identity Theft in
Connection With Covered Accounts Held by
the Financial Institution or Creditor
26. The financial institution or creditor is
notified by a customer, a victim of identity
theft, a law enforcement authority, or any
other person that it has opened a fraudulent
account for a person engaged in identity
theft.
Subpart D—Loans in Areas Having
Special Flood Hazards
§ 391.30
Authority, purpose, and scope.
(a) Authority. This subpart is issued
pursuant to 12 U.S.C. 1462, 1462a, 1463,
1464, 1819 (Tenth) and 42 U.S.C. 4012a,
4104a, 4104b, 4106, 4128.
(b) Purpose. The purpose of this
subpart is to implement the
requirements of the National Flood
Insurance Act of 1968 and the Flood
Disaster Protection Act of 1973, as
amended (42 U.S.C. 4001–4129).
(c) Scope. This subpart, except for
§§ 391.35 and 391.37, applies to loans
secured by buildings or mobile homes
located or to be located in areas
determined by the Director of the
Federal Emergency Management Agency
to have special flood hazards. Sections
391.35 and 391.37 apply to loans
secured by buildings or mobile homes,
regardless of location.
§ 391.31
Definitions.
(a) Act means the National Flood
Insurance Act of 1968, as amended (42
U.S.C. 4001–4129).
(b) State savings association means,
for purposes of this subpart, a State
savings association as that term is
defined in 12 U.S.C. 1813(b)(3) and any
subsidiaries thereof.
(c) Building means a walled and
roofed structure, other than a gas or
liquid storage tank, that is principally
above ground and affixed to a
permanent site, and a walled and roofed
structure while in the course of
construction, alteration, or repair.
(d) Community means a State or a
political subdivision of a State that has
zoning and building code jurisdiction
over a particular area having special
flood hazards.
(e) Designated loan means a loan
secured by a building or mobile home
that is located or to be located in a
special flood hazard area in which flood
insurance is available under the Act.
(f) Director of FEMA means the
Director of the Federal Emergency
Management Agency.
(g) Mobile home means a structure,
transportable in one or more sections,
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that is built on a permanent chassis and
designed for use with or without a
permanent foundation when attached to
the required utilities. The term mobile
home does not include a recreational
vehicle. For purposes of this subpart,
the term mobile home means a mobile
home on a permanent foundation. The
term mobile home includes a
manufactured home as that term is used
in the NFIP.
(h) NFIP means the National Flood
Insurance Program authorized under the
Act.
(i) Residential improved real estate
means real estate upon which a home or
other residential building is located or
to be located.
(j) Servicer means the person
responsible for:
(1) Receiving any scheduled, periodic
payments from a borrower under the
terms of a loan, including amounts for
taxes, insurance premiums, and other
charges with respect to the property
securing the loan; and
(2) Making payments of principal and
interest and any other payments from
the amounts received from the borrower
as may be required under the terms of
the loan.
(k) Special flood hazard area means
the land in the flood plain within a
community having at least a one percent
chance of flooding in any given year, as
designated by the Director of FEMA.
(l) Table funding means a settlement
at which a loan is funded by a
contemporaneous advance of loan funds
and an assignment of the loan to the
person advancing the funds.
§ 391.32 Requirement to purchase flood
insurance where available.
(a) In general. A State savings
association shall not make, increase,
extend, or renew any designated loan
unless the building or mobile home and
any personal property securing the loan
is covered by flood insurance for the
term of the loan. The amount of
insurance must be at least equal to the
lesser of the outstanding principal
balance of the designated loan or the
maximum limit of coverage available for
the particular type of property under the
Act. Flood insurance coverage under the
Act is limited to the overall value of the
property securing the designated loan
minus the value of the land on which
the property is located.
(b) Table funded loans. A State
savings association that acquires a loan
from a mortgage broker or other entity
through table funding shall be
considered to be making a loan for the
purposes of this subpart.
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§ 391.33
Exemptions.
The flood insurance requirement
prescribed by § 391.32 does not apply
with respect to:
(a) Any State-owned property covered
under a policy of self-insurance
satisfactory to the Director of FEMA,
who publishes and periodically revises
the list of States falling within this
exemption; or
(b) Property securing any loan with an
original principal balance of $5,000 or
less and a repayment term of one year
or less.
§ 391.34
Escrow requirement.
If a State savings association requires
the escrow of taxes, insurance
premiums, fees, or any other charges for
a loan secured by residential improved
real estate or a mobile home that is
made, increased, extended, or renewed
on or after October 1, 1996, the State
savings association shall also require the
escrow of all premiums and fees for any
flood insurance required under § 391.32.
The State savings association, or a
servicer acting on behalf of the State
savings association, shall deposit the
flood insurance premiums on behalf of
the borrower in an escrow account. This
escrow account will be subject to
escrow requirements adopted pursuant
to section 10 of the Real Estate
Settlement Procedures Act of 1974 (12
U.S.C. 2609) (RESPA), which generally
limits the amount that may be
maintained in escrow accounts for
certain types of loans and requires
escrow account statements for those
accounts, only if the loan is otherwise
subject to RESPA. Following receipt of
a notice from the Director of FEMA or
other provider of flood insurance that
premiums are due, the State savings
association, or a servicer acting on
behalf of the State savings association,
shall pay the amount owed to the
insurance provider from the escrow
account by the date when such
premiums are due.
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§ 391.35 Required use of standard flood
hazard determination form.
(a) Use of form. A State savings
association shall use the standard flood
hazard determination form developed
by the Director of FEMA when
determining whether the building or
mobile home offered as collateral
security for a loan is or will be located
in a special flood hazard area in which
flood insurance is available under the
Act. The standard flood hazard
determination form may be used in a
printed, computerized, or electronic
manner. A State savings association may
obtain the standard flood hazard
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determination form from FEMA, P.O.
Box 2012, Jessup, MD 20794–2012.
(b) Retention of form. A State savings
association shall retain a copy of the
completed standard flood hazard
determination form, in either hard copy
or electronic form, for the period of time
the State savings association owns the
loan.
§ 391.36 Forced placement of flood
insurance.
If a State savings association, or a
servicer acting on behalf of the State
savings association, determines at any
time during the term of a designated
loan that the building or mobile home
and any personal property securing the
designated loan is not covered by flood
insurance or is covered by flood
insurance in an amount less than the
amount required under § 391.32, then
the State savings association or its
servicer shall notify the borrower that
the borrower should obtain flood
insurance, at the borrower’s expense, in
an amount at least equal to the amount
required under § 391.32, for the
remaining term of the loan. If the
borrower fails to obtain flood insurance
within 45 days after notification, then
the State savings association or its
servicer shall purchase insurance on the
borrower’s behalf. The State savings
association or its servicer may charge
the borrower for the cost of premiums
and fees incurred in purchasing the
insurance.
§ 391.37
Determination fees.
(a) General. Notwithstanding any
Federal or State law other than the
Flood Disaster Protection Act of 1973, as
amended (42 U.S.C. 4001–4129), any
State savings association, or a servicer
acting on behalf of the State savings
association, may charge a reasonable fee
for determining whether the building or
mobile home securing the loan is
located or will be located in a special
flood hazard area. A determination fee
may also include, but is not limited to,
a fee for life-of-loan monitoring.
(b) Borrower fee. The determination
fee authorized by paragraph (a) of this
section may be charged to the borrower
if the determination:
(1) Is made in connection with a
making, increasing, extending, or
renewing of the loan that is initiated by
the borrower;
(2) Reflects the Director of FEMA’s
revision or updating of floodplain areas
or flood-risk zones;
(3) Reflects the Director of FEMA’s
publication of a notice or compendium
that:
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(i) Affects the area in which the
building or mobile home securing the
loan is located; or
(ii) By determination of the Director of
FEMA, may reasonably require a
determination whether the building or
mobile home securing the loan is
located in a special flood hazard area; or
(4) Results in the purchase of flood
insurance coverage by the lender or its
servicer on behalf of the borrower under
§ 391.36.
(c) Purchaser or transferee fee. The
determination fee authorized by
paragraph (a) of this section may be
charged to the purchaser or transferee of
a loan in the case of the sale or transfer
of the loan.
§ 391.38 Notice of special flood hazards
and availability of Federal disaster relief
assistance.
(a) Notice requirement. When a State
savings association makes, increases,
extends, or renews a loan secured by a
building or a mobile home located or to
be located in a special flood hazard area,
the State savings association shall mail
or deliver a written notice to the
borrower and to the servicer in all cases
whether or not flood insurance is
available under the Act for the collateral
securing the loan.
(b) Contents of notice. The written
notice must include the following
information:
(1) A warning, in a form approved by
the Director of FEMA, that the building
or the mobile home is or will be located
in a special flood hazard area;
(2) A description of the flood
insurance purchase requirements set
forth in section 102(b) of the Flood
Disaster Protection Act of 1973, as
amended (42 U.S.C. 4012a(b));
(3) A statement, where applicable,
that flood insurance coverage is
available under the NFIP and may also
be available from private insurers; and
(4) A statement whether Federal
disaster relief assistance may be
available in the event of damage to the
building or mobile home caused by
flooding in a Federally-declared
disaster.
(c) Timing of notice. The State savings
association shall provide the notice
required by paragraph (a) of this section
to the borrower within a reasonable time
before the completion of the transaction,
and to the servicer as promptly as
practicable after the State savings
association provides notice to the
borrower and in any event no later than
the State savings association provides
other similar notices to the servicer
concerning hazard insurance and taxes.
Notice to the servicer may be made
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electronically or may take the form of a
copy of the notice to the borrower.
(d) Record of receipt. The State
savings association shall retain a record
of the receipt of the notices by the
borrower and the servicer for the period
of time the State savings association
owns the loan.
(e) Alternate method of notice. Instead
of providing the notice to the borrower
required by paragraph (a) of this section,
a State savings association may obtain
satisfactory written assurance from a
seller or lessor that, within a reasonable
time before the completion of the sale or
lease transaction, the seller or lessor has
provided such notice to the purchaser or
lessee. The State savings association
shall retain a record of the written
assurance from the seller or lessor for
the period of time the State savings
association owns the loan.
(f) Use of prescribed form of notice. A
State savings association will be
considered to be in compliance with the
requirement for notice to the borrower
of this section by providing written
notice to the borrower containing the
language presented in appendix A to
this subpart within a reasonable time
before the completion of the transaction.
The notice presented in appendix A to
this subpart satisfies the borrower notice
requirements of the Act.
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§ 391.39
Notice of servicer’s identity.
(a) Notice requirement. When a State
savings association makes, increases,
extends, renews, sells, or transfers a
loan secured by a building or mobile
home located or to be located in a
special flood hazard area, the State
savings association shall notify the
Director of FEMA (or the Director’s
designee) in writing of the identity of
the servicer of the loan. The Director of
FEMA has designated the insurance
provider to receive the State savings
association’s notice of the servicer’s
identity. This notice may be provided
electronically if electronic transmission
is satisfactory to the Director of FEMA’s
designee.
(b) Transfer of servicing rights. The
State savings association shall notify the
Director of FEMA (or the Director’s
designee) of any change in the servicer
of a loan described in paragraph (a) of
this section within 60 days after the
effective date of the change. This notice
may be provided electronically if
electronic transmission is satisfactory to
the Director of FEMA’s designee. Upon
any change in the servicing of a loan
described in paragraph (a) of this
section, the duty to provide notice
under this paragraph (b) shall transfer to
the transferee servicer.
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Appendix to Subpart D of Part 391—
Sample Form of Notice of Special Flood
Hazards and Availability of Federal
Disaster Relief Assistance
We are giving you this notice to inform you
that:
(a) The building or mobile home securing
the loan for which you have applied is or
will be located in an area with special flood
hazards.
(b) The area has been identified by the
Director of the Federal Emergency
Management Agency (FEMA) as a special
flood hazard area using FEMA’s Flood
Insurance Rate Map or the Flood Hazard
Boundary Map for the following community:
ll. This area has at least a one percent
(1%) chance of a flood equal to or exceeding
the base flood elevation (a 100-year flood) in
any given year. During the life of a 30-year
mortgage loan the risk of a 100-year flood in
a special flood hazard area is 26 percent
(26%).
(c) Federal law allows a lender and
borrower jointly to request the Director of
FEMA to review the determination of
whether the property securing the loan is
located in a special flood hazard area. If you
would like to make such a request, please
contact us for further information.
(d) The community in which the property
securing the loan is located participates in
the National Flood Insurance Program
(NFIP). Federal law will not allow us to make
you the loan that you have applied for if you
do not purchase flood insurance. The flood
insurance must be maintained for the life of
the loan. If you fail to purchase or renew
flood insurance on the property, Federal law
authorizes and requires us to purchase the
flood insurance for you at your expense.
