Office of Thrift Supervision Integration Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, 48950-49199 [2011-17581]

Download as PDF 48950 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Parts 100, 108, 109, 112, 116, 128, 133, 136, 141, 143, 144, 145, 146, 150, 151, 152, 155, 157, 159, 160, 161, 162, 163, 164, 165, 167, 168, 169, 170, 171, 172, 174, 190, 191, 192, 193, 194, 195, 196, 197 [Docket ID OCC–2011–0016] RIN 1557–AD47 Office of Thrift Supervision Integration Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act Office of the Comptroller of the Currency (OCC). ACTION: Interim final rule with request for comment. AGENCY: Pursuant to Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act, all functions of the Office of Thrift Supervision (OTS) relating to Federal savings associations and the rulemaking authority of the OTS relating to all savings associations are transferred to the Office of the Comptroller of the Currency (OCC) on July 21, 2011 (transfer date). In order to facilitate the OCC’s enforcement and administration of former OTS rules and to make appropriate changes to these rules to reflect OCC supervision of Federal savings associations as of the transfer date, the OCC is republishing, with nomenclature and other technical changes, the OTS regulations currently found in Chapter V of Title 12 of the Code of Federal Regulations. The republished regulations will be recodified with the OCC’s regulations in Chapter I at parts 100 through 197 (Republished Regulations), effective on July 21, 2011. The Republished Regulations will supersede the OTS regulations in Chapter V for purposes of OCC supervision and regulation of Federal savings associations, and certain of the Republished Rules will supersede the OTS regulations in Chapter V for purposes of the FDIC’s supervision of state savings associations. Chapter V of Title 12 of the Code of Federal Regulations will be vacated at a later date. SUMMARY: This interim final rule is effective July 21, 2011. Comments must be received on or before October 11, 2011. sroberts on DSK5SPTVN1PROD with RULES DATES: Because paper mail in the Washington, DC area and at the OCC is subject to delay, commenters are encouraged to submit comments by the ADDRESSES: VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 Federal eRulemaking Portal or e-mail, if possible. Please use the title ‘‘Republication of Regulations in Connection with Office of Thrift Supervision Integration Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010’’ to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods: • Federal eRulemaking Portal— ‘‘regulations.gov’’: Go to http:// www.regulations.gov. Select ‘‘Document Type’’ of ‘‘Rule,’’ and in ‘‘Enter Keyword or ID Box,’’ enter Docket ID ‘‘OCC–2011–0016’’ and click ‘‘Search.’’ On ‘‘View By Relevance’’ tab at bottom of screen, in the ‘‘Agency’’ column, locate the Rule for OCC, in the ‘‘Action’’ column, click on ‘‘Submit a Comment’’ or ‘‘Open Docket Folder’’ to submit or view public comments and to view supporting and related materials for this rulemaking action. • Click on the ‘‘Help’’ tab on the Regulations.gov home page to get information on using Regulations.gov, including instructions for submitting or viewing public comments, viewing other supporting and related materials, and viewing the docket after the close of the comment period. • E-mail: regs.comments@occ.treas.gov. • Mail: Office of the Comptroller of the Currency, 250 E Street, SW., Mail Stop 2–3, Washington, DC 20219. • Fax: (202) 874–5274. • Hand Delivery/Courier: 250 E Street, SW., Mail Stop 2–3, Washington, DC 20219. Instructions: You must include ‘‘OCC’’ as the agency name and ‘‘Docket ID OCC–2011–0016’’ in your comment. In general, OCC will enter all comments received into the docket and publish them on the Regulations.gov Web site without change, including any business or personal information that you provide such as name and address information, e-mail addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. You may review comments and other related materials that pertain to this interim final rule by any of the following methods: • Viewing Comments Electronically: Go to http://www.regulations.gov. Select ‘‘Document Type’’ of ‘‘Public Submissions,’’ in ‘‘Enter Keyword or ID Box,’’ enter Docket ID ‘‘OCC–2011– PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 0016,’’ and click ‘‘Search.’’ Comments will be listed under ‘‘View By Relevance’’ tab at bottom of screen. • Viewing Comments Personally: You may personally inspect and photocopy comments at the OCC, 250 E Street, SW., Washington, DC. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling (202) 874–4700. Upon arrival, visitors will be required to present valid government-issued photo identification and to submit to security screening in order to inspect and photocopy comments. • Docket: You may also view or request available background documents and project summaries using the methods described above. FOR FURTHER INFORMATION CONTACT: Andra Shuster, Senior Counsel, or Heidi Thomas, Special Counsel, Legislative and Regulatory Activities Division, (202) 874–5090, Office of the Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219. SUPPLEMENTARY INFORMATION: I. Background On July 21, 2010, President Barack Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act or Act).1 Title III of the Dodd-Frank Act transfers the powers, authorities, rights, and duties of the OTS to other Federal banking agencies, including the OCC, on July 21, 2011, the transfer date. The OTS is abolished 90 days thereafter. Under Title III of the Dodd-Frank Act, the OCC will assume all functions of the OTS and the Director of the OTS relating to Federal savings associations.2 As a result, the OCC will have responsibility for the ongoing supervision, examination and regulation of Federal savings associations as of the transfer date. The Act also transfers to the OCC the rulemaking authority of the OTS relating to all savings associations, both state and Federal.3 The legislation 1 Public Law 111–203, 124 Stat. 1376 (2010). Act section 312(b)(2)(B)(i) (to be codified 12 U.S.C. 5412(b)(2)(B)(i)). Title III transfers all supervisory functions of the OTS relating to state savings associations to the Federal Deposit Insurance Corporation (FDIC) and all functions relating to the supervision of any savings and loan holding company and non-depository institution subsidiaries of such holding companies, as well as rulemaking authority for savings and loan holding companies, to the Board of Governors of the Federal Reserve System (Board). 3 Id. As discussed below, although this is the language in the Act, the FDIC has identified a number of independent bases for rulemaking authority for state savings associations. Where no such authority has been found, the FDIC will enforce applicable OCC regulations for state savings associations. 2 Dodd-Frank E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations sroberts on DSK5SPTVN1PROD with RULES continues in effect all OTS orders, resolutions, determinations, agreements, regulations, interpretive rules, other interpretations, guidelines, procedures and other advisory materials in effect the day before the transfer date, and allows the OCC to enforce these materials with respect to Federal savings associations, until modified, terminated, set aside or superseded by the OCC, a court, or by operation of law.4 In an effort to ensure an orderly transfer of OTS regulations to the OCC as of the transfer date, the OCC has determined that it is appropriate to republish in 12 CFR Chapter I all OTS regulations from 12 CFR Chapter V that we have the authority to promulgate and enforce, with appropriate nomenclature and other technical changes. The Republished Regulations will supersede the OTS regulations found in Chapter V for purposes of the OCC’s supervision and regulation of Federal savings associations, and, where applicable, for purposes of the FDIC’s supervision and regulation of state savings associations. OCC Regulatory Actions To Integrate OTS Functions Since the adoption of the Dodd-Frank Act, the OCC, in collaboration with the OTS, has been reviewing its regulations, as well as those of the OTS, to determine what changes are needed to facilitate a smooth regulatory transition to OCC supervision of Federal savings associations. This review is being accomplished in several phases. On July 21, 2011, the OCC issued a final rule revising certain OCC rules that are central to internal agency functions and operations immediately upon the transfer of supervisory jurisdiction for Federal savings associations.5 This final rule amends the OCC’s rules at 12 CFR part 4 pertaining to its organization and functions, the availability of information from the OCC under the Freedom of Information Act, the release of nonpublic OCC information, and restrictions on the post-employment activities of senior examiners; and at 12 CFR part 8, pertaining to assessments. The final rule also amends 12 CFR parts 5 and 28 to implement sections 603 and 335 of the Dodd-Frank Act, respectively; and 12 CFR parts 5, 7, and 34, to implement sections 1044 through 1047 of the Act pertaining to preemption and visitorial powers. This interim final rule is the next step of our review of OCC and OTS 4 Dodd-Frank Act, section 316(b) (to be codified at 12 U.S.C. 5414(b)). 5 See the Rules and Regulations section of the July 21, 2011 issue of the Federal Register. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 regulations. As described in more detail below, this interim final rule republishes those OTS regulations that the OCC has the authority to promulgate and will enforce as of the transfer date.6 Subsequent to the transfer date, the OCC will consider more comprehensive substantive amendments, as necessary, to the Republished Regulations. For example, we may propose to repeal or combine provisions in cases where OCC and former OTS rules are substantively identical or substantially overlap. In addition, we may propose to repeal or modify OCC or former OTS rules where differences in regulatory approach are not required by statute or warranted by features unique to either the national bank or Federal savings association charter. This substantive review also will provide an opportunity for the OCC to ask for comments suggesting revisions to the rules for both national banks and Federal savings associations that would remove provisions that are ‘‘outmoded, ineffective, insufficient, or excessively burdensome,’’ consistent with the goals outlined in an executive order recently issued by the President.7 II. Description of the Interim Final Rule As noted above, the interim final rule republishes those OTS regulations the OCC has the authority to promulgate and, along with the FDIC in the case of state savings associations, will enforce as of the transfer date. The OTS regulations are currently set out in Chapter V of Title 12 as parts 500 through 591. In order to reduce confusion and to assist the thrift industry, we have preserved where possible the OTS’s numbering system by republishing these regulations with OCC part numbers that correspond to the former OTS rules, specifically, by changing the ‘‘5’’ to a ‘‘1’’. For example, 12 CFR part 545 is republished as 12 CFR part 145. We note, however, that there were a number of instances where the OTS numbering system has been modified because it deviated from standard CFR numbering conventions. Therefore, for example, former parts 563b through 563g are being republished as parts 192 through 197 (with corresponding cross-reference changes). This preamble contains a redesignation table indicating how the newly issued parts in Chapter I 6 Pursuant to section 316(c)(2) of the Dodd-Frank Act, the OCC (along with the FDIC) published a notice in the Federal Register identifying those OTS regulations that are continued under the Act that each agency will enforce beginning on the transfer date. 76 FR 39246 (July 6, 2011). 7 Executive Order 13563, ‘‘Improving Regulation and Regulatory Review’’ 76 FR 3821 (Jan. 21, 2011). PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 48951 correspond to the former parts in Chapter V. We also have made nomenclature and other technical amendments to reflect OCC supervision of Federal savings associations and FDIC supervision of state savings associations, along with certain required Dodd-Frank Act changes. OTS regulations in Chapter V of Title 12 that will be unnecessary following the transfer date, or that are superseded by this rulemaking (or other rulemakings by the FDIC and the Board) or other provisions of the Dodd-Frank Act, will be repealed at a later date. We have added a new part 100 to clarify that the Republished Regulations supersede any rules applying to savings associations contained in Chapter V of Title 12. In addition, part 100 provides that the Comptroller may, for good cause and to the extent permitted by statute, waive the applicability of any provision of parts 100 through 197. This provision transfers to the Comptroller authority provided to the OTS Director by 12 CFR 500.30(a). The OCC has worked closely with the OTS, FDIC and the Board to coordinate the republication of OTS rules. Although section 312 of the Dodd-Frank Act transfers all OTS rulemaking authority for all savings associations to the OCC, where the FDIC has identified an independent basis for its rulemaking authority over state savings associations (either due to other amendments made by the Dodd-Frank Act or based on other statutory authority) the FDIC will promulgate regulations for state savings associations. Therefore, not all of the Republished Regulations apply to state savings associations.8 The FDIC will publish a separate rulemaking amending its rules or republishing certain OTS rules under this authority. We also have not republished those OTS rules relating exclusively to savings and loan holding companies (SLHCs), because the Dodd-Frank Act transferred the OTS’s supervision and rulewriting authority for SLHCs to the Board.9 Where OTS rules addressed both savings associations and SLHCs, we have republished only those parts of the rule pertaining to savings associations. 8 The following regulations apply to state savings associations: certain provisions in part 160 (Lending and Investment), part 161 (Definitions), certain provisions in part 163 (Savings Association Operations), part 169 (Proxies), part 190 (Preemption of State Usury Laws), part 191 (Preemption of State Due-on-Sale Laws), part 192 (Conversions from Mutual to Stock Form), and part 195 (Community Reinvestment). 9 See section 312 of the Dodd-Frank Act, (to be codified at 12 U.S.C. 5412). E:\FR\FM\09AUR2.SGM 09AUR2 48952 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations sroberts on DSK5SPTVN1PROD with RULES Similarly, under the Dodd-Frank Act, rulewriting authority for certain consumer rules is transferred to the Bureau of Consumer Financial Protection (Bureau). Therefore, although the OCC has the authority to enforce these rules for Federal savings associations and national banks with total assets of $10 billion or less, we have not republished these rules and they remain in Chapter V of the Code of Federal Regulations, until superseded by the Bureau.10 We also note that, in addition to parts 100 through 197, certain rules contained in parts 1 through 41 will also take into consideration the OCC’s supervision of Federal savings associations, such as part 4 (regarding disclosure of information) and part 8 (regarding assessments). A. General Nomenclature Changes The OCC has made certain nomenclature and other non-substantive changes consistently throughout the Republished Regulations to replace references to the OTS and its administrative structure with appropriate references to the OCC and, in the case of rules also applicable to state savings associations, the FDIC. Specifically, these changes are as follows: • References to ‘‘the OTS,’’ ‘‘Office,’’ and ‘‘Secretary’’ have been changed to ‘‘the OCC’’ or ‘‘FDIC’’ or to ‘‘the appropriate Federal banking agency’’ (AFBA), as defined in 12 U.S.C. 1813(q) and as amended by the Dodd-Frank Act. Because some of the Republished Regulations apply to both Federal and state savings associations, the term ‘‘AFBA’’ is used where a provision applies to both types of institutions. We have added the definition of AFBA to part 161. • References to ‘‘the Director of the OTS’’ or ‘‘Director’’ have been changed to ‘‘Comptroller’’ or ‘‘Board of Directors of the FDIC’’ or ‘‘FDIC,’’ as appropriate. We have added the definition of ‘‘Comptroller’’ and ‘‘OCC’’ to part 161. • In some cases, references to specific offices within the OTS have been removed and replaced with the names of the corresponding office within the OCC (for example, references to the OTS Office of Enforcement have been changed to reference the OCC’s Enforcement and Compliance Division). However, some OTS rules include references to offices that do not correspond easily to the OCC’s 10 See section 1022 of the Dodd-Frank Act, (to be codified at 12 U.S.C. 5512). These rules include 12 CFR parts 563, subpart D (S.A.F.E. Act), 571 subparts A through E and § 571.82 in subpart I (Fair Credit Reporting) and 573 (Privacy). VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 administrative structure. In those cases, the specific reference has been replaced with ‘‘the OCC.’’ Similar references have been made to the FDIC where appropriate. OCC and FDIC handbooks and other agency publications (which will be amended as appropriate after the transfer date), as well as OCC and FDIC Web sites will provide the specific filing locations.11 • In some cases, we have reduced the number of copies of filings to be submitted to the OCC. • Some OTS regulations include agency addresses and contact information as well as addresses of third parties. Because office addresses frequently are subject to change as a result of moves and reassignments, the OCC generally has chosen not to include specific addresses in its regulations governing national banks, and has made similar changes in the Republished Regulations. Updated contact information for these entities will continue to be available on the OCC’s Web site or in other agency publications, or by contacting the specified third parties. • Cross-references in the Republished Rules have been changed to reference the new OCC CFR numbers in Chapter I. For example, a reference to 12 CFR 550.80 has been changed to reference the new section 12 CFR 150.80 in the Republished Regulations. Crossreferences also have been updated to reference OCC rules, or relevant rules issued by the FDIC or the Board. B. Specific Section Changes In addition to the changes described above, the OCC has made other notable changes to sections of the Republished Regulations to implement provisions of the Dodd-Frank Act or to delete obsolete references.12 • Deposit activities of savings associations—part 157. Section 627 of the Dodd-Frank Act removed the 11 The OCC’s Web site is found at www.occ.gov. The FDIC’s Web site is found at www.fdic.gov. 12 We note that section 939A of the Dodd-Frank Act requires the Federal banking agencies to amend their rules to provide alternatives for references to external credit ratings in there regulations. OTS rules include such references related to lending and investment in part 560, and regulatory capital requirements in part 567. The OTS issued an ANPR addressing lending and investment on October 14, 2010. (75 FR 63107), and it joined the other Federal banking agencies in issuing an ANPR addressing the regulatory capital requirements on August 25, 2010 (75 FR 52283). We have not amended these references in the Republished Regulations as the OCC is currently drafting separate proposals to address section 939A. We anticipate that the final OCC rules addressing section 939A will make any necessary amendments to parts 160 and 167 of the Republished Regulations, incorporating comments received including those in response to the OTS ANPRs. PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 prohibition of paying interest on demand accounts from the HOLA. Section 157.14 provided that savings associations could pay interest only on savings accounts. Therefore, in order to implement the Dodd-Frank Act change, we have removed the word ‘‘savings’’ from this section. • Preemption—parts 145, 150, 157, and 160. The OTS regulations at 12 CFR parts 545, 550, 557 and 560 include certain ‘‘occupation of the field’’ statements on Federal preemption. Section 1046 of the Dodd-Frank Act provides that the Home Owners’ Loan Act (HOLA) does not occupy the field in any area of state law. Therefore, these occupation of the field statements in the OTS regulations have been removed from the Republished Regulations in §§ 145.2, 150.136, 157.11 and 160.2 by this interim final rule. In addition, the current OTS regulations do not accurately characterize the preemption standards applicable to Federal savings associations after the Dodd-Frank Act. The Act changes the preemption standards applicable to Federal savings associations to conform to those applicable to national banks.13 The Act specifically provides that, as of the transfer date, determinations by a court or by the OCC under the HOLA with respect to Federal savings associations must be made in accordance with the laws and legal standards applicable to national banks regarding the application of state law.14 The OCC recently published a final rule hat implements this standard for Federal savings associations. To conform with the DoddFrank Act, this interim final rule adds references to the new preemption standards applicable to Federal savings associations in §§ 157.11 and 160.2 of the Republished Regulations and removes a now obsolete cross-reference in § 160.110. • Historical references. We have removed a number of historical references contained in the OTS rules in Chapter V that are no longer relevant. • Alternative Mortgage Transactions Parity Act (AMTPA). Section 1002 of the Dodd-Frank Act transfers rulemaking authority for the AMTPA to the Bureau. Therefore, we have not republished § 560.220, which implements AMTPA, as OCC rules. 13 Dodd-Frank Act section 1046, 124 Stat. 2017 (to be codified at 12 U.S.C. 1465). In addition, the Act states that the provisions in section 1047(a) regarding visitorial powers shall apply to Federal savings associations and their subsidiaries to the same extent and in the same manner as if they were national banks or national bank subsidiaries. DoddFrank Act section 1047(b), 124 Stat. 2018 (to be codified at 12 U.S.C. 1465). 14 Id. E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations • Regulations relating to transactions with affiliates, extensions of credit to insiders and tying arrangements. Section 312(b)(2)(A) transfers all OTS rulemaking authority relating to transactions with affiliates, extensions of credit to insiders and tying arrangements to the Board. Therefore, we have not republished §§ 563.36, 563.41 and 563.43, but rather refer Federal savings associations to the Board’s regulations. • Savings associations—Operations: In § 163.22(e)(1)(iv), we have removed the reference to the Board and FDIC, as 12 U.S.C. 1828(c) no longer requires the Federal banking agencies to seek competitive impact reports from the other Federal banking agencies before acting on a merger, consolidation, or assumption of liabilities. Instead, competitive impact reports are required only from the Attorney General. In addition, pursuant to the Dodd-Frank Act, savings associations that are part of a SLHC structure must now file a notice of a declaration of a dividend with the Board. We have amended § 163.143 to require that, in the case of cash dividends, Federal savings associations that are subsidiaries of a stock SLHC file an informational copy of that notice with the OCC at the same time it is filed with the Board. We note that under the regulation Federal savings associations that are subsidiaries of stock SLHCs must file notices of a declaration of a noncash dividend and other capital distributions with the OCC. In addition, pursuant to an amendment made to the HOLA by the Dodd-Frank Act,15 Federal savings associations that are subsidiaries of mutual SLHCs are required to provide a notice of a declaration of dividends to both the Board and the OCC. Our amendment to § 163.143 accounts for this notice. • Change in bank control. Part 574 of the OTS rules addressing change in control of savings associations referenced control as being ‘‘more than 25%,’’ however because the underlying statute (the Change in Bank Control Act, 12 U.S.C. 1817(j)) uses the phrase ‘‘25% or more,’’ we have replaced the former OTS phrase with the statutory language throughout part 174 in the Republished Regulations. We also have conformed § 574.7(d)(3) to better track the statutory language. Additionally, throughout this rule, we have removed those sections that apply only to SLHCs, and have added provisions from former part 574 in place of cross-references where the cross-referenced provision is now contained in a Board regulation. 15 Dodd-Frank Act, section 625 (to be codified at 12 U.S.C. 1467a(o)(11)). VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 • References to Thrift Financial Report (TFR). Where there were references to the TFR in Chapter V of the OTS rules, we have added ‘‘Consolidated Reports of Condition or Income’’ (Call Report) or ‘‘Thrift Financial Report,’’ as appropriate’’ to account for the phase out of the TFR.16 • Remaining Fair Credit Reporting regulations. As noted above, under the Dodd-Frank Act, the Bureau assumes rulemaking authority for the majority of rules under the Fair Credit Reporting Act (FCRA). However, the OCC retains rulemaking authority for § 571.83 of subpart I and all of subpart J. All of the FCRA rules were originally published together in part 571 of the OTS rules and contained generally applicable provisions in subpart A. One such provision stated that examples given in the rules were not exclusive and that compliance with an example would constitute compliance with the rule. In part 171 of the Republished Regulations, we have included this provision to apply it to subpart J, which includes examples. III. Notice and Comment This interim final rule is effective on July 21, 2011. Pursuant to the Administrative Procedure Act (APA), at 5 U.S.C. 553(b)(B), notice and comment are not required prior to the issuance of a final rule if an agency, for good cause, finds that ‘‘notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.’’ Section 316(b) of the Dodd-Frank Act provides that all OTS regulations in effect the day before the transfer date shall continue in effect until modified, terminated, set aside, or superseded by the OCC. The interim final rule makes non-substantive, technical changes to the OTS regulations, such as renumbering, changing internal crossreferences, replacing appropriate nomenclature, and changing the address for filing applications and notices. The rule also makes a few changes to conform the rules for Federal savings associations to changes in the law affected by the Dodd-Frank Act. Because these regulations are nearly identical to the OTS’s rules which savings associations are currently subject to, the new rules do not change or impose additional requirements that necessitate adjustments by these institutions. In addition, codifying former OTS regulations as OCC regulations with nomenclature changes and updated 16 See the joint Paperwork Reduction Act Notice published by the OTS, OCC, FDIC and the Board proposing to phase out of the TFR. 76 FR 39981 (July 7, 2011). PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 48953 filing addresses will help reduce confusion in the industry. Moreover, the transferring rules in general were originally issued by the OTS following notice and comment rulemaking, as appropriate. Therefore, the OCC has concluded that advance notice and comment under the APA is unnecessary and not in the public interest. IV. Effective Date This interim final rule is effective on July 21, 2011. A final rule may be published with an immediate effective date if an agency finds good cause and publishes such with the final rule.17 The purpose of a delayed effective date is to permit regulated entities to adjust their behavior before the final rule takes effect. As described above, the interim final rule makes non-substantive, technical changes, which will not require savings associations to adjust their behavior in a substantive manner. In addition, the interim final rule provides guidance regarding certain required Dodd-Frank Act changes. It is important to have these regulations in place on July 21, 2011, the transfer date, to facilitate a seamless transition when the OCC and the FDIC assume responsibility for supervising savings associations on that day and to inform the industry what rules will apply as of the transfer date. For these reasons, the OCC finds good cause to dispense with a delayed effective date. Section 302 of the Riegle Community Development and Regulatory Improvement Act of 1994 (12 U.S.C. 4802) requires, subject to certain exceptions, that regulations imposing additional reporting, disclosure, or other requirements on insured depository institutions take effect on the first day of the calendar quarter after publication of the final rule. As a general matter this interim final rule does not impose additional reporting, disclosure, or other requirements. However, to the extent that there are any additional reporting, disclosure, or other requirements, because they impose minimal burden on savings associations and because of the need to have final rules in place on he transfer date, the OCC finds good cause not to delay the effectiveness of these rules. V. Request for Comments Although notice and comment are not required prior to the effective date of this interim final rule, the OCC invites comments on all aspects of the rule and will revise it if necessary or appropriate in light of the comments received. 17 5 U.S.C. 553(d)(3). E:\FR\FM\09AUR2.SGM 09AUR2 48954 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations VI. Regulatory Analysis Regulatory Flexibility Act Analysis The Regulatory Flexibility Act (Pub. L. 96–354, Sept. 19, 1980) (RFA) applies only to rules for which an agency publishes a general notice of proposed rulemaking pursuant to 5 U.S.C. 553(b). Pursuant to the APA at 5 U.S.C. 553(b)(B), general notice and an opportunity for public comment are not required prior to the issuance of a final rule when an agency, for good cause, finds that ‘‘notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.’’ As discussed above, the OCC has determined for good cause that the APA does not require general notice and public comment on this interim final rule and, therefore, we are not publishing a general notice of proposed rulemaking. Thus, the RFA, pursuant 5 U.S.C. 601(2), does not apply to this interim final rule. sroberts on DSK5SPTVN1PROD with RULES Unfunded Mandates Reform Act Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 104–4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency prepare a budgetary impact statement before promulgating any rule likely to result in a Federal mandate that may result in the expenditure by state, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. The OCC has determined that there is no Federal mandate imposed by this rulemaking that may result in the expenditure by state, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. Paperwork Reduction Act The OCC may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. This rule contains information collection requirements under the Paperwork Reduction Act (PRA), which have been previously approved by OMB under the following OMB control numbers, and the PRA burden for which is unchanged by this rule: OMB Control Nos. 1550–0003; 1550–0005 through 1550–0007; 1550–0011 through 1550– 0020; 1550–0021, 1550–0025; 1550– 0030; 1550–0032; 1550–0035; 1550– 0037; 1550–0041; 1550–0047; 1550– 0051; 1550–0053; 1550–0056; 1550– 0060; 1550–0062; 1550–0066; 1550– 0072; 1550–0077 through 1550–0078; 1550–0081; 1550–0088; 1550–0092; 1550–0094 through 1550–0095; 1550– VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 0103 through 1550–0106; 1550–0109 through 1550–0110; 1550–0112 through 1550–0113; 1550–0115; 1550–0117; 1557–0119; 1550–0122; and 1550–0127. The information collection approved under OMB Control No. 1550–0059 will be amended through a non-substantive change. There are no new information collection requirements in this interim final rule. VII. Redesignation Table The following redesignation table is provided for reader reference and shows the relationship of former section numbers within Chapter V to the new section numbers in Chapter I. 12 CFR Chapter V: Former part or section numbers Part 508 .................... Part 509 .................... Part 512 .................... Part 516 .................... Part 528 .................... Section 528.1 ............ Section 528.1a .......... Section 528.2 ............ Section 528.2a .......... Section 528.3 ............ Section 528.4 ............ Section 528.5 ............ Section 528.6 ............ Section 528.7 ............ Section 528.8 ............ Section 528.9 ............ Part 533 .................... Part 536 .................... Part 541 .................... Part 543 .................... Section 543.1 ............ Section 543.2 ............ Section 543.3 ............ Section 543.5 ............ Section 543.6 ............ Section 543.7 ............ Section 543.7–1 ........ Section 543.8 ............ Section 543.9 ............ Section 543.10 .......... Section 543.11 .......... Section 543.11–1 ...... Section 543.14 .......... Part 544 .................... Part 545 .................... Part 546 .................... Part 550 .................... Part 551 .................... Part 552 .................... Section 552.2–1 ........ Section 552.2–2 ........ Section 552.2–3 ........ Section 552.2–6 ........ Section 552.2–7 ........ Section 552.3 ............ Section 552.4 ............ Section 552.5 ............ Section 552.6 ............ Section 552.6–1 ........ Section 552.6–2 ........ Section 552.6–3 ........ Section 552.6–4 ........ Section 552.9 ............ PO 00000 Frm 00006 Fmt 4701 12 CFR Chapter I: New part or section numbers Part 108 Part 109 Part 112 Part 116 Part 128 Section 128.1 Section 128.10 Section 128.2 Section 128.11 Section 128.3 Section 128.4 Section 128.5 Section 128.6 Section 128.7 Section 128.8 Section 128.9 Part 133 Part 136 Part 141 Part 143 Section 143.1 Section 143.2 Section 143.3 Section 143.4 Section 143.5 Section 143.6 Section 143.7 Section 143.8 Section 143.9 Section 143.10 Section 143.11 Section 143.12 Section 143.14 Part 144 Part 145 Part 146 Part 150 Part 151 Part 152 Section 152.1 Section 152.2 Section 152.17 Section 152.18 Section 152.19 Section 152.3 Section 152.4 Section 152.5 Section 152.6 Section 152.7 Section 152.8 Section 152.9 None None Sfmt 4700 12 CFR Chapter V: Former part or section numbers 12 CFR Chapter I: New part or section numbers Section 552.10 .......... Section 552.11 .......... Section 552.12 .......... Section 552.13 .......... Section 552.14 .......... Section 552.15 .......... Section 552.16 .......... Part 555 .................... Part 557 .................... Part 559 .................... Part 560 .................... Part 561 .................... Part 562 .................... Part 563 .................... Part 563b .................. Part 563c ................... Part 563c, Subpart A Part 563c, Subpart B Section 563c.101 ...... Section 563c.102 ...... Section 152.10 Section 152.11 Section 152.12 Section 152.13 Section 152.14 Section 152.15 Section 152.16 Part 155 Part 157 Part 159 Part 160 Part 161 Part 162 Part 163 Part 192 Part 193 Part 193, Subpart A Part 193, Subpart B Section 193.101 Section 193.102 and new Appendix A Part 194 Section 194.1 Section 194.2 Section 194.3 Section 194.210 Section 194.801 Section 194.802 Part 195 Part 196 Part 197 Section 197.1 Section 197.2 Section 197.3 Section 197.4 Section 197.5 Section 197.6 Section 197.7 Section 197.8 Section 197.9 Section 197.10 Section 197.11 Section 197.12 Section 197.13 Section 197.14 Section 197.15 Section 197.16 Section 197.17 Section 197.18 Section 197.19 Part 197, Appendix A Section 197.21 Part 164 Part 165 Part 167 Part 168 Part 169 Part 170 Part 171 Part 172 Part 174 Section 174.1 Section 174.2 Section 174.3 Section 174.4 Section 174.5 Section 174.6 Section 174.7 Section 174.8 Part 174, Appendix A Part 190 Part 191 Part 563d .................. Section 563d.1 .......... Section 563d.2 .......... Section 563d.3b–6 .... Section 563d.210 ...... Section 563d.801 ...... Section 563d.802 ...... Part 563e .................. Part 563f ................... Part 563g .................. Section 563g.1 .......... Section 563g.2 .......... Section 563g.3 .......... Section 563g.4 .......... Section 563g.5 .......... Section 563g.6 .......... Section 563g.7 .......... Section 563g.8 .......... Section 563g.9 .......... Section 563g.10 ........ Section 563g.11 ........ Section 563g.12 ........ Section 563g.13 ........ Section 563g.14 ........ Section 563g.15 ........ Section 563g.16 ........ Section 563g.17 ........ Section 563g.18 ........ Section 563g.19 ........ Section 563g.20 ........ Section 563g.21 ........ Part 564 .................... Part 565 .................... Part 567 .................... Part 568 .................... Part 569 .................... Part 570 .................... Part 571 .................... Part 572 .................... Part 574 .................... Section 574.1 ............ Section 574.2 ............ Section 574.3 ............ Section 574.4 ............ Section 574.5 ............ Section 574.6 ............ Section 574.7 ............ Section 574.8 ............ Section 574.100 ........ Part 590 .................... Part 591 .................... E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations List of Subjects 12 CFR Part 151 12 CFR Part 169 12 CFR Part 100 Reporting and recordkeeping requirements, Savings associations, Securities, Trusts and trustees. 48955 12 CFR Part 170 Savings associations. Savings associations, Securities. Reporting and recordkeeping requirements, Savings associations, Securities. Accounting, Administrative practice and procedure, Bank deposit insurance, Reporting and recordkeeping requirements, Safety and soundness, Savings associations. 12 CFR Part 155 12 CFR Part 171 Administrative practice and procedure, Investigations. Accounting, Consumer protection, Electronic funds transfers, Reporting and recordkeeping requirements, Savings associations. Consumer protection, Credit, Fair Credit Reporting Act, Privacy, Reporting and recordkeeping requirements, Savings associations. 