• Flood insurance coverage under the
NFIP may be purchased through an insurance
agent who will obtain the policy either
directly through the NFIP or through an
insurance company that participates in the
NFIP. Flood insurance also may be available
from private insurers that do not participate
in the NFIP.
• At a minimum, flood insurance
purchased must cover the lesser of:
(1) The outstanding principal balance of
the loan; or
(2) The maximum amount of coverage
allowed for the type of property under the
NFIP.
(e) Flood insurance coverage under the
NFIP is limited to the overall value of the
property securing the loan minus the value
of the land on which the property is located.
• Federal disaster relief assistance (usually
in the form of a low-interest loan) may be
available for damages incurred in excess of
your flood insurance if your community’s
participation in the NFIP is in accordance
with NFIP requirements.
(f) Flood insurance coverage under the
NFIP is not available for the property
securing the loan because the community in
which the property is located does not
participate in the NFIP. In addition, if the
non-participating community has been
identified for at least one year as containing
a special flood hazard area, properties
located in the community will not be eligible
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for Federal disaster relief assistance in the
event of a Federally-declared flood disaster.
Subpart E—Acquisition of Control of
State Savings Associations
§ 391.40
Scope of subpart.
The purpose of this subpart is to
implement the provisions of the Change
in Bank Control Act, 12 U.S.C. 1817 (j)
(‘‘Control Act’’), relating to acquisitions
and changes in control of State savings
associations that are organized in stock
form.
§ 391.41
Definitions.
As used in this subpart and in the
forms under this subpart, the following
definitions apply, unless the context
otherwise requires:
Acquire when used in connection
with the acquisition of stock of a State
savings association means obtaining
ownership, control, power to vote, or
sole power of disposition of stock,
directly or indirectly or through one or
more transactions or subsidiaries,
through purchase, assignment, transfer,
exchange, succession, or other means,
including:
(1) An increase in percentage
ownership resulting from a redemption,
repurchase, reverse stock split or a
similar transaction involving other
securities of the same class, and
(2) The acquisition of stock by a group
of persons and/or companies acting in
concert which shall be deemed to occur
upon formation of such group: Provided,
That an investment advisor shall not be
deemed to acquire the voting stock of its
advisee if the advisor:
(i) Votes the stock only upon
instruction from the beneficial owner,
and
(ii) Does not provide the beneficial
owner with advice concerning the
voting of such stock.
Acquiror means a person or company.
Acting in concert means: (1) Knowing
participation in a joint activity or
interdependent conscious parallel
action towards a common goal whether
or not pursuant to an express agreement,
or
(2) A combination or pooling of voting
or other interests in the securities of an
issuer for a common purpose pursuant
to any contract, understanding,
relationship, agreement or other
arrangement, whether written or
otherwise.
(3) A person or company which acts
in concert with another person or
company (‘‘other party’’) shall also be
deemed to be acting in concert with any
person or company who is also acting in
concert with that other party, except
that any tax-qualified employee stock
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benefit plan as defined in 12 CFR 192.25
will not be deemed to be acting in
concert with its trustee or a person who
serves in a similar capacity solely for
the purpose of determining whether
stock held by the trustee and stock held
by the plan will be aggregated.
Affiliate means any person or
company which controls, is controlled
by or is under common control with a
person, State savings association, or
company.
Company means any corporation,
partnership, trust, association, joint
venture, pool, syndicate,
unincorporated organization, joint-stock
company or similar organization, as
defined in the definition of similar
organization in this section; but a
company does not include:
(1) The FDIC or any Federal Home
Loan Bank, or
(2) Any company the majority of
shares of which is owned by:
(i) The United States or any State;
(ii) An officer of the United States or
any State in his or her official capacity;
(iii) An instrumentality of the United
States or any State; or
(iv) A savings and loan holding
company registered under section 10(b)
of the Home Owners’ Loan Act.
Controlling shareholder means any
person who directly or indirectly or
acting in concert with one or more
persons or companies, or together with
members of his or her immediate family,
owns, controls, or holds with power to
vote 10 percent or more of the voting
stock of a company or controls in any
manner the election or appointment of
a majority of the company’s board of
directors.
Immediate family means a person’s
spouse, father, mother, children,
brothers, sisters and grandchildren; the
father, mother, brothers, and sisters of
the person’s spouse; and the spouse of
the person’s child, brother or sister.
Management official means any
president, chief executive officer, chief
operating officer, vice president,
director, partner, or trustee, or any other
person who performs or has a
representative or nominee performing
similar policymaking functions,
including executive officers of principal
business units or divisions or
subsidiaries who perform policymaking
functions, for a State savings association
or a company, whether or not
incorporated.
Person means an individual or a
group of individuals acting in concert
who do not constitute a company as
defined in this section.
Repealed Control Act means the
Change in Savings and Loan Control
Act, 12 U.S.C. 1730(q), as in effect
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immediately prior to its repeal by the
Financial Institutions Reform, Recovery,
and Enforcement Act of 1989.
State savings association means a
state-chartered savings association,
building and loan, savings and loan or
homestead association or a cooperative
bank (other than a cooperative bank
described in 12 U.S.C. 1813(a)(2)) the
deposits of which are insured by the
FDIC, and any corporation (other than a
bank) the deposits of which are insured
by the FDIC that the FDIC determines to
be operating in substantially the same
manner as a State savings association.
Similar organization for purposes
company as defined in this section
means a combination of parties with the
potential for or practical likelihood of
continuing rather than temporary
existence, where the parties thereto
have knowingly and voluntarily
associated for a common purpose
pursuant to identifiable and binding
relationships which govern the parties
with respect to either:
(1) The transferability and voting of
any stock or other indicia of
participation in another entity, or
(2) Achievement of a common or
shared objective, such as to collectively
manage or control another entity.
Stock means common or preferred
stock, general or limited partnership
shares or interests, or similar interests.
Uninsured institution means any
financial institution the deposits of
which are not insured by the FDIC.
Voting stock means:
(1) Common or preferred stock,
general or limited partnership shares or
interests, or similar interests if the
shares or interests, by statute, charter or
in any manner, entitle the holder:
(i) To vote for or to select directors,
trustees, or partners (or persons
exercising similar functions of the
issuing State savings association or
company); or
(ii) To vote or to direct the conduct of
the operations or other significant
policies of the issuer.
(2) Notwithstanding anything in this
definition, preferred stock, limited
partnership shares or interests, or
similar interests are not voting stock if:
(i) Voting rights associated with the
stock, shares or interests are limited
solely to the type customarily provided
by statute with regard to matters that
would significantly and adversely affect
the rights or preference of the stock,
security or other interest, such as the
issuance of additional amounts or
classes of senior securities, the
modification of the terms of the stock,
security or interest, the dissolution of
the issuer, or the payment of dividends
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by the issuer when preferred dividends
are in arrears;
(ii) The stock, shares or interests
represent an essentially passive
investment or financing device and do
not otherwise provide the holder with
control over the issuer; and
(iii) The stock, shares or interests do
not at the time entitle the holder, by
statute, charter, or otherwise, to select or
to vote for the selection of directors,
trustees, or partners (or persons
exercising similar functions) of the
issuer;
(3) Notwithstanding anything in this
definition, voting stock shall be deemed
to include stock and other securities
that, upon transfer or otherwise, are
convertible into voting stock or
exercisable to acquire voting stock
where the holder of the stock,
convertible security or right to acquire
voting stock has the preponderant
economic risk in the underlying voting
stock. Securities immediately
convertible into voting stock at the
option of the holder without payment of
additional consideration shall be
deemed to constitute the voting stock
into which they are convertible; other
convertible securities and rights to
acquire voting stock shall not be
deemed to vest the holder with the
preponderant economic risk in the
underlying voting stock if the holder has
paid less than 50 percent of the
consideration required to directly
acquire the voting stock and has no
other economic interest in the
underlying voting stock. For purposes of
calculating the percentage of voting
stock held by a particular acquiror,
stock or other securities convertible into
voting stock or exercisable to acquire
voting stock which are deemed voting
stock under this paragraph (3) shall be
included in calculating the amount of
voting stock held by the acquiror and
the total amount of stock outstanding
only to the extent of the voting stock
obtainable by such acquiror by such
conversion or exercise of rights.
§ 391.42 Acquisition of control of State
savings associations.
(a) [Reserved]
(b) Acquisition by a person or
company. Unless a transaction is
exempt from prior notice under
paragraph (d) of this section, no person
or company (other than certain persons
affiliated with a savings and loan
holding company who are subject to
§ 10(e)(4) of the Home Owners’ Loan
Act), shall acquire control, as defined in
§ 391.43 (a) and (b), of a State savings
association until written notice has been
provided to the FDIC and (1) the FDIC
indicates in writing its intent not to
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disapprove the proposed acquisition or
(2) 60 days (or such period of time as
the FDIC may specify if the review
period has been extended under
§ 391.45(c)(3)) have passed since receipt
of a notice deemed sufficient under
§ 391.45(c)(2). Notwithstanding the
forgoing, acquisitions by persons or
companies by means of a merger with
an interim association are not subject to
this subpart, but shall be subject to
approval under § 390.332, and either 12
CFR 152.13 or applicable state law.
(c) Exempt transactions. (1)
[Reserved]
(2) The following transactions are
exempt from the notice requirements of
paragraph (b) of this section:
(i)(A) Control of a State savings
association acquired by a bank holding
company that is registered under and
subject to, the Bank Holding Company
Act of 1956, or any company controlled
by such bank holding company;
(B) Control of a State savings
association acquired solely as a result of
a pledge or hypothecation of stock to
secure a loan contracted for in good
faith or the liquidation of a loan
contracted for in good faith, in either
case where such loan was made in the
ordinary course of the business of the
lender: Provided, further, That
acquisition of control pursuant to such
pledge, hypothecation or liquidation is
reported to the FDIC within 30 days,
and Provided, further, That the acquiror
shall not retain such control for more
than one year from the date on which
such control was acquired; however, the
FDIC may, upon application by an
acquiror, extend such one-year period
from year to year, for an additional
period of time not exceeding three
years, if the FDIC finds such extension
is warranted and would not be
detrimental to the public interest;
(C) Control of a State savings
association acquired through a
percentage increase in stock ownership
following a pro rata stock dividend or
stock split, if the proportional interests
of the recipients remain substantially
the same;
(D) Acquisition of additional stock
after a non-disapproval under § 391.46,
or any predecessor provision, has been
received: Provided, That such
acquisition is consistent with any
conditions imposed in connection with
such approval and with the
representations made by the acquirer in
its application;
(E) Acquisitions of up to twenty-five
percent (25%) of a class of stock by a
tax-qualified employee stock benefit
plan as defined in 12 CFR 192.25; and
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(ii) Transactions for which approval is
required under the Home Owners’ Loan
Act;
(iii) Transactions for which approval
is required under 12 CFR 152.13 and
390.332;
(iv) Transactions for which a change
of control notice must be submitted to
the Board of Governors of the Federal
Reserve System pursuant to the Change
in Bank Control Act, 12 U.S.C. 1817(j);
(v) Acquisition of additional stock of
a State savings association by any
person who:
(A) Has held power to vote 25 percent
or more of any class of voting stock in
such association continuously since
March 9, 1979; or
(B) Has maintained control of the
State savings association continuously
since acquiring control in compliance
with the Control Act (or the Repealed
Control Act) and the regulations
thereunder then in effect: Provided,
That such acquisition is consistent with
any conditions imposed in connection
with such acquisition of control and
with the representations made by the
acquiror in its notice; and
(vi) [Reserved]
(3) An acquiror that would be
considered to be in control of a State
savings association pursuant to § 391.43
on December 26, 1985, shall not be
subject to this § 391.42 unless the
acquiror acquires additional stock of the
State savings association or obtains a
control factor with respect to such
association after December 26, 1985:
Provided, That an acquiror shall not be
deemed to have acquired control of a
State savings association on the basis of
actions taken prior to December 26,
1985, or on the basis of actions taken
after December 26, 1985, if such actions
are pursuant to and consistent with a
materially complete application under
the Holding Company Act or notice
under the Repealed Control Act filed
prior to December 26, 1985, if such
acquisition is made pursuant to an
application approved under the Holding
Company Act or a notice under the
Repealed Control Act that was not
disapproved.
(d) Transactions exempt from prior
approval or notice. (1) Subject to the
conditions set forth in paragraph (d)(2)
of this section, the following
transactions are exempt from prior
approval and prior notice under
§ 391.42: Provided, That the timing of
the transaction was not within the
control of the acquiror.
(i) Control of a State savings
association acquired through bona fide
gift;
(ii) Control of a State savings
association acquired through liquidation
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of a loan contracted in good faith where
the loan was not made in the ordinary
course of business of the lender;
(iii) Control of a State savings
association acquired through a
percentage increase in ownership
following a stock split or redemption
that was not pro rata;
(iv) Control determined pursuant to
§ 391.43 (a) or (b) as a result of actions
by third parties that are not within the
control of the acquiror;
(v) Control of a State savings
association acquired through testate or
intestate succession: Provided, That the
acquiror transmits written notification
of the acquisition to the FDIC within 60
days of the acquisition and provides
such additional information as the FDIC
may specifically request.
(2) The exemptions provided by
paragraphs (d)(1)(i) through (d)(1)(iv) of
this section are subject to the following
conditions:
(i) The acquiror shall file a notice or
rebuttal, as appropriate, with the FDIC
within 90 days of acquisition of control;
(ii) The acquiror shall not take any
action to direct the management or
policies of the State savings association
or which are designed to effect a change
in the business plan of the State savings
association other than voting on matters
that may be presented to stockholders
by management of the State savings
association until the FDIC has acted
favorably upon the acquiror’s notice or
rebuttal, and the FDIC may require that
the acquiror take such steps as the FDIC
deems necessary to insure that control
is not exercised; and
(iii) If the FDIC disapproves the
acquiror’s notice or rebuttal, the
acquiror shall divest such portion of the
stock held by the acquiror so as to cause
the acquiror not to be determined to be
in control of the State savings
association under § 391.43, within one
year or such shorter period of time and
in the manner that the FDIC may order.
§ 391.43
Control.
(a) Conclusive control. (1) An acquiror
shall be deemed to have acquired
control of a State savings association,
other than a savings and loan holding
company, if the acquiror directly or
indirectly, through one or more
subsidiaries or transactions or acting in
concert with one or more persons or
companies:
(i) Acquires 25 percent or more of any
class of voting stock of the State savings
association; or
(ii) Acquires irrevocable proxies
representing 25 percent or more of any
class of voting stock of the State savings
association; or
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(iii) Acquires any combination of
voting stock and irrevocable proxies
representing 25 percent or more of any
class of voting stock of a State savings
association; or
(iv) [Reserved]
(2) [Reserved]
(3) [Reserved]
(4) A person or company shall be
deemed to control a State savings
association if the FDIC determines that
such person has the power to direct the
management or policies of the State
savings association.
(b) Rebuttable control determinations.
(1) An acquiror shall be determined,
subject to rebuttal, to have acquired
control of a State savings association, if
the acquiror directly or indirectly, or
through one or more subsidiaries or
transactions or acting in concert with
one or more persons or companies:
(i) Acquires more than 10 percent of
any class of voting stock of the State
savings association and is subject to any
control factor, as defined in paragraph
(c) of this section;
(ii) Acquires 25 percent or more of
any class of stock of the State savings
association and is subject to any control
factor, as defined in paragraph (c) of this
section.
(2) An acquiror shall be determined,
subject to rebuttal, to have acquired
control of a State savings association, if
the acquiror directly or indirectly, or
through one or more subsidiaries or
transactions or acting in concert with
one or more persons or companies,
holds any combination of voting stock
and revocable and/or irrevocable
proxies, representing 25 percent or more
of any class of voting stock of a State
savings association, excluding such
proxies held in connection with a
solicitation by, or in opposition to, a
solicitation on behalf of management of
the State savings association, but
including a solicitation in connection
with an election of directors, and such
proxies would enable the acquiror to:
(i) Elect one-third or more of the State
savings association’s board of directors,
including nominees or representatives
of the acquiror currently serving on
such board;
(ii) Cause the State savings
association’s stockholders to approve
the acquisition or corporate
reorganization of the State savings
association; or
(iii) Exert a continuing influence on a
material aspect of the business
operations of the State savings
association.
(c) Control factors. For purposes of
paragraph (b)(1) of this section, the
following constitute control factors.
References to the acquiror include
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actions taken directly or indirectly, or
through one or more subsidiaries or
transactions or acting in concert with
one or more persons or companies:
(1) The acquiror would be one of the
two largest holders of any class of voting
stock of the State savings association.
(2) The acquiror would hold 25
percent or more of the total
stockholders’ equity of the State savings
association.
(3) The acquiror would hold more
than 35 percent of the combined debt
securities and stockholders’ equity of
the State savings association.
(4) The acquiror is party to any
agreement:
(i) Pursuant to which the acquiror
possesses a material economic stake in
the State savings association resulting
from a profit-sharing arrangement, use
of common names, facilities or
personnel, or the provision of essential
services to the State savings association;
or
(ii) That enables the acquiror to
influence a material aspect of the
management or policies of the State
savings association, other than
agreements to which the State savings
association is a party where the
restrictions are customary under the
circumstances and in the case of an
acquisition agreement, which apply
only during the period when the
acquiror is seeking the FDIC’s approval
to acquire the State savings association,
the agreement prohibits transactions
between the acquiror and the State
savings association and their respective
affiliates without approval by the
appropriate Regional Director during the
pendency of the notice process, and the
agreement contains no material
forfeiture provisions applicable to the
State savings association in the event
the acquisition is not approved or not
approved by a specified date.
(5) The acquiror would have the
ability, other than through the holding
of revocable proxies, to direct the votes
of 25 percent or more of a class of the
State savings association’s voting stock
or to vote 25 percent or more of a class
of the State savings association’s voting
stock in the future upon the occurrence
of a future event.
(6) The acquiror would have the
power to direct the disposition of 25
percent or more of a class of the State
savings association’s voting stock in a
manner other than a widely dispersed or
public offering.
(7) The acquiror and/or the acquiror’s
representatives or nominees would
constitute more than one member of the
State savings association’s board of
directors.
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47827
(8) The acquiror or a nominee or
management official of the acquiror
would serve as the chairman of the
board of directors, chairman of the
executive committee, chief executive
officer, chief operating officer, chief
financial officer or in any position with
similar policymaking authority in the
State savings association.
(d) Rebuttable presumptions of
concerted action. An acquiror will be
presumed to be acting in concert with
the following persons and companies:
(1) A company will be presumed to be
acting in concert with a controlling
shareholder, partner, trustee or
management official of such company
with respect to the acquisition of stock
of a State savings association, if
(i) Both the company and the person
own stock in the State savings
association,
(ii) The company provides credit to
the person to purchase the State savings
association’s stock, or
(iii) The company pledges its assets or
otherwise is instrumental in obtaining
financing for the person to acquire stock
of the State savings association;
(2) A person will be presumed to be
acting in concert with members of the
person’s immediate family;
(3) Persons will be presumed to be
acting in concert with each other where
(i) Both own stock in a State savings
association and both are also
management officials, controlling
shareholders, partners, or trustees of
another company, or
(ii) One person provides credit to
another person or is instrumental in
obtaining financing for another person
to purchase stock of the State savings
association;
(4) A company controlling or
controlled by another company and
companies under common control will
be presumed to be acting in concert;
(5) Persons or companies will be
presumed to be acting in concert where
they constitute a group under the
beneficial ownership reporting rules
under section 13 or the proxy rules
under section 14 of the Securities
Exchange Act of 1934, promulgated by
the Securities and Exchange
Commission.
(6) A person or company will be
presumed to be acting in concert with
any trust for which such person or
company serves as trustee, except that a
tax-qualified employee stock benefit
plan as defined in 12 CFR 192.25 shall
not be presumed to be acting in concert
with its trustee or person acting in a
similar fiduciary capacity solely for the
purposes of determining whether to
combine the holdings of a plan and its
trustee or fiduciary.
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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules and Regulations
(7) Persons or companies will be
presumed to be acting in concert with
each other and with any other person or
company with which they also are
presumed to act in concert.
(e) Procedures for rebuttal—(1)
Rebuttal of control determination. An
acquiror attempting to rebut a
determination of control that would
arise under paragraph (b) of this section
shall file a submission with the FDIC
setting forth the facts and circumstances
which support the acquiror’s contention
that no control relationship would exist
if the acquiror acquires stock or obtains
a control factor with respect to a State
savings association. The rebuttal must
be filed and accepted in accordance
with this section before the acquiror
acquires such stock or control factor.
(i) An acquiror seeking to rebut the
determination of control arising under
paragraph (b)(1) of this section shall
submit to the FDIC an executed
agreement materially conforming to the
agreement set forth at § 391.48. Unless
agreed to by the FDIC in writing, no
other agreement or filing shall be
deemed to rebut the determination of
control arising under paragraph (b)(1) of
this section. If accepted by the FDIC the
acquiror shall furnish a copy of the
executed agreement to the association to
which the rebuttal pertains.
(ii) An acquiror seeking to rebut the
determination of control with respect to
holding of proxies arising under
paragraph (b)(2) of this section shall be
subject to the requirements of paragraph
(e)(1) of this section, except that in the
case of a rebuttal of the presumption of
control arising under paragraph (b)(2) of
this section, the FDIC may require the
acquiror to furnish information in
response to a specific request for
information and depending upon the
particular facts and circumstances, to
provide an executed rebuttal agreement
materially conforming to the agreement
set forth at § 391.48, with any
modifications deemed necessary by the
FDIC.
(2) Presumptions of concerted action.
An acquiror attempting to rebut the
presumption of concerted action arising
under paragraph (d) of this section shall
file a submission with the FDIC setting
forth facts and circumstances which
clearly and convincingly demonstrate
the acquiror’s contention that no action
in concert exists. Such a statement must
be accompanied by an affidavit, in form
and content satisfactory to the FDIC,
executed by each person or company
presumed to be acting in concert, stating
that such person or company does not
and shall not, without having made
necessary filings and obtained approval
or clearance thereof under the Holding
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Jkt 223001
Company Act or the Control Act, as
applicable, have any agreements or
understandings, written or tacit, with
respect to the exercise of control,
directly or indirectly, over the
management or policies of the State
savings association, including
agreements relating to voting,
acquisition or disposition of the State
savings association’s stock. The affidavit
shall also recite that the signatory is
aware that the filing of a false affidavit
may subject the person or company to
criminal sanctions, would constitute a
violation of the FDIC’s regulations at
§ 390.355(b) and would be considered a
‘‘presumptive disqualifier’’ under 12
CFR 391.46(g)(1)(v).
(3) Determination. A rebuttal filed
pursuant to paragraph (e) of this section
shall not be deemed sufficient unless it
includes all the information,
agreements, and affidavits required by
the FDIC and this subpart, as well as
any additional relevant information as
the FDIC may require by written request
to the acquiror. Within 20 calendar days
after proper filing of a rebuttal
submission, the FDIC will provide
written notification of its determination
to accept or reject the submission;
request additional information in
connection with the submission; or
return the submission to the acquiror as
materially deficient. Within 15 calendar
days after proper filing of any additional
information furnished in response to a
specific request by the FDIC, the FDIC
shall notify the acquiror in writing as to
whether the rebuttal is thereby deemed
to be sufficient. If the FDIC fails to
notify an acquiror within such time, the
rebuttal shall be deemed to be accepted.
The FDIC may reject any rebuttal which
is inconsistent with facts and
circumstances known to it or where the
rebuttal does not clearly and
convincingly refute the rebuttable
determination of control or presumption
of action in concert, and may determine
to reject a submission solely on such
bases.
(f) Safe harbor. Notwithstanding any
other provision of this section, where an
acquiror has no intention to participate
in or to seek to exercise control over a
State savings association’s management
or policies, the acquiror may seek to
qualify for a safe harbor with respect to
its ownership of stock of a State savings
association.
(1) In order to qualify for the safe
harbor, an acquiror must submit a
certification to the FDIC that shall be
signed by the acquiror or an authorized
representative thereof and shall read as
follows:
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Frm 00178
Fmt 4701
Sfmt 4700
The undersigned makes this submission
pursuant to § 391.43(f) with respect to [name
of State savings association] and hereby
certifies to the FDIC the following:
The undersigned is not in control of [name
of State savings association] under
§ 391.43(a);
The undersigned is not subject to any
control factor as enumerated in § 391.43(c)
with respect to the [name of State savings
association];
The undersigned will not solicit proxies
relating to the voting stock of [name of State
savings association];
Before any change in status occurs that
would bring the undersigned within the
scope of § 391.43(a) or (b), the undersigned
will file and obtain approval of a rebuttal, or
non-disapproval of a notice, or holding
company application, as appropriate.
The undersigned has not acquired stock of
[name of State savings association] for the
purpose or effect of changing or influencing
the control of [name of State savings
association] or in connection with or as a
participant in any transaction having such
purpose or effect.