12 CFR Part 116 12 CFR Part 157 12 CFR Part 172 Administrative practice and procedure, Reporting and recordkeeping requirements, Savings associations. Reporting and recordkeeping requirements, Savings associations. Flood insurance, Reporting and recordkeeping requirements, Savings associations. 12 CFR Part 108 Administrative practice and procedure, Crime, Savings associations. 12 CFR Part 109 Administrative practice and procedure, Penalties. 12 CFR Part 112 12 CFR Part 128 Advertising, Aged, Civil rights, Credit, Equal employment opportunity, Fair housing, Individuals with disabilities, Marital status discrimination, Mortgages, Religious discrimination, Reporting and recordkeeping requirements, Savings associations, Sex discrimination, Signs and symbols. 12 CFR Part 133 Confidential business information, Freedom of information, Reporting and recordkeeping requirements, Savings associations. 12 CFR Part 152 12 CFR Part 159 12 CFR Part 174 Reporting and recordkeeping requirements, Savings associations, Subsidiaries. 12 CFR Part 160 Consumer protection, Investments, Manufactured homes, Mortgages, Reporting and recordkeeping requirements, Savings associations, Securities. 12 CFR Part 161 Savings associations. 12 CFR Part 143 Reporting and recordkeeping requirements; Savings associations. 12 CFR Part 144 Administrative practice and procedure, Savings associations. Banks, banking, Loan programshousing and community development, Mortgages. 12 CFR Part 162 12 CFR Part 192 Reporting and recordkeeping requirements, Savings associations, Securities. 12 CFR Part 193 Accounting, Savings associations, Securities. 12 CFR Part 164 Reporting and recordkeeping requirements, Savings associations. Appraisals, Mortgages, Reporting and recordkeeping requirements, Savings associations. 12 CFR Part 145 Consumer protection, Credit, Electronic funds transfers, Investments, Manufactured homes, Mortgages, Reporting and recordkeeping requirements, Savings associations. 12 CFR Part 165 12 CFR Part 146 sroberts on DSK5SPTVN1PROD with RULES 12 CFR Part 191 Accounting, Administrative practice and procedure, Advertising, Conflict of interests, Crime, Currency, Investments, Mortgages, Reporting and recordkeeping requirements, Savings associations, Securities, Surety bonds. 12 CFR Part 141 Reporting and recordkeeping requirements, Savings associations. Capital, Reporting and recordkeeping requirements, Risk, Savings associations. 12 CFR Part 150 12 CFR Part 168 Administrative practice and procedure, Reporting and recordkeeping requirements, Savings associations, Trusts and trustees. Consumer protection, Privacy, Reporting and recordkeeping requirements, Savings associations, Security measures. Jkt 223001 Banks, banking, Loan programshousing and community development, Manufactured homes, Mortgages. 12 CFR Part 163 Consumer protection, Insurance, Reporting and recordkeeping requirements, Savings associations. 21:10 Aug 08, 2011 12 CFR Part 190 Accounting, Reporting and recordkeeping requirements, Savings associations. 12 CFR Part 136 VerDate Mar<15>2010 Administrative practice and procedure, Reporting and recordkeeping requirements, Savings associations, Securities. Administrative practice and procedure, Savings associations. 12 CFR Part 167 PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 12 CFR Part 194 Authority delegations (Government agencies), Reporting and recordkeeping requirements, Savings associations, Securities. 12 CFR Part 195 Community development, Credit, Investments, Reporting and recordkeeping requirements, Savings associations. 12 CFR Part 196 Antitrust, Reporting and recordkeeping requirements, Savings associations. 12 CFR Part 197 Reporting and recordkeeping requirements, Savings associations, Securities. For the reasons set forth in the preamble, Chapter I of Title 12 of the ■ E:\FR\FM\09AUR2.SGM 09AUR2 48956 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations Code of Federal Regulations is amended by adding parts 100, 108, 109, 112, 116, 128, 133, 136, 141, 143, 144, 145, 146, 150, 151, 152, 155, 157, 159, 160, 161, 162, 163, 164, 165, 167, 168, 169, 170, 171, 172, 174, 190, 191, 192, 193, 194, 195, 196, 197, respectively, to read as follows: PART 100—RULES APPLICABLE TO SAVINGS ASSOCIATIONS Authority: 12 U.S.C. 1462a, 1463, 5412(b)(2)(B), 5414(b)(2). § 100.1 Certain regulations superseded. Effective on July 21, 2011, section 312(b)(2)(B) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111–203, 124 Stat. 1376 (2010)) (12 U.S.C. 5412(b)(2)(B)) transferred rulemaking authority of the Office of Thrift Supervision (OTS) relating to all savings associations, both state and Federal to the OCC. The regulations set forth in parts 100 through 197 of this Chapter I applying to Federal savings associations and state savings associations, as those terms are defined in section 3(b) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)), supersede corresponding regulations set forth in parts 500 through 591 of Chapter V of the Code of Federal Regulations that were applicable to such entities prior to July 21, 2011. § 100.2 Waiver authority. The Comptroller of the Currency may, for good cause and to the extent permitted by statute, waive the applicability of any provision of parts 100 through 197. sroberts on DSK5SPTVN1PROD with RULES PART 108—REMOVALS, SUSPENSIONS, AND PROHIBITIONS WHERE A CRIME IS CHARGED OR PROVEN Sec. 108.1 Scope. 108.2 Definitions. 108.3 Issuance of Notice or Order. 108.4 Contents and service of the Notice or Order. 108.5 Petition for hearing. 108.6 Initiation of hearing. 108.7 Conduct of hearings. 108.8 Default. 108.9 Rules of evidence. 108.10 Burden of persuasion. 108.11 Relevant considerations. 108.12 Proposed findings and conclusions and recommended decision. 108.13 Decision of the OCC. 108.14 Miscellaneous. Authority: 12 U.S.C. 1464, 1818, 5412(b)(2)(B). VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 § 108.1 Scope. The rules in this part 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 Federal savings association, Federal savings association subsidiary, or affiliate service corporation, where such person has been suspended or removed from office or prohibited from further participation in the conduct of the affairs of one of the aforementioned entities by a Notice or Order served by the OCC upon the grounds set forth in section 8(g) of the Federal Deposit Insurance Act, (12 U.S.C. 1818(g)). § 108.2 Definitions. As used in this part— (a) The term OCC means the Office of the Comptroller of the Currency. (b) [Reserved] (c) The term Notice means a Notice of Suspension or Notice of Prohibition issued by the OCC pursuant to section 8(g) of the Federal Deposit Insurance Act. (d) The term Order means an Order of Removal or Order of Prohibition issued by the OCC pursuant to section 8(g) of the Federal Deposit Insurance Act. (e) The term association means a Federal savings association within the meaning of section 2(5) of the Home Owners’ Loan Act of 1933, as amended, 12 U.S.C. 1462(5) (‘‘HOLA’’), Federal savings association subsidiary and an affiliate service corporation within the meaning of section 8(b)(8) of the Federal Deposit Insurance Act, as amended, 12 U.S.C. 1818(b)(8) (‘‘FDIA’’). (f) The term subject individual means a person served with a Notice or Order. (g) The term petitioner means a subject individual who has filed a petition for informal hearing under this part. § 108.3 Issuance of Notice or Order. (a) The OCC 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 OCC, upon due deliberation, determines that 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 PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 the information, indictment, or complaint is finally disposed of or until terminated by the OCC. (b) The OCC 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 OCC, 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. § 108.4 Contents and service of the Notice or Order. (a) The Notice or Order shall set forth the basis and facts in support of the OCC’s 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 OCC shall serve a copy of the Notice or Order upon the subject individual and the related association in the manner set forth in § 109.11 of this chapter. (c) Upon receipt of the Notice or Order, the subject individual shall immediately comply with the requirements thereof. § 108.5 Petition for hearing. (a) To obtain a hearing, the subject individual must file two copies of a petition with the OCC 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, 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. E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations § 108.6 Initiation of hearing. (a) Within 10 days of the filing of a petition for hearing, the OCC shall notify the petitioner of the time and place fixed for hearing, and it shall designate one or more OCC 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 § 109.6 of this chapter. (d) A representative(s) of the OCC’s Enforcement and Compliance Division also may attend the hearing and participate therein as a party. sroberts on DSK5SPTVN1PROD with RULES § 108.7 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 § 109.5 of this chapter. (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 Enforcement and Compliance Division, 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 Enforcement and Compliance Division shall have an opportunity for oral argument; however, the parties may jointly waive the right to oral argument, 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, VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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. § 108.8 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 § 108.7(d) or (f) of this part, 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 OCC. § 108.9 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. § 108.10 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. § 108.11 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 OCC will consider: (1) The nature and extent of the petitioner’s participation in the affairs of the association; (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, PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 48957 the OCC 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 OCC will not collaterally review such final judgment of conviction. § 108.12 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 and certify to the OCC 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. § 108.13 Decision of the OCC. (a) Within 30 days after the recommended decision has been certified to the OCC, the OCC shall issue a final decision. (b) The OCC’s final decision shall contain a statement of the basis therefor. The OCC may satisfy this requirement where it adopts the recommended decision of the presiding officer upon finding that the recommended decision satisfies the requirements of § 109.38 of this chapter. (c) The OCC shall serve upon the petitioner and the representative of the Enforcement and Compliance Division a copy of the OCC’s final decision and the related recommended decision. § 108.14 Miscellaneous. The provisions of §§ 109.10, 109.11, and 109.12 of this chapter shall apply to proceedings under this part. PART 109—RULES OF PRACTICE AND PROCEDURE IN ADJUDICATORY PROCEEDINGS Subpart A—Uniform Rules of Practice and Procedure Sec. E:\FR\FM\09AUR2.SGM 09AUR2 48958 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 109.1 Scope. 109.2 Rules of construction. 109.3 Definitions. 109.4 Authority of the Comptroller. 109.5 Authority of the administrative law judge. 109.6 Appearance and practice in adjudicatory proceedings. 109.7 Good faith certification. 109.8 Conflicts of interest. 109.9 Ex parte communications. 109.10 Filing of papers. 109.11 Service of papers. 109.12 Construction of time limits. 109.13 Change of time limits. 109.14 Witness fees and expenses. 109.15 Opportunity for informal settlement. 109.16 OCC’s right to conduct examination. 109.17 Collateral attacks on adjudicatory proceeding. 109.18 Commencement of proceeding and contents of notice. 109.19 Answer. 109.20 Amended pleadings. 109.21 Failure to appear. 109.22 Consolidation and severance of actions. 109.23 Motions. 109.24 Scope of document discovery. 109.25 Request for document discovery from parties. 109.26 Document subpoenas to nonparties. 109.27 Deposition of witness unavailable for hearing. 109.28 Interlocutory review. 109.29 Summary disposition. 109.30 Partial summary disposition. 109.31 Scheduling and prehearing conferences. 109.32 Prehearing submissions. 109.33 Public hearings. 109.34 Hearing subpoenas. 109.35 Conduct of hearings. 109.36 Evidence. 109.37 Post-hearing filings. 109.38 Recommended decision and filing of record. 109.39 Exceptions to recommended decision. 109.40 Review by the Comptroller. 109.41 Stays pending judicial review. Subpart B—Local Rules 109.100 Scope. 109.101 Appointment of Office of Financial Institution Adjudication. 109.102 Discovery. 109.103 Civil money penalties. 109.104 Additional procedures. Subpart C [Reserved] Subpart D [Reserved] sroberts on DSK5SPTVN1PROD with RULES Authority: 5 U.S.C. 504, 554–557; 12 U.S.C. 1464, 1467, 1467a, 1468, 1817(j), 1818, 1820(k), 1829(e), 3349, 4717, 5412(b)(2)(B); 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 A—Uniform Rules of Practice and Procedure § 109.1 Scope. This subpart prescribes Uniform Rules of practice and procedure with regard to Federal savings associations VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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 OCC should issue an order to approve or disapprove a person’s proposed acquisition of an institution; (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 OCC is the appropriate agency. (e) Assessment of civil money penalties by the OCC against institutions, institution-affiliated parties, and certain other persons for which it is the appropriate 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 the 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); (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 OCC, the terms of any conditions imposed in writing by the OCC in connection with the grant of an PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 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) This subpart also applies 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. (i) [Reserved] § 109.2 Rules of construction. For purposes of this subpart: (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. § 109.3 Definitions. For purposes of this subpart, unless explicitly stated to the contrary: (a) Administrative law judge means one who presides at an administrative hearing under authority set forth at 5 U.S.C. 556. (b) Adjudicatory proceeding means a proceeding conducted pursuant to these rules and leading to the formulation of a final order other than a regulation. (c) Decisional employee means any member of the OCC’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 OCC or the administrative law judge, respectively, in preparing orders, recommended decisions, decisions, and other documents under the Uniform Rules. (d) Comptroller means the Comptroller of the Currency or his or her designee. E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (e) Enforcement Counsel means any individual who files a notice of appearance as counsel on behalf of the OCC in an adjudicatory proceeding. (f) Final order means an order issued by the OCC 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. (g) Institution includes any Federal savings association as that term is defined in section 3(b) of the FDIA (12 U.S.C. 1813(b)). (h) 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)). (i) Local Rules means those rules found in subpart B of this part. (j) OCC means the Office of the Comptroller of the Currency. (k) Office of Financial Institution Adjudication (OFIA) means the executive body charged with overseeing the administration of administrative enforcement proceedings for the OCC, the Board of Governors of the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the National Credit Union Administration. (l) Party means the OCC and any person named as a party in any notice. (m) 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. (n) Respondent means any party other than the OCC. (o) Uniform Rules means those rules in subpart A of this part. (p) Violation includes any action (alone or with another or others) for or toward causing, bringing about, participating in, counseling, or aiding or abetting a violation. § 109.4 Authority of the Comptroller. The Comptroller 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. sroberts on DSK5SPTVN1PROD with RULES § 109.5 judge. Authority of the administrative law (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. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (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 § 109.31 of this subpart; (7) To consider and rule upon all procedural and other motions appropriate in an adjudicatory proceeding, provided that only the Comptroller 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 Comptroller 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. § 109.6 Appearance and practice in adjudicatory proceedings. (a) Appearance before the OCC 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 OCC if such attorney is not currently suspended or debarred from practice before the OCC. (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 OCC. PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 48959 (3) Notice of appearance. Any individual acting as counsel on behalf of a party, including the Comptroller, 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 (a)(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. § 109.7 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. (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. E:\FR\FM\09AUR2.SGM 09AUR2 48960 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (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. § 109.8 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 § 109.6(a): (1) That the counsel has personally and fully discussed the possibility of conflicts of interest with each such party and non-party; and (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. sroberts on DSK5SPTVN1PROD with RULES § 109.9 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 OCC (including such person’s counsel); and (ii) The administrative law judge handling that proceeding, the Comptroller, or a decisional employee. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (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 Comptroller until the date that the Comptroller issues the final decision pursuant to § 109.40(c) of this subpart: (1) No interested person outside the OCC shall make or knowingly cause to be made an ex parte communication to the Comptroller, the administrative law judge, or a decisional employee; and (2) The Comptroller, administrative law judge, or decisional employee shall not make or knowingly cause to be made to any interested person outside the OCC 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 Comptroller 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 sanctions imposed by the Comptroller 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 OCC 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 § 109.40 of this subpart, PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 except as witness or counsel in public proceedings. § 109.10 Filing of papers. (a) Filing. Any papers required to be filed, excluding documents produced in response to a discovery request pursuant to §§ 109.25 and 109.26 of this subpart, shall be filed with the OFIA, except as otherwise provided. (b) Manner of filing. Unless otherwise specified by the Comptroller 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 Comptroller 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 § 109.7 of this subpart. (3) Caption. All papers filed must include at the head thereof, or on a title page, the name of the OCC and of the 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 Comptroller, 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. § 109.11 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: E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (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 § 109.10(c) of this subpart as to form. (c) By the Comptroller or the administrative law judge. (1) All papers required to be served by the Comptroller 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 § 109.6 of this subpart, the Comptroller 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. (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. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (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. § 109.12 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: (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 Comptroller 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 PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 48961 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 Comptroller or the administrative law judge in the case of filing, or by agreement among the parties in the case of service. § 109.13 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 Comptroller pursuant to § 109.38 of this subpart, the Comptroller may grant extensions of the time limits for good cause shown. Extensions may be granted at the motion of a party or on the Comptroller’s or the administrative law judge’s own motion after notice and opportunity to respond is afforded all non-moving parties. § 109.14 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 tendered in advance by the party requesting the subpoena, except that fees and mileage need not be tendered in advance where the OCC is the party requesting the subpoena. The OCC shall not be required to pay any fees to, or expenses of, any witness not subpoenaed by the OCC. § 109.15 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 OCC 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 E:\FR\FM\09AUR2.SGM 09AUR2 48962 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations § 109.19 admissible as evidence in any proceeding. § 109.16 OCC’s right to conduct examination. Nothing contained in this subpart limits in any manner the right of the OCC to conduct any examination, inspection, or visitation of any institution or institution-affiliated party, or the right of the OCC to conduct or continue any form of investigation authorized by law. § 109.17 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. sroberts on DSK5SPTVN1PROD with RULES § 109.18 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 Comptroller. (ii) The notice must be served by the Comptroller upon the respondent and given to any other appropriate financial institution supervisory authority where required by law. (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 Comptroller. (b) Contents of notice. The notice must set forth: (1) The legal authority for the proceeding and for the OCC’s jurisdiction over the proceeding; (2) A statement of the matters of fact or law showing that the OCC 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. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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 administrative law judge shall file with the Comptroller a recommended decision containing the findings and the relief sought in the notice. Any final order issued by the Comptroller 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. § 109.20 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 Comptroller or administrative PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 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. § 109.21 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 Comptroller a recommended decision containing the findings and the relief sought in the notice. § 109.22 actions. Consolidation and severance of (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: E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (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. § 109.23 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 Comptroller. (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 Comptroller, any 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 §§ 109.29 and 109.30 of this subpart. sroberts on DSK5SPTVN1PROD with RULES § 109.24 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, VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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 § 109.102 of this part. (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 § 109.25 of this subpart. (c) Privileged matter. Privileged documents are not discoverable. Privileges include the attorney-client privilege, work-product privilege, any 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. § 109.25 Request for document discovery from parties. (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 PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 48963 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 12 CFR 4.17 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. (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 § 109.23 of this subpart 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 § 109.23 of this subpart 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, E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 48964 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 § 109.23 of this subpart 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 otherwise ordered by the administrative law judge. Notwithstanding any other provision in this part, 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 administrative law judge against a party who fails to produce subpoenaed documents. § 109.26 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 § 109.24(d) of this subpart. 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 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 § 109.25(d) of this subpart, 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 PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 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. § 109.27 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 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 E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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. (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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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. § 109.28 Interlocutory review. (a) General rule. The Comptroller may review a ruling of the administrative law judge prior to the certification of the record to the Comptroller only in accordance with the procedures set forth in this section and § 109.23 of this subpart. (b) Scope of review. The Comptroller may exercise interlocutory review of a ruling of the administrative law judge if the Comptroller 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 within ten days of his or her ruling and shall otherwise comply with § 109.23 of this subpart. Any party may file a response to a request for interlocutory review in accordance with § 109.23(d) of this subpart. Upon the expiration of the time for filing all responses, the administrative law judge shall refer the matter to the Comptroller for final disposition. (d) Suspension of proceeding. Neither a request for interlocutory review nor any disposition of such a request by the Comptroller under this section suspends or stays the proceeding unless otherwise ordered by the administrative law judge or the Comptroller. § 109.29 Summary disposition. (a) In general. The administrative law judge shall recommend that the Comptroller 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 PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 48965 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 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 Comptroller. If the administrative law judge finds that no party is entitled to summary disposition, he or she shall make a ruling denying the motion. § 109.30 Partial summary disposition. If the administrative law judge determines that a party is entitled to E:\FR\FM\09AUR2.SGM 09AUR2 48966 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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. § 109.31 Scheduling and prehearing conferences. sroberts on DSK5SPTVN1PROD with RULES 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. § 109.32 (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 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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. § 109.33 Public hearings. (a) General rule. All hearings shall be open to the public, unless the Comptroller, in the Comptroller’s discretion, determines that holding an open hearing would be contrary to the public interest. Within 20 days of 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 Comptroller 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 Comptroller. The form of, and procedure for, these requests and replies are governed by § 109.23 of this subpart. 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 PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 confidentiality of such documents or parts thereof, including closing portions of the hearing to the public. § 109.34 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 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. E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (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 § 109.26(c) of this subpart. sroberts on DSK5SPTVN1PROD with RULES § 109.35 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 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 the administrative law judge’s own motion. § 109.36 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 APA 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 be 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 Comptroller 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 examination, supervisory activity, inspection or visitation, prepared by the appropriate Federal banking agency, as defined in section 3(q) of the FDIA (12 U.S.C. 1813(q)), 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 PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 48967 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 Comptroller. (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. § 109.37 Post-hearing filings. (a) Proposed findings and conclusions and supporting briefs. (1) Using the 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 E:\FR\FM\09AUR2.SGM 09AUR2 48968 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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. sroberts on DSK5SPTVN1PROD with RULES § 109.38 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 § 109.37(b) of this subpart, the administrative law judge shall file with and certify to the Comptroller, 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 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 Comptroller for final determination the record of the proceeding, the administrative law judge shall furnish to the Comptroller 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 completion of the hearing; and each exhibit introduced but not admitted into evidence after the completion of the hearing. § 109.39 Exceptions to recommended decision. (a) Filing exceptions. Within 30 days after service of the recommended decision, findings, conclusions, and proposed order under § 109.38 of this subpart, a party may file with the Comptroller 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 Comptroller 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 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. § 109.40 Review by the Comptroller. (a) Notice of submission to the Comptroller. When the Comptroller determines that the record in the proceeding is complete, the Comptroller shall serve notice upon the parties that the proceeding has been submitted to the Comptroller for final decision. (b) Oral argument before the Comptroller. Upon the initiative of the Comptroller or on the written request of any party filed with the Comptroller within the time for filing exceptions, the Comptroller may order and hear oral argument on the recommended findings, conclusions, decision, and order of the PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 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 Comptroller’s final decision. Oral argument before the Comptroller must be on the record. (c) Comptroller’s final decision. (1) Decisional employees may advise and assist the Comptroller in the consideration and disposition of the case. The final decision of the Comptroller will be based upon review of the entire record of the proceeding, except that the Comptroller 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 Comptroller 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 Comptroller 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 Comptroller shall be served upon each party to the proceeding, upon other persons required by statute, and, if directed by the Comptroller or required by statute, upon any appropriate state or Federal supervisory authority. § 109.41 Stays pending judicial review. The commencement of proceedings for judicial review of a final decision and order of the OCC may not, unless specifically ordered by the Comptroller or a reviewing court, operate as a stay of any order issued by the Comptroller. The Comptroller 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. Subpart B—Local Rules § 109.100 Scope. The rules and procedures in this subpart B shall apply to those proceedings covered by subpart A of this part. In addition, subpart A of this part and this subpart 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 savings association or any other company; and E:\FR\FM\09AUR2.SGM 09AUR2 48969 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (b) [Reserved] (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 Federal savings association or person subject to the jurisdiction of the OCC pursuant to section 12(i) of the Exchange Act (15 U.S.C. 78 l (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. § 109.101 Appointment of Office of Financial Institution Adjudication. Unless otherwise directed by the OCC, all hearings under subpart A of this part and this subpart shall be conducted by administrative law judges under the direction of the Office of Financial Institution Adjudication. sroberts on DSK5SPTVN1PROD with RULES § 109.102 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 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 § 109.11(d) of this part. The party serving the subpoena must file proof of service with the administrative law judge. (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 § 109.27(d) of this part. § 109.103 Civil money penalties. (a) Assessment. In the event of consent, or if upon the record developed at the hearing the OCC finds that any of the grounds specified in the notice issued pursuant to § 109.18 of this part have been established, the OCC 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 OCC or by a reviewing court. (b) Payment. (1) Civil penalties assessed pursuant to subpart A of this part and this subpart B are payable and to be collected within 60 days after the issuance of the notice of assessment, unless the OCC 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 OCC 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 OCC fixes a different time for payment. Notwithstanding the foregoing, the OCC 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) Checks in payment of civil penalties shall be made payable to the Treasurer of the United States and sent to the OCC. Upon receipt, the OCC shall forward the check to the Treasury of the United States. (c) Inflation adjustment. Under the Federal Civil Monetary Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note), the OCC must adjust for inflation the civil money penalties in 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: New maximum amount U.S. Code citation CMP description 12 U.S.C. 1464(v)(4) ............................... 12 U.S.C. 1464(v)(5) ............................... Reports of Condition—1st Tier .................................................................................. Reports of Condition—2nd Tier ................................................................................. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 E:\FR\FM\09AUR2.SGM 09AUR2 $2,200 32,500 48970 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations U.S. Code citation 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. 1 Per 2 Per 1464(v)(6) ............................... 1467(d) ................................... 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—3rd Tier ................................................................................. Refusal to Cooperate in Exam .................................................................................. 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 ......................................................................................................... 