(2) An acquiror claiming safe-harbor
status may vote freely and dissent with
respect to its own stock. Certifications
provided for in this paragraph must be
filed with FDIC in accordance with
§§ 390.106 and 390.108.
§ 391.44
Certifications of ownership.
(a) Acquisition of stock. (1) Upon the
acquisition of beneficial ownership that
exceeds, in the aggregate, 10 percent of
any class of stock of a State savings
association or additional stock above 10
percent of the stock of a State savings
association occurring after December 26,
1985, an acquiror shall file with the
FDIC a certification as described in this
section.
(2) The certification filed pursuant to
this section shall be signed by the
acquiror or an authorized representative
thereof and shall read as follows:
The undersigned is the beneficial
owner of 10 percent or more of a class
of stock of [name of State savings
association]. The undersigned is not in
control of such association, as defined
in 12 CFR 391.43(a), and is not subject
to a rebuttable determination of control
under § 391.43(b), and will take no
action that would result in a
determination of control or a rebuttable
determination of control without first
filing and obtaining approval of an
application under the Savings and Loan
Holding Company Act, 12 U.S.C. 1467a,
or a notice under the Change in Bank
Control Act, 12 U.S.C. 1817(j), or filing
and obtaining acceptance by the FDIC of
a rebuttal of the rebuttable
determination of control.
(3) Notwithstanding anything
contained in this paragraph (a), an
acquiror is not required to file a
certification if—
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(i) The FDIC has issued a notice of
non-disapproval of the acquisition of
the State savings association; or
(ii) The acquiror has filed a materially
complete notice pursuant to § 391.42.
(b) Privacy. All certifications filed
under this § 391.44 shall be for the
information of the FDIC in connection
with its examination functions and shall
be provided confidential treatment by
the FDIC.
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§ 391.45
Procedural requirements.
(a) Form of application or notice. A
notice required by § 391.42 shall be filed
on the form indicated below. An
acquiror may request confidential
treatment of portions of a notice only by
complying with the requirements of
paragraph (f) of this section.
(a)(1) through (5) [Reserved]
(6) Notice Form 1393, parts A and B.
This form shall be used for all notices
filed under § 391.42(b) regarding the
acquisition of control of a State savings
association by any person or persons not
constituting a company.
(b) Filing requirements—(1) Notices
and rebuttals. (i) Complete copies
including exhibits and all other
pertinent documents of notices, and
rebuttal submissions shall be filed with
the appropriate Regional Director in the
region in which the State savings
association or associations involved in
the transaction have their home office or
offices. Unsigned copies shall be
conformed. Each copy shall include a
summary of the proposed transaction.
(ii) Any person or company may
amend a notice or rebuttal submission,
or file additional information, upon
request of the FDIC or, in the case of the
party filing a notice or rebuttal, upon
such party’s own initiative.
(2) [Reserved]
(c) Sufficiency and waiver. (1) Except
as provided in § 391.45(c)(5), a notice
filed pursuant to § 391.42(b) shall not be
deemed sufficient unless it includes all
of the information required by the form
prescribed by the FDIC and this section,
including a complete description of the
acquiror’s proposed plan for acquisition
of control whether pursuant to one or
more transactions, and any additional
relevant information as the FDIC may
require by written request to the
acquiror. Unless a notice specifically
indicates otherwise, the notice shall be
considered to pertain to acquisition of
100 percent of a State savings
association’s voting stock. Where a
notice pertains to a lesser amount of
stock, the FDIC may condition its nondisapproval to apply only to such
amount, in which case additional
acquisitions may be made only by
amendment to the acquiror’s notice and
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the FDIC’s approval or non-disapproval
thereof. Failure by an applicant to
respond completely to a written request
by the FDIC for additional information
within 30 calendar days of the date of
such request may be deemed to
constitute withdrawal of the notice or
rebuttal filing or may be treated as
grounds for issuance of a notice of
disapproval of a notice or rejection of a
rebuttal.
(2) The period for the FDIC’s review
of any proposed acquisition will
commence upon receipt by the FDIC of
a notice deemed sufficient under
paragraph (c)(1) of this section. The
FDIC shall notify an acquiror in writing
within 30 calendar days after proper
filing of a notice as to whether the
notice—
(i) Is sufficient;
(ii) Is insufficient, and what
additional information is requested in
order to render the application or notice
sufficient; or
(iii) Is materially deficient and will
not be processed. The FDIC shall also
notify an acquiror in writing within 15
calendar days after proper filing of any
additional information furnished in
response to a specific request by the
FDIC as to whether the notice is thereby
deemed to be sufficient. If the FDIC fails
to so notify an acquiror within such
time, the application or notice shall be
deemed to be sufficient as of the
expiration of the applicable period.
(3) After additional information has
been requested and supplied, the FDIC
may request additional information only
with respect to matters derived from or
prompted by information already
furnished, or information of a material
nature that was not reasonably available
from the acquiror, was concealed, or
pertains to developments subsequent to
the time of the FDIC’s initial request for
additional information. With regard to
information of a material nature that
was not reasonably available from the
acquiror or was concealed at the time a
notice was deemed to be sufficient or
which pertains to developments
subsequent to the time a notice was
deemed to be sufficient, the FDIC, at its
option, may request such additional
information as it considers necessary, or
may deem the notice not to be sufficient
until such additional information is
furnished and cause the review period
to commence again in its entirety upon
receipt of such additional information.
(i) The 60-day period for the FDIC’s
review of a notice deemed to be
sufficient also may be extended by the
FDIC for up to an additional 30 days.
(ii) The period for the FDIC’s review
of a notice may be further extended not
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47829
to exceed two additional times for not
more than 45 days each time if—
(A) The FDIC determines that any
acquiring party has not furnished all the
information required under this subpart;
(B) In the FDIC’s judgment, any
material information submitted is
substantially inaccurate;
(C) The FDIC has been unable to
complete an investigation of each
acquiror because of any delay caused
by, or the inadequate cooperation of,
such acquiror; or
(D) The FDIC determines that
additional time is needed to investigate
and determine that no acquiring party
has a record of failing to comply with
the requirements of subchapter II of
chapter 53 of title 31 of the United
States Code.
(4) [Reserved]
(5) The FDIC may waive any
requirements of this paragraph (c)
determined to be unnecessary by the
FDIC, upon its own initiative, upon the
written request of an acquiring person,
or in a supervisory case.
(d) Public notice. (1) The acquiror
must publish a public notice of a notice
under § 391.42(b), in accordance with
the procedures in §§ 390.111 through
390.115. Promptly after publication, the
acquiror must transmit copies of the
public notice and the publisher’s
affidavit to FDIC.
(2) The acquiror must provide a copy
of the public notice to the State savings
association whose stock is sought to be
acquired, and may provide a copy of the
public notice to any other person who
may have an interest in the notice.
(3) The FDIC will notify the
appropriate state supervisor and will
notify persons whose requests for
announcements, as described in 12 CFR
163e, Appendix B, have been received
in time for the notification. The FDIC
may also notify any other persons who
may have an interest in the notice.
(e) Submission of comments.
Commenters may submit comments on
the notice in accordance with the
procedures in §§ 390.116 through
390.120.
(f) Disclosure. (1) Any notice, other
filings, public comment, or portion
thereof, made pursuant to this subpart
for which confidential treatment is not
requested in accordance with this
paragraph (f), shall be immediately
available to the public and not subject
to the procedures set forth herein.
Public disclosure shall be made of other
portions of a notice, other filing or
public comment in accordance with
paragraph (f)(2) of this section, the
provisions of the Freedom of
Information Act (5 U.S.C. 552a) and
parts 309 and 310. Applicants and other
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submitters should provide confidential
and non-confidential versions of their
filings, as described in § 391.45(f)(2) and
(3) in order to facilitate this process.
(2) Any person who submits any
information or causes or permits any
information to be submitted to the FDIC
pursuant to this subpart may request
that the FDIC afford confidential
treatment under the Freedom of
Information Act to such information for
reasons of personal privacy or business
confidentiality, which shall include
such information that would be deemed
to result in the commencement of a
tender offer under § 240.14d–2 of title
17 of the Code of Federal Regulations,
or for any other reason permitted by
Federal law. Such request for
confidentiality must be made and
justified in accordance with paragraph
(f)(5) of this section at the time of filing,
and must, to the extent practicable,
identify with specificity the information
for which confidential treatment may be
available and not merely indicate
portions of documents or entire
documents in which such information is
contained. Failure to specifically
identify information for which
confidential treatment is requested,
failure to specifically justify the bases
upon which confidentiality is claimed
in accordance with paragraph (f)(5) of
this section, or overbroad and
indiscriminate claims for confidential
treatment, may be bases for denial of the
request. In addition, the filing party
should take all steps reasonably
necessary to ensure, as nearly as
practicable, that at the time the
information is first received by the FDIC
it is supplied segregated from
information for which confidential
treatment is not being requested, it is
appropriately marked as confidential,
and it is accompanied by a written
request for confidential treatment which
identifies with specificity the
information as to which confidential
treatment is requested. Any such
request must be substantiated in
accordance with paragraph (f)(5) of this
section.
(3) All documents which contain
information for which a request for
confidential treatment is made or the
appropriate segregable portions thereof
shall be marked by the person
submitting the records with a prominent
stamp, typed legend, or other suitable
form of notice on each page or
segregable portion of each page, stating
‘‘Confidential Treatment Requested by
[name].’’ If such marking is
impracticable under the circumstances,
a cover sheet prominently marked
‘‘Confidential Treatment Requested by
[name]’’ should be securely attached to
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each group of records submitted for
which confidential treatment is
requested. Each of the records
transmitted in this manner should be
individually marked with an identifying
number and code so that they are
separately identifiable.
(4) A determination as to the validity
of any request for confidential treatment
may be made when a request for
disclosure of the information under the
Freedom of Information Act is received,
or at any time prior thereto. If the FDIC
receives a request for the information
under the Freedom of Information Act,
FDIC will advise the filing party before
it discloses material for which
confidential treatment has been
requested.
(5) Substantiation of a request for
confidential treatment shall consist of a
statement setting forth, to the extent
appropriate or necessary for the
determination of the request for
confidential treatment, the following
information regarding the request:
(i) The reasons, concisely stated and
referring to specific exemptive
provisions of the Freedom of
Information Act, why the information
should be withheld from access under
the Freedom of Information Act;
(ii) The applicability of any specific
statutory or regulatory provisions which
govern or may govern the treatment of
the information;
(iii) The existence and applicability of
any prior determination by the FDIC,
other Federal agencies, or a court,
concerning confidential treatment of the
information;
(iv) The adverse consequences to a
business enterprise, financial or
otherwise, that would result from
disclosure of confidential commercial or
financial information, including any
adverse effect on the business’
competitive position;
(v) The measures taken by the
business to protect the confidentiality of
the commercial or financial information
in question and of similar information,
prior to, and after, its submission to the
FDIC;
(vi) The ease or difficulty of a
competitor’s obtaining or compiling the
commercial or financial information;
(vii) Whether commercial or financial
information was voluntarily submitted
to the FDIC, and, if so, whether and how
disclosure of the information would
tend to impede the availability of
similar information to the FDIC;
(viii) The extent, if any, to which
portions of the substantiation of the
request for confidential treatment
should be afforded confidential
treatment;
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(ix) The amount of time after the
consummation of the proposed
acquisition for which the information
should remain confidential and a
justification thereof;
(x) Such additional facts and such
legal and other authorities as the
requesting person may consider
appropriate.
(6) Any person requesting access to a
notice, other filing, or public comment
made pursuant to this subpart for
purposes of commenting on a pending
submission may prominently label such
request: ‘‘Request for Disclosure of
Filing(s) Made Under Subpart E of Part
391/Priority Treatment Requested.’’
(g) Supervisory cases. The provisions
of paragraphs (d), (e), and (f) of this
section may be waived by the FDIC in
connection with a transaction approved
by the FDIC for supervisory reasons.
(h) Notification of State supervisor.
Upon receiving a notice relating to an
acquisition of control of a State savings
association, the FDIC shall forward a
copy of the notice to the appropriate
state savings and loan association
supervisory agency, and shall allow 30
days within which the views and
recommendations of such state
supervisory agency may be submitted.
The FDIC shall give due consideration
to the views and recommendations of
such state agency in determining
whether to disapprove any proposed
acquisition. Notwithstanding the
provisions of this paragraph (h), if the
FDIC determines that it must act
immediately upon any notice of a
proposed acquisition in order to prevent
the default of the association involved
in the proposed acquisition, the FDIC
may dispense with the requirement of
this paragraph (h) or, if a copy of the
notice is forwarded to the state
supervisory agency, the FDIC may
request that the views and
recommendations of such state
supervisory agency be submitted
immediately in any form or by any
means acceptable to the FDIC.