1,375,000 7,500 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. § 109.104 sroberts on DSK5SPTVN1PROD with RULES 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 § 109.39 of this part 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 OCC Hearing Clerk who receives adjudicatory filings; provided, however, that once the administrative law judge has certified the record to the Comptroller pursuant to § 109.38 of this part, all motions must be filed with the Comptroller to the attention of the Hearing Clerk 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 Comptroller, other than motions for oral argument before the Comptroller, shall be allowed pursuant to the procedures at § 109.23(d) of this part. No response is required for the Comptroller to make a determination on a motion for oral argument. (c) Authority of administrative law judge. In addition to the powers listed in § 109.5 of this part, 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 § 109.29 of this part and partial summary disposition at § 109.30 of this part in making determinations on such motions. (d) Notification of submission of proceeding to the Comptroller. Upon the expiration of the time for filing any VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 exceptions, any replies to such exceptions or any motions and any ruling thereon, and after receipt of certified record, the OCC shall notify the parties within ten days of the submission of the proceeding to the Comptroller for final determination. (e) Extensions of time for final determination. The Comptroller 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 OCC. Service of any document upon the OCC shall be made by filing with the Hearing Clerk, in addition to the individuals and/or offices designated by the OCC in its Notice issued pursuant to § 109.18 of this part, or such other means reasonably suited to provide notice of the person and/or offices designated to receive filings. (g) Filings with the Comptroller. An additional copy of all materials required or permitted to be filed with or referred to the administrative law judge pursuant to subpart A and B of this part shall be filed with the Hearing Clerk. This rule shall not apply to the transcript of testimony and exhibits adduced at the hearing or to proposed exhibits submitted in advance of the hearing pursuant to an order of the administrative law judge under § 109.32 of this part. Materials required or permitted to be filed with or referred to the Comptroller pursuant to subparts A and B of this part shall be filed with the Comptroller, to the attention of the Hearing Clerk. (h) Presence of cameras and other recording devices. The use of cameras and other recording devices, other than PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 those used by the court reporter, shall be prohibited and excluded from the proceedings. Subpart C [Reserved] Subpart D [Reserved] PART 112—RULES FOR INVESTIGATIVE PROCEEDINGS AND FORMAL EXAMINATION PROCEEDINGS Sec. 112.1 112.2 112.3 112.4 112.5 112.6 112.7 Scope of part. Definitions. Confidentiality of proceedings. Transcripts. Rights of witnesses. Obstruction of the proceedings. Subpoenas. Authority: 12 U.S.C. 1462a, 1463, 1464, 1467, 1467a, 1813, 1817(j), 1818(n), 1820(c), 5412(b)(2)(B); 15 U.S.C. 78l. § 112.1 Scope of part. This part prescribes rules of practice and procedure applicable to the conduct of formal examination proceedings with respect to Federal savings associations and their affiliates under section 5(d)(1)(B) of the HOLA, as amended, 12 U.S.C. 1464(d)(1)(B) or 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 part does not apply to adjudicatory proceedings as to which hearings are required by statute, the rules for which are contained in part 109 of this chapter. § 112.2 Definitions. As used in this part: (a) OCC means the Office of the Comptroller of the Currency; E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (b) [Reserved] (c) 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 savings associations and their affiliates conducted pursuant to section 5(d)(1)(B) of the HOLA, section 7(j)(15) of the FDIA, section 8(n) of the FDIA or section 10(c) of the FDIA; and (d) Designated representative means the person or persons empowered by the OCC to conduct an investigative proceeding or a formal examination proceeding. § 112.3 Confidentiality of proceedings. All formal examination proceedings shall be private and, unless otherwise ordered by the OCC, all investigative proceedings shall also be private. Unless otherwise ordered or permitted by the OCC, or required by law, and except as provided in §§ 112.4 and 112.5, the entire record of any investigative proceeding or formal examination proceeding, including the resolution of the OCC or its delegate(s) authorizing 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. sroberts on DSK5SPTVN1PROD with RULES § 112.4 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 OCC’s Director for Enforcement and Compliance stating the reason he desires to procure such transcript, and said persons may for good cause deny such request. In any event, any witness (or his counsel) shall have the right to inspect the transcript of the witness’ own testimony. § 112.5 Rights of witnesses. (a) Any person who is compelled or requested to furnish documentary evidence or give testimony at an investigative proceeding or formal VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 examination proceeding shall have the right to examine, upon request, the OCC resolution authorizing such proceeding. Copies of such resolution shall be furnished, for their retention, to such persons only with the written approval of the OCC. (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 OCC in accordance with the provisions of part 19 of this chapter 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 OCC, for good cause, may exclude a particular attorney from further participation in any investigation in which the OCC has found the attorney to have engaged in dilatory, obstructionist, egregious, contemptuous or contumacious conduct. The person conducting an investigation may report to the OCC instances of apparently dilatory, obstructionist, egregious, contemptuous or contumacious conduct on the part of an attorney. After due notice to the attorney, the OCC may take such action as the circumstances warrant based upon a written record evidencing the conduct of the attorney in that PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 48971 investigation or such other or additional written or oral presentation as the OCC may permit or direct. § 112.6 Obstruction of the proceedings. The designated representative shall report to the Comptroller 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 OCC may take such action as the circumstances warrant, including the exclusion of counsel from further participation in such proceeding. § 112.7 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 Deputy Chief Counsel or his designee to quash or modify such subpoena, accompanying such application with a statement of the reasons therefor. The Deputy Chief 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 Deputy E:\FR\FM\09AUR2.SGM 09AUR2 48972 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations Chief 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 OCC by any of its designated representatives. PART 116—APPLICATION PROCESSING PROCEDURES Sec. 116.1 What does this part do? 116.5 Do the same procedures apply to all applications under this part? 116.10 How does the OCC compute time periods under this part? Subpart A—Pre-Filing and Filing Procedures Pre-Filing Procedures 116.15 Must I meet with the OCC before I file my application? 116.20 What information must I include in my draft business plan? Filing Procedures 116.25 What type of application must I file? 116.30 What information must I provide with my application? 116.35 May I keep portions of my application confidential? 116.40 Where do I file my application? 116.45 What is the filing date of my application? 116.47 How do I amend or supplement my application? Subpart B—Publication Requirements 116.50 Who must publish a public notice of an application? 116.55 What information must I include in my public notice? 116.60 When must I publish the public notice? 116.70 Where must I publish the public notice? 116.80 What language must I use in my publication? Subpart C—Comment Procedures 116.100 What does this subpart do? 116.110 Who may submit a written comment? 116.120 What information should a comment include? 116.130 Where are comments filed? 116.140 How long is the comment period? Subpart D—Meeting Procedures 116.160 What does this subpart do? 116.170 When will the OCC conduct a meeting on an application? 116.180 What procedures govern the conduct of the meeting? 116.185 Will the OCC approve or disapprove an application at a meeting? 116.190 Will a meeting affect application processing time frames? Subpart E—OCC Review Expedited Treatment 116.200 If I file a notice under expedited treatment, when may I engage in the proposed activities? Standard Treatment 116.210 What will the OCC do after I file my application? 116.220 If the OCC requests additional information to complete my application, how will it process my application? 116.230 Will the OCC conduct an eligibility examination? 116.240 What may the OCC require me to do after my application is deemed complete? 116.250 Will the OCC require me to publish a new public notice? 116.260 May the OCC suspend processing of my application? 116.270 How long is the OCC review period? 116.280 How will I know if my application has been approved? 116.290 What will happen if the OCC does not approve or disapprove my application within two calendar years after the filing date? Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462a, 1463, 1464, 2901 et seq., 5412(b)(2)(B). § 116.1 What does this part do? (a) This part explains OCC procedures for processing applications, notices, or filings (applications) for Federal savings associations. Except as provided in paragraph (b) of this section, subparts A and E of this part apply whenever an OCC regulation requires any person (you) to file an application pertaining to a Federal savings association with the OCC. Subparts B, C, and D, however, only apply when an OCC regulation incorporates the procedures in the subpart or where otherwise required by the OCC. (b) This part 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 OCC or OTS 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 part 108 or 109 of this chapter, 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 OCC regulation specifically requires an application under this part. (4) An application filed under an OCC regulation that prescribes other application processing procedures and time frames for the approval of applications. (c) If an OCC regulation for a specific type of application prescribes some application processing procedures, or time frames, the OCC will apply this part to the extent necessary to process the application. For example, if an OCC regulation for a specific type of application does not identify time periods for the processing of an application, the time periods in this part apply. § 116.5 Do the same procedures apply to all applications under this part? The OCC processes applications under this part using two procedures, expedited treatment and standard treatment. To determine which treatment applies, you may use the following chart: sroberts on DSK5SPTVN1PROD with RULES If . . . Then the OCC will process your application under . . . (a) The applicable regulation does not specifically state that expedited treatment is available ................................... (b) [Reserved] Standard treatment. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations Then the OCC will process your application under . . . If . . . (c) Your composite rating is 3, 4, or 5. The composite rating is the composite numeric rating that the OCC or the other Federal banking regulator assigned to you under the Uniform Financial Institutions Rating System 1 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 OCC 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, § 195.28 of this chapter. (e) Your compliance rating is 3, 4, or 5. The compliance rating is the numeric rating that the OCC or the other Federal banking regulator assigned to you under the OCC 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 part 167 of this chapter .......................................................... (g) The OCC or OTS has notified you that you are an association in troubled condition ............................................ (h) Neither the OCC 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 .......................................... 1A 48973 Standard treatment. Standard treatment. Standard treatment. Standard treatment. Standard treatment. Standard treatment. Expedited treatment. savings association may obtain a copy of its composite rating from the appropriate Federal banking agency. § 116.10 How does the OCC compute time periods under this part? In computing time periods under this part, the OCC 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. Subpart A—Pre-Filing and Filing Procedures you file an application, please consult the following chart: Pre-Filing Procedures § 116.15 Must I meet with the OCC before I file my application? (a) Chart. To determine whether you must attend a pre-filing meeting before Then . . . (1) An application for permission to organize a de novo Federal savings association. (2) An application to convert an existing insured depository institution (other than a state-chartered savings association or a state-chartered savings bank) or a credit union to a Federal savings association. (3) An application to acquire control of a Federal savings association ... sroberts on DSK5SPTVN1PROD with RULES If you file . . . You must meet with the OCC before filing your application. You must submit a draft business plan before this meeting. You must meet with the OCC before filing your application. The OCC may require you to submit a draft business plan or other relevant information before this meeting. The OCC may require you to meet with the OCC before filing your application and may require you to submit a draft business plan or other relevant information before this meeting. (b) Contacting the OCC. (1) You must contact the appropriate OCC licensing office a reasonable time before you file an application described in paragraph (a) of this section. Unless paragraph (a) already requires a pre-filing meeting or a draft business plan, the appropriate OCC licensing office will determine whether it will require a pre-filing meeting, and whether you must submit a business plan or other relevant information before the meeting. The appropriate OCC licensing office will also establish a schedule for any meeting and the submission of any information. (2) All other applicants are encouraged to contact the appropriate OCC licensing office to determine whether a pre-filing meeting or the submission of a draft business plan or other relevant information would expedite the application review process. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 § 116.20 What information must I include in my draft business plan? If you must submit a draft business plan under § 116.15, your plan must: (a) Clearly and completely describe the 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 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 § 163.555 of this chapter) of the 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 PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 (d) Demonstrate how applicable requirements regarding serving the credit and lending needs in the market areas served by the savings association will be met. Filing Procedures § 116.25 file? What type of application must I (a) Expedited treatment. If you are eligible for expedited treatment under § 116.5, you may file your application in the form of a notice that includes all information required by the applicable substantive regulation. If the OCC 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 § 116.5, you must file your application following all applicable substantive E:\FR\FM\09AUR2.SGM 09AUR2 48974 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations regulations and guidelines governing the filing of applications. If the OCC has a designated form for your application, you must file that form. (c) Waiver requests. If you want the OCC 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 OCC to evaluate your notice or application under applicable standards. § 116.30 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 any OCC office. You may also obtain forms and instructions on the OCC’s web page at www.occ.gov. (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. sroberts on DSK5SPTVN1PROD with RULES § 116.35 May I keep portions of my application confidential? (a) Confidentiality. The OCC makes submissions under this part 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 OCC to keep portions 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 4 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 OCC will not treat as confidential the portion of your application describing how you plan to meet your Community Reinvestment Act (CRA) objectives. The OCC will make information in your CRA plan, including any information incorporated VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 by reference from other parts of your application, available to the public upon request. (c) OCC determination on confidentiality. The OCC 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 54 of this chapter. The OCC will advise you before it makes information you designate as confidential available to the public. § 116.40 Where do I file my application? (a) OCC Office. (1) You must file the original application and the number of copies indicated on the applicable form to the attention of the Director for Licensing at the appropriate OCC licensing office listed in paragraph (a)(2) of this section or with the OCC licensing office at OCC headquarters. If the form does not indicate the number of copies you must file or if the OCC has not prescribed a form for your application, you must file the original application and two copies. (2) The addresses of appropriate OCC licensing offices and the states covered by each office are listed in 12 CFR 4.5. (b) Additional filings with OCC headquarters. (1) In addition to filing in the appropriate OCC licensing office, if your application involves a significant issue of law or policy or if an applicable regulation or form directs you to file with OCC headquarters, you must also file copies of your application at the OCC licensing office at headquarters. 