(i) Additional procedures for
acquisitions involving mergers.
Acquisitions of control involving
mergers (including mergers with an
interim association) shall also be subject
to the procedures set forth in § 390.332
to the extent applicable, except as
provided in paragraph (a) of this
section.
(j) Additional procedures for
acquisitions of recently converted State
savings associations. Notices and
rebuttals involving acquisitions of the
stock of a recently converted State
savings association under 12 CFR
192.3(i)(3) shall also address the criteria
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for approval set forth at 12 CFR
192.3(i)(5).
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§ 391.46
Determination by the FDIC.
(a) through (c) [Reserved]
(d) Notice criteria. In making its
determination whether to disapprove a
notice, the FDIC may disapprove any
proposed acquisition, if the FDIC
determines that:
(1) The proposed acquisition of
control would result in a monopoly or
would be in furtherance of any
combination or conspiracy to
monopolize or to attempt to monopolize
the banking business in any part of the
United States;
(2) The effect of the proposed
acquisition of control in any section of
the country may be substantially to
lessen competition or to tend to create
a monopoly or the proposed acquisition
of control would in any other manner be
in restraint of trade, and the
anticompetitive effects of the proposed
acquisition of control are not clearly
outweighed in the public interest by the
probable effect of the transaction in
meeting the convenience and needs of
the community to be served;
(3) The financial condition of the
acquiring person is such as might
jeopardize the financial stability of the
association or prejudice the interests of
the depositors of the State savings
association;
(4) The competence, experience, or
integrity of the acquiring person or any
of the proposed management personnel
indicates that it would not be in the
interests of the depositors of the State
savings association, the FDIC, or the
public to permit such person to control
the State savings association;
(5) The acquiring person fails or
refuses to furnish information requested
by the FDIC; or
(6) The FDIC determines that the
proposed acquisition would have an
adverse effect on the Deposit Insurance
Fund.
(e) Failure to disapprove a notice. If,
upon expiration of the 60-day review
period of any notice deemed to be
sufficient filed pursuant to § 391.45(c),
or extension thereof, the FDIC has failed
to disapprove such notice, the proposed
acquisition may take place: Provided,
That it is consummated within one year
and in accordance with the terms and
representations in the notice and that
there is no material change in
circumstances prior to the acquisition.
(f) [Reserved]
(g) Presumptive disqualifiers —(1)
Integrity factors. The following factors
shall give rise to a rebuttable
presumption that an acquiror may fail to
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satisfy the integrity test of paragraph
(d)(4) of this section:
(i) During the 10-year period
immediately preceding filing the notice,
criminal, civil or administrative
judgments, consents or orders, and any
indictments, formal investigations,
examinations, or civil or administrative
proceedings (excluding routine or
customary audits, inspections and
investigations) that terminated in any
agreements, undertakings, consents or
orders, issued against, entered into by,
or involving the acquiror or affiliates of
the acquiror by any federal or state
court, any department, agency, or
commission of the U.S. Government,
any state or municipality, any Federal
Home Loan Bank, any self-regulatory
trade or professional organization, or
any foreign government or governmental
entity, which involve:
(A) Fraud, moral turpitude,
dishonesty, breach of trust or fiduciary
duties, organized crime or racketeering;
(B) Violation of securities or
commodities laws or regulations;
(C) Violation of depository institution
laws or regulations;
(D) Violation of housing authority
laws or regulations; or
(E) Violation of the rules, regulations,
codes of conduct or ethics of a selfregulatory trade or professional
organization;
(ii) Denial, or withdrawal after receipt
of formal or informal notice of an intent
to deny, by the acquiror or affiliates of
the acquiror, of
(A) Any application relating to the
organization of a financial institution,
(B) An application to acquire any
financial institution or holding
company thereof under the Holding
Company Act or the Bank Holding
Company Act or otherwise,
(C) A notice relating to a change in
control of any of the foregoing under the
Control Act or the Repealed Control Act;
or
(D) An application or notice under a
state holding company or change in
control statute;
(iii) The acquiror or affiliates of the
acquiror were placed in receivership or
conservatorship during the preceding 10
years, or any management official of the
acquiror was a management official or
director (other than an official or
director serving at the request of the
FDIC, the former Resolution Trust
Corporation, or the former Federal
Savings and Loan Insurance
Corporation) or controlling shareholder
of a company or savings association that
was placed into receivership,
conservatorship, or a management
consignment program, or was liquidated
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47831
during his or her tenure or control or
within two years thereafter;
(iv) Felony conviction of the acquiror,
an affiliate of the acquiror or a
management official of the acquiror or
an affiliate of the acquiror;
(v) Knowingly making any written or
oral statement to the FDIC or any
predecessor agency (or its delegate) in
connection with a notice or other filing
under this subpart that is false or
misleading with respect to a material
fact or omits to state a material fact with
respect to information furnished or
requested in connection with such
notice or other filing;
(vi) Acquisition and retention at the
time of submission of a notice, of stock
in the State savings association by the
acquiror in violation of § 391.42 or its
predecessor sections.
(2) Financial factors. The following
shall give rise to a rebuttable
presumption that an acquiror may fail to
satisfy the financial condition test of
paragraph (d)(3) of this section:
(i) Liability for amounts of debt
which, in the opinion of the FDIC,
create excessive risks of default and
pressure on the State savings association
to be acquired; or
(ii) Failure to furnish a business plan
or furnishing a business plan projecting
activities which are inconsistent with
economical home financing.
§ 391.47
[Reserved]
§ 391.48
Rebuttal of control agreement.
Agreement
Rebuttal of Rebuttable Determination Of
Control Under Subpart A
I. WHEREAS
A. [ ] is the owner of [ ] shares (the
‘‘Shares’’) of the [ ] stock (the ‘‘Stock’’)
of [name and address of State savings
association], which Shares represent [ ]
percent of a class of ‘‘voting stock’’ of
[ ] as defined under the Acquisition of
Control Regulations (‘‘Regulations’’) of
the FDIC, Subpart A of Part 391
(‘‘Voting Stock’’);
B. [ ] is a ‘‘State savings association’’
within the meaning of the Regulations;
C. [ ] seeks to acquire additional
shares of stock of [ ] (‘‘Additional
Shares’’), such that [ ]’s ownership
thereof will represent 10 percent or
more of a class of Voting Stock but will
not represent 25 percent or more of any
class of Voting Stock of [ ]; [and/or] [ ]
seeks to [ ], which would constitute the
acquisition of a ‘‘control factor’’ as
defined in the Regulations (‘‘Control
Factor’’);
D. [ ] does not seek to acquire the
[Additional Shares or Control Factor] for
the purpose or effect of changing the
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control of [ ] or in connection with or
as a participant in any transaction
having such purpose or effect;
E. The Regulations require a company
or a person who intends to hold 10
percent or more but not 25 percent or
more of any class of Voting Stock of a
State savings association or holding
company thereof and that also would
possess any of the Control Factors
specified in the Regulations, to file and
obtain clearance of a notice (‘‘Notice’’)
under the Change in Control Act
(‘‘Control Act’’), 12 U.S.C. 1817(j), prior
to acquiring such amount of stock and
a Control Factor unless the rebuttable
determination of control has been
rebutted.
F. Under the Regulations, [ ] would
be determined to be in control, subject
to rebuttal, of [ ] upon acquisition of the
[Additional Shares or Control Factor];
G. [ ] has no intention to manage or
control, directly or indirectly, [ ];
H. [ ] has filed on [ ], a written
statement seeking to rebut the
determination of control, attached
hereto and incorporated by reference
herein, (this submission referred to as
the ‘‘Rebuttal’’);
I. In order to rebut the rebuttable
determination of contro1, [ ] agrees to
offer this Agreement as evidence that
the acquisition of the [Additional Shares
or Control Factor] as proposed would
not constitute an acquisition of control
under the Regulations.
II. The FDIC has determined, and
hereby agrees, to act favorably on the
Rebuttal, and in consideration of such a
determination and agreement by the
FDIC to act favorably on the Rebuttal,
[ ] and any other existing, resulting or
successor entities of [ ] agree with the
FDIC that:
A. Unless [ ] shall have filed a Notice
under the Control Act, or an
Application under the Holding
Company Act, as appropriate, and shall
have obtained clearance of the Notice in
accordance with the Regulations, [ ]
will not, except as expressly permitted
otherwise herein or pursuant to an
amendment to this Rebuttal Agreement:
1. Seek or accept representation of
more than one member of the board of
directors of [insert name of State savings
association and any holding company
thereof];
2. Have or seek to have any
representative serve as the chairman of
the board of directors, or chairman of an
executive or similar committee of [insert
name of State savings association and
any holding company thereof]’s board of
directors or as president or chief
executive officer of [insert name of State
savings association and any holding
company thereof];
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3. Engage in any intercompany
transaction with [ ] or [ ]’s affiliates;
4. Propose a director in opposition to
nominees proposed by the management
of [insert name of State savings
association and any holding company
thereof] for the board of directors of
[insert name of State savings association
and any holding company thereof] other
than as permitted in paragraph A–1;
5. Solicit proxies or participate in any
solicitation of proxies with respect to
any matter presented to the stockholders
[ ] other than in support of, or in
opposition to, a solicitation conducted
on behalf of management of [ ];
6. Do any of the following, except as
necessary solely in connection with [ ]’s
performance of duties as a member of
[ ]’s board of directors:
(a) Influence or attempt to influence
in any respect the loan and credit
decisions or policies of [ ], the pricing
of services, any personnel decisions, the
location of any offices, branching, the
hours of operation or similar activities
of [ ];
(b) Influence or attempt to influence
the dividend policies and practices of
[ ] or any decisions or policies of [ ] as
to the offering or exchange of any
securities;
(c) Seek to amend, or otherwise take
action to change, the bylaws, articles of
incorporation, or charter of [ ];
(d) Exercise, or attempt to exercise,
directly or indirectly, control or a
controlling influence over the
management, policies or business
operations of [ ]; or
(e) Seek or accept access to any nonpublic information concerning [ ].
B. [ ] is not a party to any agreement
with [ ].
C. [ ]shall not assist, aid or abet any
of [ ]’s affiliates or associates that are
not parties to this Agreement to act, or
act in concert with any person or
company, in a manner which is
inconsistent with the terms hereof or
which constitutes an attempt to evade
the requirements of this Agreement.
D. Any amendment to this Agreement
shall only be proposed in connection
with an amended rebuttal filed by [ ]
with the FDIC for its determination;
E. Prior to acquisition of any shares of
‘‘Voting Stock’’ of [ ] as defined in the
Regulations in excess of the Additional
Shares, any required filing will be made
by [ ] under the Control Act or the
Holding Company Act and either
approval of the acquisition under the
Holding Company Act shall be obtained
or any Notice filed under the Control
Act shall be cleared in accordance with
the Regulations;
F. At any time during which 10
percent or more of any class of Voting
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Stock of [ ] is owned or controlled by
[ ], no action which is inconsistent with
the provisions of this Agreement shall
be taken by [ ] until [ ] files and either
obtains from the FDIC a favorable
determination with respect to either an
amended rebuttal or clearance of a
Notice under the Control Act, in
accordance with the Regulations;
G. Where any amended rebuttal filed
by[ ] is denied or disapproved, [ ] shall
take no action which is inconsistent
with the terms of this Agreement, except
after either (1) reducing the amount of
shares of Voting Stock of [ ] owned or
controlled by [ ] to an amount under 10
percent of a class of Voting Stock, or
immediately ceasing any other actions
that give rise to a conclusive or
rebuttable determination of control
under the Regulations; or (2) filing a
Notice under the Control Act, or an
Application under the Holding
Company Act, as appropriate, and either
obtaining approval of the Application or
clearance of the Notice, in accordance
with the Regulations;
H. Where any Notice filed by [ ] is
disapproved, [ ] shall take no action
which is inconsistent with the terms of
this Agreement, except after reducing
the amount of shares of Voting Stock of
[ ] owned or controlled by [ ] to an
amount under 10 percent of any class of
Voting Stock, or immediately ceasing
any other actions that give rise to a
conclusive or rebuttable determination
of control under the Regulations;
I. Should circumstances beyond [ ]’s
control result in [ ] being placed in a
position to direct the management or
policies of [ ], then [ ] shall either (1)
promptly file a Notice under the Control
Act or an Application under the
Holding Company Act, as appropriate,
and take no affirmative steps to enlarge
that control pending either a final
determination with respect to the
Application or Notice, or (2) promptly
reduce the amount of shares of [ ]
Voting Stock owned or controlled by [ ]
to an amount under 10 percent of any
class of Voting Stock or immediately
cease any actions that give rise to a
conclusive or rebuttable determination
of control under the Regulations;
J. By entering into this Agreement and
by offering it for reliance in reaching a
decision on the request to rebut the
presumption of control under the
Regulations, as long as 10 percent or
more of any class of Voting Stock of
[ ] is owned or controlled, directly or
indirectly, by [ ], and [ ] possesses any
Control Factor as defined in the
Regulations, [ ] will submit to the
jurisdiction of the Regulations,
including (1) the filing of an amended
rebuttal or Notice for any proposed
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action which is prohibited by this
Agreement, and (2) the provisions
relating to a penalty for any person who
willfully violates or with reckless
disregard for the safety or soundness of
a State savings association participates
in a violation of the Control Act and the
Regulations thereunder, and any
regulation or order issued by the FDIC.