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 the OCC has not prescribed a form for your application, you must file three copies. (2)(i) You may obtain a list of applications involving significant issues of law or policy at the OCC website at www.occ.gov or by contacting the OCC. (ii) The OCC reserves the right to identify significant issues of law or policy in a particular application. The OCC will advise you, in writing, if it makes this determination. § 116.45 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 OCC requires you to do so under § 116.15. (2) You file your application and all required copies with the OCC, as described under § 116.40. (i) If you are required to file with an OCC licensing office and with OCC PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 headquarters, you have not filed with the OCC until you file with both offices. (ii) You have not filed with an OCC licensing office or with OCC 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 an OCC licensing office or OCC headquarters, you have filed with that office on the next business day. (3) You pay the applicable fee. You have not paid the fee until you submit the fee to the appropriate OCC licensing office, or the OCC waives the fee. You may pay by check, money order, cashier’s check or wire transfer payable to the OCC. (b) The OCC 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 OCC licensing office, the OCC determines that a significant issue of law or policy exists under § 116.40(b)(2)(ii), the filing date of your application is the day you filed with the appropriate OCC licensing office. The 30-day review period under §§ 116.200 or 116.210 of this part will restart in its entirety when the OCC licensing office forwards the appropriate number of copies of your application to OCC headquarters. § 116.47 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 OCC office(s) along with the number of copies required under § 116.40. Your amendment or supplemental information also must meet the caption and exhibit requirements at § 116.30(b). Subpart B—Publication Requirements § 116.50 Who must publish a public notice of an application? This subpart applies whenever an OCC regulation requires an applicant (‘‘you’’) to follow the public notice procedures in this subpart. § 116.55 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 OCC licensing office(s). E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (e) The address of the appropriate OCC offices 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 with the OCC, and are available for public inspection during regular business hours. (h) Any other information that the OCC requires you to publish. § 116.60 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. § 116.70 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) An application for permission to organize under § 143.2 of this chapter, a Bank Merger Act application under § 163.22(a) of this chapter, an application to convert to a Federal charter under § 143.8 or § 152.18 of this chapter, or an application for a mutual to stock conversion under part 192 of this chapter * * *. (b) An application to establish a branch office under § 145.95 of this chapter * * *. (c) An application for the change of permanent location of a home or branch office under § 145.95 of this chapter * * *. (d) A change of control notice under part 174 of this chapter * * * The community in which your home office is located. § 116.80 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 OCC determines that the primary language of a significant number of adult residents of the community is a language other than English, the OCC may require that you simultaneously publish additional notice(s) in the community in the appropriate language(s). § 116.100 What does this subpart do? This subpart contains the procedures governing the submission of public comments on certain types of applications or notices (‘‘applications’’) pending before the OCC. It applies whenever a regulation incorporates the procedures in this subpart, or where otherwise required by the OCC. § 116.110 Who may submit a written comment? Any person may submit a written comment supporting or opposing an application. § 116.120 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: (1) Address at least one of the reasons why the OCC may deny the application under the relevant statute or regulation; VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 The community to be served by the branch office. The community in which the existing office is located and the community to be served by the new office. The community in which the home office of the 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 savings association is located. (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 § 116.170 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. § 116.130 Subpart C—Comment Procedures sroberts on DSK5SPTVN1PROD with RULES 48975 Where are comments filed? A commenter must file with the appropriate OCC licensing office (see § 116.40(a)(2)). The commenter must simultaneously send a copy of the comment to the applicant. § 116.140 period? 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 OCC within 30 calendar days after the date of publication of the initial public notice. (b) Late-filed comments. The OCC may consider late-filed comments if the OCC determines that the comment will assist in the disposition of the application. Subpart D—Meeting Procedures § 116.160 What does this subpart do? This subpart contains meeting procedures. It applies whenever a regulation incorporates the procedures in this subpart, or when otherwise required by the OCC. PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 § 116.170 When will the OCC conduct a meeting on an application? (a) The OCC 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 will benefit the decision-making process. The OCC may limit the issues considered at the meeting to issues that the OCC decides are relevant or material. (b) The OCC 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 OCC decides to conduct a meeting, the OCC will invite the applicant and any commenters requesting a meeting and raising an issue that the OCC intends to consider at the meeting. The OCC may also invite other interested persons to attend. The OCC will inform the participants of the date, time, location, issues to be considered, and format for the meeting a reasonable time before the meeting. § 116.180 What procedures govern the conduct of the meeting? (a) The OCC 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.), the OCC Rules of Practice and Procedure in Adjudicatory Proceedings (12 CFR parts 19 and part E:\FR\FM\09AUR2.SGM 09AUR2 48976 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 109) do not apply to meetings under this section. § 116.185 Will the OCC approve or disapprove an application at a meeting? The OCC will not approve or deny an application at a meeting under this subpart. § 116.190 Will a meeting affect application processing time frames? If the OCC 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 subpart E of this part. If the OCC suspends applicable application processing time frames, the time period will resume when the OCC determines that a record has been developed that sufficiently supports a determination on the issues considered at the meeting. Subpart E—OCC Review Expedited Treatment § 116.200 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 OCC, you may engage in the proposed activities upon the expiration of 30 days after the filing date of your notice, unless the OCC takes one of the following actions before the expiration of that time period: (a) The OCC 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 OCC takes one of the actions described in paragraphs (b) through (d) of this section before the expiration of that time period; (b) The OCC notifies you in writing that your notice is subject to standard treatment under this subpart. The OCC 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 OCC notifies you in writing that it is suspending the applicable time frames under § 116.190; or (d) The OCC notifies you that it disapproves your notice. Standard Treatment § 116.210 What will the OCC do after I file my application? (a) OCC action. Within 30 calendar days after the filing date of your application, the OCC will take one of the following actions: If the OCC . . . Then . . . (1) Notifies you, in writing, that your application is complete * * * The applicable review period will begin on the date that the OCC deems your application complete. You must submit the required additional information under § 116.220. (2) Notifies you, in writing, that you must submit additional 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 under § 116.25(b), and the OCC has not notified you that you must submit additional information under paragraph The OCC 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. (a)(2) of this section, your request for waiver is granted. § 116.220 If the OCC requests additional information to complete my application, how will it process my application? (a) You may use the following chart to determine the procedure that applies to your submission of additional information under § 116.210(a)(1): Then, the OCC may . . . And . . . (1) You file a response to all information requests * * *. sroberts on DSK5SPTVN1PROD with RULES If, within 30 calendar days after the date of the OCC’s request for additional information . . . (i) Notify you in writing within 15 days after the filing date of your 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 OCC deems your application complete. You must respond to the additional information request within the time period required by the OCC. The OCC will review your response under the procedures described in this section. (2) You request an extension of time to file additional information * * *. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (i) Grant an extension, in writing, specifying the number of days for the extension * * *. PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 The OCC 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 OCC. The OCC will review your response under the procedures described under this section. E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations If, within 30 calendar days after the date of the OCC’s request for additional information . . . 48977 And . . . (ii) Notify you in writing that your extension request is disapproved * * *. (3) You fail to respond completely * * * Then, the OCC may . . . The OCC will not process your application further. You may resubmit the application for processing as a new filing under the applicable regulation. The OCC 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 OCC. The OCC will review your response under the procedures described under this section. (i) Notify you in writing that your application is deemed withdrawn * * *. (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 OCC may extend the 15-day period referenced in paragraph (a)(1) of this section by up to 15 calendar days, if the OCC requires the additional time to review your response. The OCC 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 OCC fails to act on it within 15 calendar days after the filing of your response, unless the OCC extends the review period under paragraph (b). If the OCC extends the review period under paragraph (b), your request is granted if the OCC fails to act on it by the end of the extended review period. § 116.230 Will the OCC conduct an eligibility examination? sroberts on DSK5SPTVN1PROD with RULES (a) Eligibility examination. The OCC may notify you at any time before it deems your application complete that it will conduct an eligibility examination. If the OCC decides to conduct an eligibility examination, it will not deem your application complete until it concludes the examination. (b) Additional information. The OCC 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 OCC. The OCC will review your response under the procedures described in § 116.220. § 116.240 What may the OCC 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 OCC may require you to provide additional information if the information is necessary to resolve or VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 clarify the issues presented by your application. (b) The OCC 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 OCC 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 § 116.220; and (2) Require you to publish a new public notice of your application under § 116.250. § 116.250 Will the OCC require me to publish a new public notice? (a) If your application was subject to a publication requirement, the OCC may require you to publish a new public notice of your application if: (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 OCC determines that additional comment on these matters is appropriate because of the significance of the new information or circumstances. (b) The OCC 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 OCC after you publish the new public notice. § 116.260 May the OCC suspend processing of my application? (a) Suspension. The OCC may, at any time, indefinitely suspend processing of your application if: (1) The OCC, another governmental entity, or a self-regulatory trade or professional organization initiates an PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 investigation, examination, or administrative proceeding that is relevant to the OCC’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 OCC will promptly notify you, in writing, if it suspends your application. § 116.270 period? How long is the OCC review (a) General. The applicable OCC review period is 60 calendar days after the date that your application is deemed complete, unless an applicable OCC 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 OCC may extend the review period for up to 30 calendar days beyond the period described in paragraph (a) or (b) of this section. The OCC must notify you in writing of the extension and the duration of the extension. The OCC must issue the written extension before the end of the review period. (2) The OCC may also extend the review period as needed until it acts on the application, if the application presents a significant issue of law or policy that requires additional time to resolve. The OCC must notify you in writing of the extension and the general reasons for the extension. The OCC 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. This section applies to notices filed under § 174 of this chapter. E:\FR\FM\09AUR2.SGM 09AUR2 48978 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations § 116.290 What will happen if the OCC does not approve or disapprove my application within two calendar years after the filing date? If the OCC has not approved or denied your pending application within two calendar years after the filing date under § 116.45, the OCC will notify you, in writing, that your application is deemed withdrawn unless the OCC determines that you are actively pursuing a final OCC determination on your application. You are not actively pursuing a final OCC determination if you have failed to timely take an action required under this part, including filing required additional information, or the OCC has suspended processing of your application under § 116.260 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. PART 128—NONDISCRIMINATION REQUIREMENTS Sec. 128.1 Definitions. 128.2 Nondiscrimination in lending and other services. 128.3 Nondiscrimination in applications. 128.4 Nondiscriminatory advertising. 128.5 Equal Housing Lender Poster. 128.6 Loan application register. 128.7 Nondiscrimination in employment. 128.8 Complaints. 128.9 Guidelines relating to nondiscrimination in lending. 128.10 Supplementary guidelines. 128.11 Nondiscriminatory appraisal and underwriting. Authority: 12 U.S.C. 1464, 5412(b)(2)(B). sroberts on DSK5SPTVN1PROD with RULES § 128.1 Definitions. As used in this part 128— (a) 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). (b) Savings association. The term ‘‘savings association’’ means any Federal savings association as defined in 12 U.S.C. 1813(b)(2). (c) Dwelling. The term ‘‘dwelling’’ means a residential structure (whether VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 § 128.2 Nondiscrimination in lending and other services. (a) No 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 savings association shall consider without prejudice the combined income of joint applicants for a loan or other service. (c) No 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). Note to § 128.2: See also, § 128.9(b) and (c). § 128.3 Nondiscrimination in applications. (a) No 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 § 128.2(c) of this part, of the prospective borrower or other person, who: PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 (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 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. Note § 128.3: See also, § 128.9(a) through (d). § 128.4 Nondiscriminatory advertising. No 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 part 128. 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: § 128.5 Equal Housing Lender Poster. (a) Each 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: We Do Business In Accordance With Federal Fair Lending Laws. E:\FR\FM\09AUR2.SGM 09AUR2 ER09AU11.001</GPH> (a) OCC approval or denial. (1) The OCC will approve or deny your application before the expiration of the applicable review period, including any extensions of the review period. (2) The OCC will promptly notify you in writing of its decision to approve or deny your application. (b) No OCC action. If the OCC fails to act under paragraph (a)(1) of this section, your application is approved. or not it is attached to real property) located in a state of the United States of America, the District of Columbia, or the Commonwealth of Puerto Rico. The term includes an individual condominium unit, cooperative unit, or mobile or manufactured home. ER09AU11.000</GPH> § 116.280 How will I know if my application has been approved? Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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: [ll] 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 [ll] 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: [Insert contact information for appropriate Federal regulator] For processing under applicable 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; [ ] 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: [Insert contact information for appropriate Federal regulator] § 128.6 Loan application register. Savings associations and other lenders required to file Home Mortgage Disclosure Act Loan Application Registers with the OCC 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. sroberts on DSK5SPTVN1PROD with RULES § 128.7 Nondiscrimination in employment. (a) No 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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 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 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 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. (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 savings association shall be deemed to be a violation of this part 128: (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) 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 seq.; and (6) The Immigration and Nationality Act, 8 U.S.C. 1324b, and INS regulations at 8 CFR part 274a. PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 § 128.8 48979 Complaints. Complaints alleging violations of the Fair Housing Act by a 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 appropriate Federal regulator for processing under applicable regulations. Complaints regarding discrimination in employment by a savings association should be referred to the Equal Employment Opportunity Commission, Washington, DC 20506 and a copy, for information only, sent to the appropriate Federal regulator. § 128.9 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 laws and the economical home financing purposes of the statutes administered by the OCC, the OCC has adopted, in part 128 of this chapter, 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 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 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 E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 48980 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 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 favored method of loan underwriting 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 income from bonuses, overtime, or parttime 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 lowand 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 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; (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 128.2, 128.11, and 128.3 of this chapter 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 PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 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). 