K. Any violation of this Agreement
shall be deemed to be a violation of the
[Control Act or Holding Company Act]
and the Regulations, and shall be
subject to such remedies and procedures
as are provided in the [Control Act or
Holding Company Act] and the
Regulations for a violation thereunder
and in addition shall be subject to any
such additional remedies and
procedures as are provided under any
other applicable statutes or regulations
for a violation, willful or otherwise, of
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any agreement entered into with the
FDIC.
III. This Agreement may be executed
in one or more counterparts, each of
which shall be deemed an original but
all of which counterparts collectively
shall constitute one instrument
representing the Agreement among the
parties thereto. It shall not be necessary
that any one counterpart be signed by
all of the parties hereto as long as each
of the parties has signed at least one
counterpart.
IV. This Agreement shall be
interpreted in a manner consistent with
the provisions of the Rules and
Regulations of the FDIC.
V. This Agreement shall terminate
upon (i) clearance by the FDIC of [ ]’s
Notice under the Control Act to acquire
[ ], and consummation of the
transaction as described in Notice, (ii) in
the disposition by [ ] of a sufficient
number of shares of [ ], or (iii) the
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47833
taking of such other action that
thereafter [ ] is not in control and
would not be determined to be in
control of [ ] under the Control Act or
the Regulations of the FDIC as in effect
at that time.
VI. In Witness Thereof, the parties
thereto have executed this Agreement
by their duly authorized officer.lll
[Acquiror]
Federal Deposit Insurance Corporation.
Date: llllllllllllllll
By: llllllllllllllll
Dated at Washington, DC, this 14th day of
June 2011.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2011–18276 Filed 7–22–11; 4:15 pm]
BILLING CODE 6714–01–P
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]]>Agencies
[Federal Register Volume 76, Number 151 (Friday, August 5, 2011)]
[Rules and Regulations]
[Pages 47652-47833]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-18276]
[[Page 47651]]
Vol. 76
Friday,
No. 151
August 5, 2011
Part II
Federal Deposit Insurance Corporation
-----------------------------------------------------------------------
12 CFR Parts 390 and 391
Transfer and Redesignation of Certain Regulations Involving State
Savings Associations Pursuant to the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010; Interim Rule
Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Rules
and Regulations
[[Page 47652]]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Parts 390 and 391
RIN 3064-AD82
Transfer and Redesignation of Certain Regulations Involving State
Savings Associations Pursuant to the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Interim rule with request for comments.
-----------------------------------------------------------------------
SUMMARY: Title III of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (the Dodd-Frank Act or the Act) provided that
the functions, powers, and duties of the Office of Thrift Supervision
(OTS) relating to State savings associations will transfer to the FDIC
effective one year after July 21, 2010, the date that the Dodd-Frank
Act was enacted. The Act also amended section 3 of the Federal Deposit
Insurance Act (FDI Act) to designate the FDIC as the ``appropriate
Federal banking agency'' for State savings associations. The FDIC is
authorized to issue regulations pursuant to the FDI Act and other
existing laws as the ``appropriate Federal banking agency'' (or under
similar statutory terminology). As a result, pursuant to those laws,
the FDIC, the newly-designated ``appropriate Federal banking agency''
for State savings associations, is authorized to issue certain
regulations involving State savings associations.
Consistent with the authority provided to the FDIC by the Dodd-
Frank Act, the FDI Act, and other statutory authorities, the FDIC is
reissuing and redesigning certain transferring OTS regulations. In
republishing these rules, the FDIC is making only technical changes to
existing OTS regulations (such as nomenclature or address changes). The
FDIC is not republishing those OTS regulations for which other
appropriate Federal banking agencies are authorized to act. In the
future, the FDIC may take other actions related to the transferred
rules: Incorporating them into other FDIC regulations contained in
Title 12, Chapter III, amending them, or rescinding them, as
appropriate.
DATES: The interim rule becomes effective on July 22, 2011. Comments on
the interim rule must be received by October 4, 2011.
ADDRESSES: You may submit comments on the Interim Rule by any of the
following methods:
Agency Web Site: https://www.FDIC.gov/regulations/laws/federal/notices.html. Follow instructions for submitting comments on
the Agency Web Site.
E-mail: Comments@FDIC.gov. Include RIN 3064-AD82 on the subject
line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429.
Hand Delivery: Comments may be hand delivered to the guard
station at the rear of the 550 17th Street Building (located on F
Street) on business days between 7 a.m. and 5 p.m. (EST).
Federal eRulemaking Portal: https://www.regulations.gov.
Instructions: All comments received will be posted generally
without change to https://www.fdic.gov/regulations/laws/federal/propose.html, including any personal information provided. Paper copies
of public comments may be ordered from the Public Information Center by
telephone at 1-(877) 275-3342 or 1-(703) 562-2200.
FOR FURTHER INFORMATION CONTACT: A. Ann Johnson, Counsel, Legal
Division, (202) 898-3573 or aajohnson@fdic.gov; Rodney D. Ray, Counsel,
Legal Division, (202) 898-3556 or rray@fdic.gov; or Martin P. Thompson,
Senior Review Examiner, Division of Risk Management Supervision, (202)
898-6767 or marthompson@fdic.gov.
SUPPLEMENTARY INFORMATION:
I. General
The Dodd-Frank Act, signed into law on July 21, 2010, provided for
a substantial reorganization of the regulation of State and Federal
savings associations and their holding companies. Beginning July 21,
2011, the transfer date established by section 311 of the Dodd-Frank
Act, the powers, duties, and functions formerly performed by the OTS
will be divided among the FDIC, as to State savings associations, the
Office of Comptroller of the Currency (OCC), as to Federal savings
associations, and the Board of Governors of the Federal Reserve System
(FRB), as to savings and loan holding companies. Section 316(b) of the
Dodd-Frank Act provided that all orders, resolutions, determinations,
and regulations issued, made, prescribed, or allowed to become
effective by the OTS that were in effect on the day before the transfer
date continue in effect and are enforceable by the appropriate
successor agency until modified, terminated, set aside, or superseded
in accordance with applicable law by such successor agency, by any
court of competent jurisdiction, or by operation of law.
Section 316(c) of the Dodd-Frank Act further directed the FDIC and
the OCC to consult with one another and to publish a list of the OTS
regulations continued which would be enforced by the FDIC and the OCC,
respectively. On June 14, 2011, the FDIC approved a List of OTS
Regulations to be Enforced by the OCC and the FDIC Pursuant to the
Dodd-Frank Wall Street Reform and Consumer Protection Act that was
published in a Joint Notice in the Federal Register on July 6, 2011.\1\
(The FRB is directed by the same section of the Act to identify and
publish a list of OTS regulations relating to savings and loan holding
companies that the FRB will enforce.)
---------------------------------------------------------------------------
\1\ 76 FR 39246 (July 6, 2011).
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Apart from providing for the continuation and enforcement of
regulations previously issued by the OTS, section 312 of the Dodd-Frank
Act provided rulemaking authority to the OCC, with respect to both
State and Federal savings associations, and to the FRB with respect to
savings and loan holding companies. Although the Dodd-Frank Act did not
provide the FDIC with specific rulemaking authority over State savings
associations, the FDIC was named the ``appropriate Federal banking
agency'' for State savings associations by section 312(c) of the Act.
Nothing in the Dodd-Frank Act affected the FDIC's existing authority to
issue regulations under the FDI Act and other laws as the ``appropriate
Federal banking agency'' (or under similar statutory terminology). As a
result, pursuant to those laws, the FDIC, the newly-designated
``appropriate Federal banking agency'' for State savings associations,
is authorized to issue regulations involving such associations.
The FDIC has independent rulemaking authority for each of the
transferred OTS rules that are republished as FDIC rules in this
Interim Rule. The rules republished here regulate only State savings
associations, consistent with the Dodd-Frank Act's allocation to the
FDIC of the duties and functions of the OTS relating to these
associations. Similarly, the OCC and the FRB will republish former OTS
rules relating to the functions and duties of the OTS transferred to
those agencies, respectively. Since the Dodd-Frank Act did not give the
FDIC authority over Federal savings associations or savings and loan
holding companies, the sections of the OTS rules that previously
regulated those entities are not republished by the FDIC in this
Interim Rule.
[[Page 47653]]
The FDIC, through this Interim Rule, is formally transferring
certain regulations applicable to State savings associations from 12
CFR chapter V to 12 CFR chapter III, as indicated in the Derivation
Table. To expedite republication of the former OTS rules, the
regulations contained in this Interim Rule will be transferred to the
FDIC with only minor technical, conforming, or nomenclature changes. No
changes are being made at this time to the substantive content of the
transferred regulations. (For example, references in the former OTS
rules to the ``OTS,'' the ``Director, and the ``Office'' [of Thrift
Supervision] will be changed to the ``FDIC'' or the ``Board of
Directors'' [of the FDIC].) FDIC staff will evaluate the transferred
OTS rules and may later recommend incorporating the transferred rules
into existing FDIC rules, amending them, or rescinding them, as
appropriate.
A mass of transferred OTS rules are being republished in this
Interim Rule. In republishing these rules, it is possible that some
rules have been unintentionally omitted, that some nomenclature changes
have not been identified, or that some internal cross-reference between
transferring rules has not been changed. If there are such inadvertent
errors they are not intended by the FDIC to alter the dictates of
section 316(b) of the Dodd-Frank Act. That is, the former regulations
of the OTS affecting State savings associations that are in effect the
day before the transfer date continue in effect, and will be enforced
by the FDIC until they are modified, terminated, set aside, or
superseded in accordance with applicable law by the FDIC (or other
Federal banking agency), any court of competent jurisdiction, or by
operation of law.
Since the republished OTS rules previously were issued by the OTS
pursuant to notice and comment rulemaking and since the FDIC's proposed
revisions to those rules involve only non-substantive, largely
nomenclature changes, the FDIC finds good cause to make the Interim
Rule effective immediately upon the transfer date. Public comment will
be accepted for 60 days.
II. Description of Parts Effected by the Interim Rule and Derivation
Table
The following general descriptions discuss changes made to each
former OTS part that the FDIC is republishing:
Part 390, Subpart A
Former part 507 of the OTS regulations, addressing restrictions on
post-employment activities of senior examiners, is being republished as
subpart A of part 390. Revisions to the rule text have been made to
reflect the abolishment of the OTS and internal cross-references have
been revised to reflect new FDIC rule citations. Former Sec. 507.3(b)
has been removed because it is no longer needed.
Part 390, Subpart B
Former part 508 of the OTS regulations, addressing removals,
suspensions, and prohibitions where a crime is charged or proven, is
being republished as subpart B of part 390. Revisions to the rule text
have been made to address the applicability of the regulation to State
savings associations, reflect the FDIC's internal organization, and
internal cross-references have been revised to reflect new FDIC rule
citations.
Part 390, Subpart C
Former subparts A and B of part 509 of the OTS regulations,
addressing rules of practice and procedure for adjudicatory
proceedings, are being republished as subpart C of part 390. Revisions
to the rule text have been made to reflect the FDIC's internal
organization and internal cross-references have been revised to reflect
new FDIC rule citations. Former Sec. 509.100 (b) has been removed
because it relates to activities by certain savings and loan holding
companies or their non-insured subsidiaries. Former Sec. 509.103(b)(2)
also has been removed to allow the FDIC greater flexibility regarding
payments of civil money penalties in the event of an internal
reorganization.
Part 390, Subpart D
Former part 512 of the OTS regulations, addressing rules for
investigative proceedings and formal examination proceedings, is being
republished as subpart D of part 390. Minor revisions to the rule text
have been made to reflect the FDIC's internal organization and internal
cross-references have been revised to reflect new FDIC rule citations.
Citations to the Savings and Loan Holding Company Act and the Home
Owners' Loan Act have also been removed.
Part 390, Subpart E
Former part 513 of the OTS regulations, addressing rules for
practice before the FDIC, is being republished as subpart E of part
390. Minor revisions to the rule text have been made to reflect the
FDIC's internal organization and internal cross-references have been
revised to reflect new FDIC rule citations.
Part 390, Subpart F
Former part 513 of the OTS regulations, addressing application
processing procedures, is being republished as subpart F of part 390.
The procedures will be applicable to applications filed under parts 390
and 391 by State savings associations. Minor revisions to the rule text
have been made to reflect the FDIC's internal organization and
responsibilities for State savings associations and internal cross-
references have been revised to reflect new FDIC or OCC rule citations.
Former Sec. 516.40 also has been revised to reflect the states served
by the FDIC's regional offices and former Sec. 516.45(a)(3) has been
removed because the FDIC does not charge filing fees for applications.
Part 390, Subpart G
Former part 528 of the OTS regulations, addressing
nondiscrimination requirements, is being republished as subpart G of
part 390. Internal cross-references have been revised to reflect new
FDIC rule citations and appropriate FDIC office addresses have been
added.
Part 390, Subpart H
Former part 533 of the OTS regulations, addressing disclosure and
reporting of CRA-related agreements, is being republished as subpart H
of part 390. Internal cross-references have been revised to reflect new
FDIC and OCC rule citations. Former Sec. 533.1(b)(2) has been removed
because it addresses savings and loan holding companies and former
Sec. 533.10 has been removed because it is no longer needed.
Part 390, Subpart I
Former part 536 of the OTS regulations, addressing consumer
protection in sales of insurance, is being republished as subpart H of
part 390. Revisions to the rule text have been made to reflect the
FDIC's responsibilities for State savings associations and internal
cross-references have been revised to reflect new FDIC rule citations
and appropriate FDIC office addresses have been added.
Part 390, Subpart J
Former part 550 of the OTS regulations, addressing fiduciary powers
of savings associations, focused almost exclusively on fiduciary powers
of Federal savings associations, which will be supervised by the OCC
after the Transfer Date. Because the FDIC will be responsible for
supervising State savings associations after that date, only that
portion of former Sec. 550.1(b) requiring compliance with State law
and for the
[[Page 47654]]
operations to be conducted in a safe and sound manner is being
republished as subpart J.
Part 390, Subpart K
Former part 551 of the OTS regulations, addressing recordkeeping
and confirmation requirements for securities transactions, is being
republished as subpart K of part 390. Internal cross-references in the
rule have been revised to reflect new FDIC rule citations.
Part 390, Subpart L
Former subpart B of part 555 of the OTS regulations, addressing
electronic operations, is being republished as subpart H of part 390.
Internal cross-references in the rule have been revised to reflect new
FDIC rule citations and former Sec. 555.310(b) has been removed
because it is no longer needed.
Part 390, Subpart M
Former subpart C of part 557 of the OTS regulations, addressing
deposits, is being republished as subpart M of part 390. The rule text
has been revised to reflect the FDIC's supervisory responsibility for
State savings associations.
Part 390, Subpart N
Former part 558 of the OTS regulations, addressing possession by
conservators and receivers for Federal and State savings associations,
is being republished as subpart N of part 390. The rule text has been
revised to reflect certain responsibilities of the FDIC when it is
appointed as conservator or receiver for a Federal or State savings
association.
Part 390, Subpart O
Former Sec. Sec. 559.1-559.2 and subpart B of part 559 of the OTS
regulations, addressing subordinate organizations, is being republished
as subpart O of part 390. Minor revisions to the rule text have been
made to reflect the FDIC's supervisory responsibilities for State
savings associations and internal cross-references have been revised to
reflect new FDIC rule citations. References to ``operating subsidiary''
and ``service corporation'' have been removed from the rule because
those terms relate to Federal savings associations.
Part 390, Subpart P
Portions of part 560 of the OTS regulations, addressing lending and
investment, are being republished as subpart P of part 390. The
republished portions are former Sec. 560.1 and all of subpart B,
except for Sec. Sec. 560.93 and 560.110. The latter two sections will
be republished by the OCC and will be applicable to all savings
associations. Otherwise, internal cross-references have been revised to
reflect new FDIC rule citations.
Part 390, Subpart Q
Former part 561 of the OTS regulations, addressing definitions for
regulations affecting State savings associations, is being republished
as subpart Q of part 390. Minor revisions to the rule text have been
made to reflect the abolishment of the OTS, address the applicability
of the regulation to State savings associations, and internal cross-
references have been revised to reflect new FDIC rule citations. A
portion of former Sec. 561.18 (definition of Director) and former
Sec. 561.34 (definition of Office) have been removed because they are
no longer needed.
Part 390, Subpart R
Former part 562 of the OTS regulations, addressing regulatory
reporting standards, is being republished as subpart R of part 390.
Minor revisions to the rule text have been made to reflect the
abolishment of the OTS and internal cross-references have been revised
to reflect new FDIC rule citations.
Part 390, Subpart S
Former part 563 of the OTS regulations, addressing the operations
of savings associations, is being republished as subpart S of part 390.
Minor revisions to the rule text have been made to reflect the
abolishment of the OTS and transfer of some regulatory authority to the
Board of Governors of the Federal Reserve System and the Bureau of
Consumer Financial Protection. Internal cross-references have been
revised to reflect new FDIC rule citations.
Part 390, Subpart T
Former part 563c of the OTS regulations, addressing accounting
requirements, is being republished as subpart T of part 390. Minor
revisions to the rule text have been made to conform to the FDIC's
corporate structure, and internal cross-references have been revised to
reflect new FDIC rule citations.
Part 390, Subpart U
Former part 563d of the OTS regulations, addressing securities of
State savings associations, is being republished as subpart U of part
390. Minor revisions to the rule text have been made to reflect the
abolishment of the OTS, and internal cross-references have been revised
to reflect new FDIC rule citations. Former Sec. 536d.2 has been
removed the FDIC will not require filings required by this subpart to
be made to the appropriate Regional Office, as had been the OTS'
practice. Rather, filings related to this subpart will be required to
be filed at the designated address for the FDIC's offices in
Washington, DC.
Part 390, Subpart V
Former part 563f of the OTS regulations, addressing management
official interlocks, is being republished as subpart V of part 390.
Minor revisions to the rule have been made to reflect the abolishment
of OTS, and internal cross-references have been revised to reflect new
FDIC rule citations. The rule text has been amended to address its
applicability solely to State savings associations.
Part 390, Subpart W
Former part 563g of the OTS regulations, addressing securities
offerings, is being republished as subpart W of part 390. Minor
revisions to the rule text have been made to reflect the abolishment of
OTS and internal cross-references have been revised to reflect new FDIC
rule citations and corporate structure. References to the rule's
applicability to federal savings associations have not been
republished, nor have references to the enforceability of the rule
under provisions of the Home Owners' Loan Act.
Part 390, Subpart X
Former part 564 of the OTS regulations, addressing appraisals, is
being republished as subpart X of part 390. Minor revisions to the rule
text have been made to reflect the abolishment of OTS and internal
cross-references have been revised to reflect new FDIC rule citations.
Part 390, Subpart Y
Former part 565 of the OTS regulations, addressing prompt
corrective action, is being republished as subpart Y of part 390. Minor
revisions to the rule text have been made to reflect the abolishment of
the OTS and internal cross-references have been revised to reflect new
FDIC rule citations. Former section 565.5(h) will not be republished to
avoid a filing redundancy.
Part 390, Subpart Z
Former part 567 of the OTS regulations, addressing capital, is
being republished as subpart Z of part 390. Minor revisions to the rule
text have
[[Page 47655]]
been made to reflect the abolishment of the OTS and internal cross-
references have been revised to reflect new FDIC rule citations. The
term ``qualified supervisory goodwill'' has not been republished
because of the lapse of the 20 year applicability provision provided
for in the former regulation.
Former appendix C to part 567 of the OTS regulations, addressing
risk-based capital requirements-internal ratings based and advanced
measurement approaches, is being republished as appendix A to subpart
Z. Minor revisions to the rule text have been made to reflect the
abolishment of the OTS, and internal cross-references have been revised
to reflect new FDIC rule citations. The appendix has been revised to
reflect the FDIC's internal corporate structure.
Part 391, Subpart A
Former part 568 of the OTS regulations, addressing security
procedures, is being republished as subpart A of part 391. Minor
revisions to the rule text have been made to reflect the abolishment of
the OTS, and internal cross-references have been revised to reflect new
FDIC rule citations.
Part 391, Subpart B
Former part 570 of the OTS regulations, addressing safety and
soundness guidelines and compliance procedures, is being republished as
subpart B of part 391. Minor revisions to the rule text have been made
to reflect the abolishment of the OTS, and internal cross-references
have been revised to reflect new FDIC rule citations.
Part 391, Subpart C
Former part 571 of the OTS regulations, addressing the Fair Credit
Reporting Act, is being republished in part as subpart C of part 391.
Minor revisions to the republished rule text have been made to reflect
the abolishment of the OTS, and internal cross-references have been
revised to reflect new FDIC rule citations. The FDIC has not
republished sections of the former OTS rule regulating portions of the
Fair Credit Reporting Act identified as ``enumerated consumer laws''
under Title X of the Dodd-Frank Act for which the Bureau of Consumer
Financial Protection was given regulatory authority.
Part 391, Subpart D
Former part 572 of the OTS regulations, addressing loans in areas
having special flood hazards, is being republished as subpart D of part
391. Minor revisions to the rule text have been made to reflect the
abolishment of the OTS and internal cross-references have been revised
to reflect new FDIC rule citations.
Part 391, Subpart E
Former part 574 of the OTS regulations, addressing the acquisition
of control savings associations, is being republished as subpart E of
part 391. Minor revisions to the rule text have been made to reflect
the abolishment of the OTS, and internal cross-references have been
revised to reflect new FDIC rule citations. Reference to acquisition of
control by savings and loan holding companies have been removed because
the Board of Governors of the Federal Reserve System was given
regulatory authority over such entities by virtue of Title III of the
Dodd-Frank Act.
The following Derivation Table is provided for reader reference:
OTS Regulation Transfer
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Existing section Existing title New section New title
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Part 390
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Part 507 Restrictions on post-employment activities Subpart A Restrictions on post-employment
of senior examiners activities of senior examiners
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507.1 What does this part do? 390.1 What does this subpart do?
507.2 Who is a senior examiner? 390.2 Who is a senior examiner?
507.3 What post-employment restrictions apply to 390.3 What post-employment restrictions apply
senior examiners? to senior examiners?
507.4 When will OTS waive the post-employment 390.4 When will the FDIC waive the post-
restrictions? employment restrictions?
507.5 What are the penalties for violating the 390.5 What are the penalties for violating the
post-employment restrictions? post-employment restrictions?
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Part 508 Removals, suspensions, and prohibitions Subpart B Removals, suspensions, and prohibitions
where a crime is charged or proven where a crime is charged or proven
--------------------------------------------------------------------------------------------------------------------------------------------------------
508.1 Scope. 390.10 Scope.
508.2 Definitions. 390.11 Definitions.
508.3 Issuance of Notice or Order. 390.12 Issuance of Notice or Order.
508.4 Contents and service of the Notice or 390.13 Contents and service of the Notice or
Order. Order.
508.5 Petition for hearing. 390.14 Petition for hearing.
508.6 Initiation of hearing. 390.15 Initiation of hearing.
508.7 Conduct of hearings. 390.16 Conduct of hearings.
508.8 Default. 390.17 Default.
508.9 Rules of evidence. 390.18 Rules of evidence.
508.10 Burden of persuasion. 390.19 Burden of persuasion.
508.11 Relevant considerations. 390.20 Relevant considerations.
508.12 Proposed findings and conclusions and 390.21 Proposed findings and conclusions and
recommended decision. recommended decision.
508.13 Decision of the Office. 390.22 Decision of the FDIC Board of Directors.
508.14 Miscellaneous. 390.23 Miscellaneous.
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Part 509 Rules of Practice and Procedure in Subpart C Rules of Practice and Procedure in
adjudicatory proceedings adjudicatory proceedings
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Subpart A Uniform rules of Practice and Procedure ............................... .........................................
509.1 Scope. 390.30 Scope.
[[Page 47656]]
509.2 Rules of construction. 390.31 Rules of construction.
509.3 Definitions. 390.32 Definitions.
509.4 Authority of Director. 390.33 Authority of the Board of Directors.
509.5 Authority of the administrative law judge. 390.34 Authority of the administrative law
judge.
509.6 Appearance and practice in adjudicatory 390.35 Appearance and practice in adjudicatory
proceedings. proceedings.
509.7 Good faith certification. 390.36 Good faith certification.
509.8 Conflicts of interest. 390.37 Conflicts of interest.
509.9 Ex parte communications. 390.38 Ex parte communications.
509.10 Filing of papers. 390.39 Filing of papers.
509.11 Service of papers. 390.40 Service of papers.
509.12 Construction of time limits. 390.41 Construction of time limits.
509.13 Change of time limits. 390.42 Change of time limits.
509.14 Witness fees and expenses. 390.43 Witness fees and expenses.
509.15 Opportunity for informal settlement. 390.44 Opportunity for informal settlement.
509.16 Office's right to conduct examination. 390.45 The FDIC's right to conduct examination.
509.17 Collateral attacks on adjudicatory 390.46 Collateral attacks on adjudicatory
proceeding. proceeding.
509.18 Commencement of proceeding and contents of 390.47 Commencement of proceeding and contents
notice. of notice.
509.19 Answer. 390.48 Answer.
509.20 Amended pleadings. 390.49 Amended pleadings.
509.21 Failure to appear. 390.50 Failure to appear.
509.22 Consolidation and severance of actions. 390.51 Consolidation and severance of actions.
509.23 Motions. 390.52 Motions.
509.24 Scope of document discovery. 390.53 Scope of document discovery.
509.25 Request for document discovery from 390.54 Request for document discovery from
parties. parties.
509.26 Document subpoenas to nonparties. 390.55 Document subpoenas to nonparties.
509.27 Deposition of witness unavailable for 390.56 Deposition of witness unavailable for
hearing. hearing.
509.28 Interlocutory review. 390.57 Interlocutory review.
509.29 Summary disposition. 390.58 Summary disposition.
509.30 Partial summary disposition. 390.59 Partial summary disposition.
509.31 Scheduling and prehearing conferences. 390.60 Scheduling and prehearing conferences.
509.32 Prehearing submissions. 390.61 Prehearing submissions.
509.33 Public hearings. 390.62 Public hearings.
509.34 Hearing subpoenas. 390.63 Hearing subpoenas.
509.35 Conduct of hearings. 390.64 Conduct of hearings.
509.36 Evidence. 390.65 Evidence.
509.37 Post-hearing filings. 390.66 Post-hearing filings.
509.38 Recommended decision and filing of record. 390.67 Recommended decision and filing of
record.
509.39 Exceptions to recommended decision. 390.68 Exceptions to recommended decision.
509.40 Review by the Director. 390.69 Review by the Board of Directors.
509.41 Stays pending judicial review. 390.70 Stays pending judicial review.
Subpart B Local Rules ............................... .........................................
509.100 Scope. 390.71 Scope.
509.101 Appointment of Office of Financial 390.72 Appointment of Office of Financial
Institution Adjudication. Institution Adjudication.
509.102 Discovery. 390.73 Discovery.
509.103 Civil money penalties. 390.74 Civil money penalties.
509.104 Additional procedures. 390.75 Additional procedures.
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Part 512 Rules for investigative proceedings and Subpart D Rules for investigative proceedings and
formal examination proceedings formal examination proceedings
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512.1 Scope of part. 390.80 Scope of subpart.
512.2 Definitions. 390.81 Definitions.
512.3 Confidentiality of proceedings. 390.82 Confidentiality of proceedings.
512.4 Transcripts. 390.83 Transcripts.
512.5 Rights of witnesses. 390.84 Rights of witnesses.
512.6 Obstruction of the proceedings. 390.85 Obstruction of the proceedings.
512.7 Subpoenas. 390.86 Subpoenas.
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Part 513 Practice before the office Subpart E Practice before the FDIC
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513.1 Scope of part. 390.90 Scope of subpart.
513.2 Definitions. 390.91 Definitions.
513.3 Who may practice. 390.92 Who may practice.
513.4 Suspension and debarment. 390.93 Suspension and debarment.
513.5 Reinstatement. 390.94 Reinstatement.
513.6 Duty to file information concerning 390.95 Duty to file information concerning
adverse judicial or administrative adverse judicial or administrative
action. action.
513.7 Proceeding under this part. 390.96 Proceeding under this subpart.
[[Page 47657]]
513.8 Removal, suspension, or debarment of 390.97 Removal, suspension, or debarment of
independent public accountants and independent public accountants and
accounting firms performing audit accounting firms performing audit
services. services.
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Part 516 Application processing procedures Subpart F Application processing procedures
--------------------------------------------------------------------------------------------------------------------------------------------------------
Pre-filing and filing procedures ............................... .........................................
516.1 What does this part do? 390.100 What does this subpart do?
516.5 Do the same procedures apply to all 390.101 Do the same procedures apply to all
applications under this part? applications under this subpart?
516.10 How does OTS compute time periods under 390.102 How does the FDIC compute time periods
this part? under this subpart?
Subpart A Pre-Filing Procedures ............................... .........................................
516.15 Must I meet with OTS before I file my 390.103 Must I meet with the FDIC before I file
application? my application?
516.20 What information must I include in my 390.104 What information must I include in my
draft business plan? draft business plan?
516.25 What type of application must I file? 390.105 What type of application must I file?
516.30 What information must I provide with my 390.106 What information must I provide with my
application? application?
516.35 May I keep portions of my application 390.107 May I keep portions of my application
confidential? confidential?
516.40 Where do I file my application? 390.108 Where do I file my application?
516.45 What is the filing date of my application? 390.109 What is the filing date of my
application?
516.47 How do I amend or supplement my 390.110 How do I amend or supplement my
application? application?
Subpart B Publication Requirements ............................... .........................................
516.50 Who must publish a public notice of an 390.111 Who must publish a public notice of an
application? application?
516.55 What information must I include in my 390.112 What information must I include in my
public notice? public notice?
516.60 When must I publish the public notice? 390.113 When must I publish the public notice?
516.70 Where must I publish the public notice? 390.114 Where must I publish the public notice?
516.80 What language must I use in my 390.115 What language must I use in my
publication? publication?
Subpart C Comment Procedures ............................... .........................................
516.100 What does this subpart do? 390.116 Comment procedures.
516.110 Who may submit a written comment? 390.117 Who may submit a written comment?
516.120 What information should a comment include? 390.118 What information should a comment
include?
516.130 Where are comments filed? 390.119 Where are comments filed?
516.140 How long is the comment period? 390.120 How long is the comment period?
Subpart D Meeting Procedures ............................... .........................................
516.160 What does this subpart do? 390.121 Meeting procedures.
516.170 When will OTS conduct a meeting on an 390.122 When will the FDIC conduct a meeting on
application? an application?
516.180 What procedures govern the conduct of the 390.123 What procedures govern the conduct of the
meeting? meeting?
516.185 Will OTS approve or disapprove an 390.124 Will the FDIC approve or disapprove an
application at a meeting? application at a meeting?
516.190 Will a meeting affect application 390.125 Will a meeting affect application
processing time frames? processing time frames?
Subpart E OTS Review ............................... .........................................
Expedited Treatment .......................................... ............................... .........................................
516.200 If I file a notice under expedited 390.126 If I file a notice under expedited
treatment, when may I engage in the treatment, when may I engage in the
proposed activities? proposed activities?
Standard Treatment .......................................... ............................... .........................................
516.210 What will OTS do after I file my 390.127 What will the FDIC do after I file my
application? application?
516.220 If OTS requests additional information to 390.128 If the FDIC requests additional
complete my application, how will it information to complete my application,
process my application? how will it process my application?
516.230 Will OTS conduct an eligibility 390.129 Will the FDIC conduct an eligibility
examination? examination?
516.240 What may OTS require me to do after my 390.130 What may the FDIC require me to do after
application is deemed complete? my application is deemed complete?
516.250 Will OTS require me to publish a new 390.131 Will the FDIC require me to publish a new
public notice? public notice?
516.260 May OTS suspend processing of my 390.132 May the FDIC suspend processing of my
application? application?
516.270 How long is the OTS review period? 390.133 How long is the FDIC review period?
516.280 How will I know if my application has been 390.134 How will I know if my application has
approved? been approved?
[[Page 47658]]
516.290 What will happen if OTS does not approve 390.135 What will happen if the FDIC does not
or disapprove my application within two approve or disapprove my application
calendar years after the filing date? within two calendar years after the
filing date?
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Part 528 Nondiscrimination requirements Subpart G Nondiscrimination requirements
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528.1 Definitions. 390.140 Definitions.
528.1a Supplementary guidelines. 390.141 Supplementary guidelines.
528.2 Nondiscrimination in lending and other 390.142 Nondiscrimination in lending and other
services. services.
528.2a Nondiscriminatory appraisal and 390.143 Nondiscriminatory appraisal and
underwriting. underwriting.
528.3 Nondiscrimination in applications. 390.144 Nondiscrimination in applications.
528.4 Nondiscriminatory advertising. 390.145 Nondiscriminatory advertising.
528.5 Equal Housing Lender Poster. 390.146 Equal Housing Lender Poster.
528.6 Loan application register. 390.147 Loan application register.
528.7 Nondiscrimination in employment. 390.148 Nondiscrimination in employment.
528.8 Complaints. 390.149 Complaints.
528.9 Guidelines relating to nondiscrimination 390.150 Guidelines relating to nondiscrimination
in lending. in lending.
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Part 533 Disclosure and reporting of CRA-related Subpart H Disclosure and reporting of CRA-related
agreements agreements
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533.1 Purpose and scope of this part. 390.160 Purpose and scope of this subpart.
533.2 Definition of covered agreement. 390.161 Definition of covered agreement.
533.3 CRA communications. 390.162 CRA communications.
533.4 Fulfillment of the CRA 390.163 Fulfillment of the CRA.
533.5 Related agreements considered a single 390.164 Related agreements considered a single
agreement. agreement.
533.6 Disclosure of covered agreements. 390.165 Disclosure of covered agreements.
533.7 Annual reports. 390.166 Annual reports.
533.8 Release of information under FOIA. 390.167 Release of information under FOIA.
533.9 Compliance provisions. 390.168 Compliance provisions.
533.10 Transition provisions. 390.169 [Reserved].
533.11 Other definitions and rules of 390.170 Other definitions and rules of
construction used in this part. construction used in this subpart.
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Part 536 Consumer protection in sales of insurance Subpart I Consumer protection in sales of insurance
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536.10 Purpose and scope. 390.180 Purpose and scope.
536.20 Definitions. 390.181 Definitions.
536.30 Prohibited practices. 390.182 Prohibited practices.
536.40 What you must disclose. 390.183 What you must disclose.
536.50 Where insurance activities may take place. 390.184 Where insurance activities may take
place.
536.60 Qualification and licensing requirements 390.185 Qualification and licensing requirements
for insurance sales personnel. for insurance sales personnel.
Appendix Appendix A to Part 536--Consumer Grievance ............................... Appendix A to Part 390, Subpart I--
Process Consumer Grievance Process.
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Part 550 Fiduciary powers of Savings Associations Subpart J Fiduciary powers of State Savings
Associations
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550.10 What regulations govern the fiduciary 390.190 What regulations govern the fiduciary
operations of savings associations? operations of State savings
associations?
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Part 551 Recordkeeping and confirmation Subpart K Recordkeeping and confirmation
requirements for securities transactions requirements for securities transactions
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551.10 What does this part do? 390.200 What does this subpart do?
551.20 Must I comply with this part? 390.201 Must I comply with this subpart?
551.30 What requirements apply to all 390.202 What requirements apply to all
transactions? transactions?
551.40 What definitions apply to this part? 390.203 What definitions apply to this subpart?
Subpart A Recordkeeping requirements ............................... .........................................
551.50 What records must I maintain for 390.204 What records must I maintain for
securities transactions? securities transactions?
551.60 How must I maintain my records? 390.205 How must I maintain my records?
Subpart B Content and timing of notice ............................... .........................................
551.70 What type of notice must I provide when I 390.206 What type of notice must I provide when I
effect a securities transaction for a effect a securities transaction for a
customer? customer?
551.80 How do I provide a registered broker- 390.207 How do I provide a registered broker-
dealer confirmation? dealer confirmation?
551.90 How do I provide a written notice? 390.208 How do I provide a written notice?
551.100 What are the alternate notice 390.209 What are the alternate notice
requirements? requirements?
551.110 May I provide a notice electronically? 390.210 May I provide a notice electronically?
551.120 May I charge a fee for a notice? 390.211 May I charge a fee for a notice?
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Subpart C Settlement of securities transactions ............................... .........................................
551.130 When must I settle a securities 390.212 When must I settle a securities
transaction? transaction?
Subpart D Securities trading policies and procedures ............................... .........................................
551.140 What policies and procedures must I 390.213 What policies and procedures must I
maintain and follow for securities maintain and follow for securities
transactions? transactions?
551.150 How do my officers and employees file 390.214 How do my officers and employees f