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 parts 100 through 125, except that they shall use the Equal Housing Lender logo and poster prescribed by OCC regulations at 12 CFR 128.4 and 128.5 rather than the Equal Housing Opportunity logo and poster required by 24 CFR part 110. (d) Marketing practices. 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 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 OCC will systematically review marketing practices where evidence of discrimination in lending is discovered. § 128.10 Supplementary guidelines. The policy statement found at 12 CFR 128.9 supplements this part and should be read together with this part. Refer E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations also to the HUD Fair Housing regulations at 24 CFR parts 100 through 125, Federal Reserve Regulation B at 12 CFR part 202, and Federal Reserve Regulation C at 12 CFR part 203. § 128.11 Nondiscriminatory appraisal and underwriting. (a) Appraisal. No savings association may use or rely upon an appraisal of a dwelling which the 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. (b) Underwriting. Each 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. Note to § 128.11: See also, § 128.9(b), (c)(6), and (c)(7). PART 133—DISCLOSURE AND REPORTING OF CRA-RELATED AGREEMENTS Sec. 133.1 Purpose and scope of this part. 133.2 Definition of covered agreement. 133.3 CRA communications. 133.4 Fulfillment of the CRA. 133.5 Related agreements considered a single agreement. 133.6 Disclosure of covered agreements. 133.7 Annual reports. 133.8 Release of information under FOIA. 133.9 Compliance provisions. 133.10 [Reserved] 133.11 Other definitions and rules of construction used in this part. Authority: 12 U.S.C. 1462a, 1463, 1464, 1831y and 5412(b)(2)(B). sroberts on DSK5SPTVN1PROD with RULES § 133.1 Purpose and scope of this part. (a) General. This part 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 part. The provisions of this part apply to— VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (1) Federal savings associations and their subsidiaries; (2) [Reserved] (3) Affiliates of Federal savings associations; and (4) NGEPs that enter into covered agreements with any company listed in paragraphs (b)(1) and (b)(2) of this section. (c) Relation to Community Reinvestment Act. This part does not affect in any way the Community Reinvestment Act of 1977 (CRA) (12 U.S.C. 2901 et seq.), the OCC’s Community Reinvestment rule at 12 CFR part 195, or the OCC’s interpretations or administration of the CRA or Community Reinvestment rule. (d) Examples. (1) The examples in this part are not exclusive. Compliance with an example, to the extent applicable, constitutes compliance with this part. (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 part. § 133.2 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 § 133.4 of this part. (5) The agreement is with a NGEP that has had a CRA communication as described in § 133.3 of this part 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 that the institution needs to make more community development investments in the NGEP’s community. The NGEP and insured depository institution do not PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 48981 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 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. E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 48982 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (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 made at rates that are not substantially below market rates and the loan documentation does not indicate that VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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. § 133.3 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 depository institution, or any CRA affiliate. (b) Discussions or contacts that are not CRA communications—(1) Timing PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 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). (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 (b)(3)(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. (iii) Other communications. An insured depository institution or affiliate is deemed to have knowledge of— E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (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 (b)(2) of this section and the appropriate representatives have knowledge of the communication as specified in paragraphs (b)(3) and (b)(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 moderateincome neighborhoods in its community. (iv) Example 4. A bank holding company files an application with a Federal banking agency to acquire an VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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 § 133.11(a) of this part.) 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 or affiliate whether particular loans, services, investments, community development activities, or other activities are generally eligible for consideration by a Federal banking PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 48983 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 §§ 133.6 and 133.7 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. § 133.4 Fulfillment of the CRA. (a) List of factors that are in fulfillment of the CRA. Fulfillment of the CRA, for purposes of this part, means the following list of factors— (1) Comments to a Federal banking agency or included in CRA public file. 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 E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 48984 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 § 195.22 of this chapter, 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 § 195.23 of this chapter; (iii) Delivering retail banking services, as described in § 195.24(d) of this chapter; (iv) Providing community development services, as described in § 195.24(e) of this chapter; (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 § 195.25(c) of this chapter; (vi) In the case of a small insured depository institution, any lending or other activity described in § 195.26(a) of this chapter; 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 § 195.27(f) of this chapter. (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. § 133.5 Related agreements considered a single agreement. The following rules must be applied in determining whether an agreement is VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 a covered agreement under § 133.2 of this part. (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. § 133.6 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; (iv) The term of the agreement (if the agreement establishes a term); and (v) Any other information that the relevant supervisory agency determines PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 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 subpart B of part 4 of this chapter). (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 § 195.43 of this chapter. (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 agreements to the relevant supervisory agency—(1) In general. Within 60 days of the end of each calendar quarter, each E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 § 133.7 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 (e)(1)(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 PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 48985 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 E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 48986 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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, VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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 (e)(1)(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 PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 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 (e)(1)(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. § 133.8 Release of information under FOIA. The OCC 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.), subpart B of part 4 of this chapter. 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. § 133.9 Compliance provisions. (a) Willful failure to comply with disclosure and reporting obligations. (1) E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations sroberts on DSK5SPTVN1PROD with RULES If the OCC determines that a NGEP has willfully failed to comply in a material way with §§ 133.6 or 133.7 of this part, the OCC will notify the NGEP in writing of that determination and provide the NGEP a period of 90 days (or such longer period as the OCC finds to be reasonable under the circumstances) to comply. (2) If the NGEP does not comply within the time period established by the OCC, 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) The OCC 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, the OCC 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, the OCC will provide written notice and an opportunity to present information to the OCC 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 the OCC under §§ 133.6 or 133.7 of this part will not subject the reporting party to any penalty. (e) Enforcement of provisions in covered agreements. No provision of this part shall be construed as authorizing the OCC to enforce the provisions of any covered agreement. § 133.10 [Reserved] § 133.11 Other definitions and rules of construction used in this part. (a) Affiliate. Affiliate means— (1) Any company that controls, is controlled by, or is under common control with another company; and VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (2) For the purpose of determining whether an agreement is a covered agreement under § 133.2, 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 § 133.3 of this part. (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 § 195.43 of this chapter. (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 part, the term 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 PO 00000 Frm 00039 Fmt 4701 Sfmt 4700 48987 NGEP is any partnership, association, 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), (i)(2)(ii), or (i)(2)(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. PART 136—CONSUMER PROTECTION IN SALES OF INSURANCE Sec. 136.10 136.20 E:\FR\FM\09AUR2.SGM Purpose and scope. Definitions. 09AUR2 48988 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 136.30 Prohibited practices. 136.40 What you must disclose. 136.50 Where insurance activities may take place. 136.60 Qualification and licensing requirements for insurance sales personnel. Appendix A to Part 136—Consumer Grievance Process Authority: 12 U.S.C. 1462a, 1463, 1464, 1831x, and 5412(b)(2)(B). § 136.10 Purpose and scope. (a) General rule. This part establishes consumer protections in connection with retail sales practices, solicitations, advertising, or offers of any insurance product or annuity to a consumer by: (1) Any Federal savings association; or (2) Any other person that is engaged in such activities at an office of a Federal savings association or on behalf of a Federal savings association. (b) Application to operating subsidiaries. For purposes of § 159.3(h) of this chapter, an operating subsidiary is subject to this part only to the extent that it sells, solicits, advertises, or offers insurance products or annuities at an office of a Federal savings association or on behalf of a Federal savings association. sroberts on DSK5SPTVN1PROD with RULES § 136.20 Definitions. As used in this part: 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 Federal Deposit Insurance Act (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: VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (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 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 Federal savings association where retail deposits are accepted from the public. Subsidiary has the same meaning as in section 3(w)(4) of the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(4)). You means: (1) A Federal savings association, as defined in § 141.11 of this chapter; 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 Federal savings association, or on behalf of a Federal savings association. For purposes of this definition, activities on behalf of a Federal savings association include activities where a person, whether at an office of the 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 savings association; (ii) The savings association refers a consumer to a seller of insurance products and annuities and the 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 savings association. § 136.30 Prohibited practices. (a) Anticoercion and antitying rules. You may not engage in any practice that would lead a consumer to believe that PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 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 Federal 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 Federal savings association or a subsidiary of a Federal 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 Federal savings association sell or offer for sale is not backed by the Federal government or a Federal 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 Federal savings association or subsidiary of a Federal 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 savings association or subsidiary may not be conditioned on the purchase of an insurance product or annuity by the consumer from the savings association or a subsidiary of a 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. E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations sroberts on DSK5SPTVN1PROD with RULES § 136.40 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 Federal savings association or an affiliate of a Federal 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 Federal savings association, or (if applicable) an affiliate of a Federal 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 Federal savings association may not condition an extension of credit on either: (1) The consumer’s purchase of an insurance product or annuity from the 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, VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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 (15 U.S.C. 7001(c)), you may provide the written disclosures required by 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 FEDERAL 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 PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 48989 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 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 Federal savings association. § 136.50 Where insurance activities may take place. (a) General rule. A Federal savings association must, to the extent practicable: (1) Keep the area where the 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 E:\FR\FM\09AUR2.SGM 09AUR2 48990 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (3) Clearly delineate and distinguish those areas from the areas where the savings association’s retail deposittaking activities occur. (b) Referrals. Any person who accepts deposits from the public in an area where such transactions are routinely conducted in a Federal 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 one-time, nominal fee of a fixed dollar amount for each referral that does not depend on whether the referral results in a transaction. § 136.60 Qualification and licensing requirements for insurance sales personnel. A Federal savings association may not permit any person to sell or offer for sale any insurance product or annuity in any part of the 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 Part 136—Consumer Grievance Process Any consumer who believes that any Federal savings association or any other person selling, soliciting, advertising, or offering insurance products or annuities to the consumer at an office of the savings association or on behalf of the savings association has violated the requirements of this part should contact the Customer Assistance Group, Office of the Comptroller of the Currency, (800) 613–6743, 1301 McKinney Street, Suite 3710, Houston, Texas 77010–3031. sroberts on DSK5SPTVN1PROD with RULES PART 141—DEFINITIONS FOR REGULATIONS AFFECTING FEDERAL SAVINGS ASSOCIATIONS Sec. 141.1 When do the definitions in this part apply? 141.2 Act. 141.5 Commercial paper. 141.7 Corporate debt security. 141.8 Debit card. 141.10 Dwelling unit. 141.11 Federal savings association. 141.14 Home. 141.15 Improved nonresidential real estate. 141.16 Improved residential real estate. 141.18 Interim Federal savings association. 141.19 Interim state savings association. 141.20 Loans. 141.21 Nonresidential real estate. 141.22 [Reserved] 141.23 Residential real estate. 141.25 Single-family dwelling. 141.26 Surplus. 141.27 Unimproved real estate. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 141.28 Withdrawal value of a savings account. § 141.15 estate. Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B). The term improved nonresidential real estate means nonresidential real estate: (a) Containing a permanent structure(s) constituting at least 25 percent of its value; or (b) Containing improvements which make it usable by a business or industrial enterprise; or (c) Used, or to be used within a reasonable time, for commercial farming, excluding hobby and vacation property. § 141.1 apply? When do the definitions in this part The definitions in this part and in 12 CFR part 161 apply throughout parts 100 through 199 of this chapter, unless another definition is specifically provided. § 141.2 Act. The term Act means the Home Owners’ Loan Act of 1933, as amended. § 141.5 Commercial paper. The term commercial paper means any note, draft, or bill of exchange which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited. § 141.7 Corporate debt security. The term corporate debt security means a marketable obligation, evidencing the indebtedness of any corporation in the form of a bond, note and/or debenture which is commonly regarded as a debt security and is not predominantly speculative in nature. A security is marketable if it may be sold with reasonable promptness at a price which corresponds reasonably to its fair value. § 141.8 Dwelling unit. The term dwelling unit means the unified combination of rooms designed for residential use by one family, other than a single-family dwelling. § 141.11 Federal savings association. The term Federal savings association means a Federal savings association or Federal savings bank chartered under section 5 of the Act. § 141.14 The term home means real estate comprising a single-family dwelling(s) or a dwelling unit(s) for four or fewer families in the aggregate. PO 00000 Frm 00042 Fmt 4701 § 141.18 Interim Federal savings association. The term interim Federal savings association means a Federal savings association chartered by the OCC or the OTS under section 5 of the Act to facilitate the acquisition of 100 percent of the voting shares of an existing Federal stock savings association or other insured stock savings association by a newly formed company or an existing savings and loan holding company or to facilitate any other transaction the OCC may approve. Sfmt 4700 Interim state savings association. The term interim state savings association means a savings association, other than a Federal savings association, the accounts of which are insured by the FDIC to facilitate the acquisition of 100 percent of the voting shares of an existing Federal stock savings association or other insured stock savings association by a newly formed company or an existing savings and loan holding company or to facilitate any other transaction the OCC may approve. § 141.20 Loans. The term loans means obligations and extensions or advances of credit; and any reference to a loan or investment includes an interest in such a loan or investment. § 141.21 Home. Improved residential real estate. The term improved residential real estate means residential real estate containing offsite or other improvements sufficient to make the property ready for primarily residential construction, and real estate in the process of being improved by a building or buildings to be constructed or in the process of construction for primarily residential use. § 141.19 Debit card. The term debit card means a card that enables an accountholder to obtain access to a savings account for the purpose of making withdrawals or of transferring funds to a third party by non-transferable order or authorization. § 141.10 § 141.16 Improved nonresidential real Nonresidential real estate. The terms nonresidential real estate or nonresidential real property mean real estate that is not residential real estate, as that term is defined in § 141.23 of this part. E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations § 141.22 [Reserved] § 141.23 Residential real estate. The terms residential real estate or residential real property mean: (a) Homes (including a dwelling unit in a multi-family residential property such as a condominium or a cooperative); (b) Combinations of homes and business property (i.e., a home used in part for business); (c) Other real estate used for primarily residential purposes other than a home (but which may include homes); (d) Combinations of such real estate and business property involving only minor business use (i.e., where no more than 20 percent of the total appraised value of the real estate is attributable to the business use); (e) Farm residences and combinations of farm residences and commercial farm real estate; (f) Property to be improved by the construction of such structures; or (g) Leasehold interests in the above real estate. § 141.25 Single-family dwelling. The term single-family dwelling means a structure designed for residential use by one family, or a unit so designed, whose owner owns, directly or through a non-profit cooperative housing organization, an undivided interest in the underling real estate, including property owned in common with others which contributes to the use and enjoyment of the structure or unit. § 141.26 Surplus. The term surplus means undistributed earnings held as unallocated reserves for general corporate use. § 141.27 Unimproved real estate. The term unimproved real estate means real estate that will be improved, as defined in § 141.15 or § 141.16 of this part. 143.3 ‘‘De novo’’ applications for a Federal savings association charter. 143.4 Issuance of charter. 143.5 Completion of organization. 143.6 Limitations on transaction of business. 143.7 Federal savings association created in connection with an association in default or in danger of default. Conversion 143.8 Conversion of depository institutions to Federal mutual charter. 143.9 Application for conversion to Federal mutual charter. 143.10 Organization after conversion. 143.11 Organization plan for governance during first years after issuance of Federal mutual savings bank charter. 143.12 Grandfathered authority. 143.14 Continuity of existence. Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et seq., 5412(b)(2)(B). § 143.1 Corporate title. (a) General. A Federal savings association shall not adopt a title that misrepresents the nature of the institution or the services it offers. (b) Title change. Prior to changing its corporate title, an association must file with the appropriate OCC licensing office a written notice indicating the intended change. The OCC shall provide to the association a timely written acknowledgment stating when the notice was received. If, within 30 days of receipt of notice, the OCC does not notify the association of its objection on the grounds set forth in paragraph (a) of this section, the association may change its title by amending its charter in accordance with § 144.2(b) or § 152.4 of this chapter and the amendment provisions of its charter, except that an association chartered as a Federal Savings and Loan Association may change its title to indicate that it is a Federal Savings Bank, and an association chartered as a Federal Savings Bank may change its title to indicate that it is a Federal Savings and Loan Association. Organization The term withdrawal value of a savings account means the amount invested in a savings account plus earnings credited thereto, less lawful deductions therefrom. sroberts on DSK5SPTVN1PROD with RULES § 141.28 Withdrawal value of a savings account. § 143.2 Application for permission to organize. PART 143—FEDERAL MUTUAL SAVINGS ASSOCIATIONS— INCORPORATION, ORGANIZATION, AND CONVERSION Sec. 143.1 Corporate title. Organization 143.2 Application for permission to organize. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (a) General. Recommendations by employees of the OCC regarding applications for permission to organize a Federal savings association are privileged, confidential, and subject to part 4, subpart C of this chapter. (b) [Reserved] (c) [Reserved] (d) Public notice and inspection. (1) The applicant must publish a public notice of the application to organize in accordance with the procedures specified in subpart B of part 116 of this chapter. PO 00000 Frm 00043 Fmt 4701 Sfmt 4700 48991 (2) Promptly after publication, the applicant(s) shall transmit copies of each notice and publisher’s affidavit of publication in the same manner as the original filing. (3) The OCC shall give notice of the application to the state official who supervises savings associations in the state in which the new association is to be located. (4) Any person may inspect the application and all related communications at the address specified in 12 CFR 4.14(c) during regular business hours, unless such information is exempt from public disclosure. (e) Submission of comments. Commenters may submit comments on the application in accordance with the procedures specified in subpart C of part 116 of this chapter. (f) Meetings. The OCC may arrange a meeting in accordance with the procedures in subpart D of part 116 of this chapter. (g) Approval. (1) Factors that will be considered are: (i) Whether the applicants are persons of good character and responsibility; (ii) Whether a necessity exists for such association in the community to be served; (iii) Whether there is a reasonable probability of the association’s usefulness and success; (iv) Whether the association can be established without undue injury to properly conducted existing local thrift and home financing institutions; (v) Whether the association will perform a role of providing credit for housing consistent with safe and sound operation of a Federal savings association; and (vi) Whether the factors set forth in § 143.3 are met, in the case of an application that would result in the formation of a de novo association, as defined in § 143.3(a). (2) Approvals of applications will be conditioned on the following: (i) Receipt by the OCC of written confirmation from the Federal Deposit Insurance Corporation that the accounts of the Federal savings association will be insured by the Federal Deposit Insurance Corporation; (ii) A minimum amount of capital to be paid into the association’s accounts prior to commencing business; (iii) The submission of a statement that— (A) The applicants have complied in all respects with the Act and these rules and regulations regarding organization of a Federal savings association; (B) The applicants have incurred no expense in forming the association E:\FR\FM\09AUR2.SGM 09AUR2 48992 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations which is chargeable to it, and no such expense will be incurred; (C) No funds have been collected on account of the association before the OCC’s approval; (D) An organization committee has been created (naming the committee and its officers); (E) The committee will organize the association and serve as temporary officers of the association until officers are elected by the association’s board of directors under § 143.5 of this part; and (F) No funds will be accepted for deposit by the association until organization has been completed; and (iv) The satisfaction of any other requirement the OCC may impose. (h) Alternative procedures for interim Federal savings associations. (1) Applications for permission to organize an interim Federal savings association are not subject to paragraphs (d), (e), (f) or (g)(2) of this section. (2) Approval of an application for permission to organize an interim Federal savings association shall be conditioned on approval by the OCC of an application to merge the interim Federal savings association and an existing insured stock association or on approval by the OCC of such other transaction which the interim was chartered to facilitate. In evaluating the application, the OCC will consider the purpose for which the association will be organized, the form of any proposed transactions involving the organizing association, the effect of the transactions on existing associations involved in the transactions, and the factors specified in § 143.2(g)(1) to the extent relevant. sroberts on DSK5SPTVN1PROD with RULES § 143.3 ‘‘De novo’’ applications for a Federal savings association charter. (a) Definitions. For purposes of this section, the term ‘‘de novo association’’ means any Federal savings association chartered by the OTS prior to July 21, 2011 or by the OCC, the business of which has not been conducted previously under any charter or conducted in the previous three years in substantially the same form as is proposed by the de novo association. A ‘‘de novo applicant’’ means any person or persons who apply to establish a de novo association. (b) Minimum initial capitalization. (1) A de novo association must have at least two million dollars in initial capital stock (stock institutions) or initial pledged savings or cash (mutual institutions), except as provided in paragraph (b)(2) of this section. The minimum initial capitalization is the amount of proceeds net of all incurred and anticipated securities issuance expenses, organization expenses, pre- VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 opening expenses, or any expenses paid (or funds advanced) by organizers that are to be reimbursed from the proceeds of a securities offering. In securities offerings for a de novo association, all securities of a particular class in the initial offering shall be sold at the same price. (2) On a case by case basis, the OCC may, for good cause, approve a de novo association that has less than two million dollars in initial capital or may require a de novo association to have more than two million dollars in initial capital. (c) Business and investment plans of de novo associations. (1) To assist the OCC in making the determinations required under section 5(e) of the Home Owners’ Loan Act, a de novo applicant shall submit a business plan describing, for the first three years of operation of the de novo association, the major areas of operation, including: (i) Lending, leasing and investment activity, including plans for meeting Qualified Thrift Lender requirements; (ii) Deposit, savings and borrowing activity; (iii) Interest-rate risk management; (iv) Internal controls and procedures; (v) Plans for meeting the credit needs of the proposed de novo association’s community (including low- and moderate-income neighborhoods); (vi) Projected statements of condition; (vii) Projected statements of operations; and (viii) Any other information requested by the OCC. (2) The business plan shall: (i) Provide for the continuation or succession of competent management subject to the approval of the OCC; (ii) Provide that any material change in, or deviation from, the business plan must receive the prior approval of the OCC; (iii) Demonstrate the de novo association’s ability to maintain required minimum regulatory capital under 12 CFR parts 165 and 167 for the duration of the plan. (d) Composition of the board of directors. (1) A majority of a de novo association’s board of directors must be representative of the state in which the savings association is located. The OCC generally will consider a director to be representative of the state if the director resides, works or maintains a place of business in the state in which the savings association is located. If the association is located in a Metropolitan Statistical Area (MSA), Primary Metropolitan Statistical Area (PMSA) or Consolidated Metropolitan Statistical Area (CMSA) that incorporates portions of more than one state, a director will PO 00000 Frm 00044 Fmt 4701 Sfmt 4700 be considered representative of the association’s state if he or she resides, works or maintains a place of business in the MSA, PMSA or CMSA in which the association is located. (2) The de novo association’s board of directors must be diversified and composed of individuals with varied business and professional experience. In addition, except in the case of a de novo association that is wholly-owned by a holding company, no more than onethird of a board of directors may be in closely related businesses. The background of each director must reflect a history of responsibility and personal integrity, and must show a level of competence and experience sufficient to demonstrate that such individual has the ability to direct the policies of the association in a safe and sound manner. Where a de novo association is owned by a holding company that does not have substantial independent economic substance, the board of directors of the holding company must satisfy the foregoing standards. (e) Management Officials. Proposed stockholders of ten percent or more of the stock of a de novo association will be considered management officials of the association for the purpose of the OCC’s evaluation of the character and qualifications of the management of the association. In connection with the OCC’s consideration of an application for permission to organize and subsequent to issuance of a Federal savings association charter to the association by the OCC, any individual or group of individuals acting in concert under 12 CFR part 174, who owns or proposes to acquire, directly or indirectly, ten percent or more of the stock of an association subject to this section, shall submit a Biographical and Financial Report, on forms prescribed by the OCC, to the appropriate OCC licensing office. (f) Supervisory transactions. This section does not apply to any application for a Federal savings association charter submitted in connection with a transfer or an acquisition of the business or accounts of a savings association if the OCC determines that such transfer or acquisition is instituted for supervisory purposes, or in connection with applications for Federal charters for interim de novo associations chartered for the purpose of facilitating mergers, holding company reorganizations, or similar transactions. § 143.4 Issuance of charter. Approval by the OCC of the organization of a Federal savings association or the conversion of an E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations insured association to Federal savings association form shall constitute issuance of a charter and shall be final, provided that the association complies with the procedures set out at § 144.2(a) of this chapter. The charter shall conform with the requirements of § 144.1 of this chapter, the permissible provisions of § 144.2, or other provisions specifically approved by the OCC. sroberts on DSK5SPTVN1PROD with RULES § 143.5 Completion of organization. (a)(1) Temporary officers. When the OCC approves an application for permission to organize a Federal savings association, the applicants shall constitute the organization committee and elect a chairperson, vicechairperson, and a secretary, who shall act as the temporary officers of the association until their successors are duly elected and qualified. The temporary officers may effect compliance with any conditions prescribed by the OCC. (2) Organization meeting. Promptly upon receipt of a charter, the temporary officers shall call a meeting of the association’s capital subscribers; notice of such meeting shall be mailed to each subscriber at least 5 days before the meeting day. Subscribers who have subscribed for a majority of the association’s capital, present in person or by proxy, shall constitute a quorum. At such meeting, directors of the association shall be elected according to the association’s charter and bylaws, and any other action permitted by such charter and bylaws may be taken; any such action shall be considered an acceptance by the association of such charter and of such bylaws, which shall be in the form provided in parts 144 and 152 of this chapter. (b) First meeting of directors. Upon election, the association’s board of directors shall hold a meeting to elect officers of the association as provided by its charter and bylaws and to take any other action necessary to permit operation of the association in accordance with law, the association’s charter and bylaws, and these rules and regulations. When such officers have been bonded under § 163.190 of this chapter, they shall immediately collect the sums due on subscriptions to the association’s capital. (c) Membership in Federal Home Loan Bank and insurance of accounts. When a Federal savings association’s charter is issued it must promptly qualify as a member of a Federal Home Loan Bank and meet all requirements necessary to obtain insurance of its accounts by the Federal Deposit Insurance Corporation. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (d) Failure to complete. Organization of a Federal savings association is completed when the organization meeting and the first meeting of its directors have been held, permanent officers have been bonded, the association holds the cash required to be paid on subscriptions to its capital, if required, Federal Home Loan Bank membership has been obtained and Federal Deposit Insurance Corporation insurance of accounts has been confirmed and any conditions imposed by the OTS prior to July 21, 2011 or by the OCC in connection with approval of the application have been met. If organization is not so completed within six months after issuance of a charter, or within such additional period granted for good cause, and in the case of an interim Federal savings association, if a merger, or other transaction facilitated by the existence of an interim association, has not been approved, the charter shall become void and all cash collected on subscriptions shall thereupon be returned. § 143.6 Limitations on transaction of business. No person may organize a Federal savings association, collect money from others for such purpose, or represent himself or herself as authorized to do so, and no Federal savings association shall transact any business prior to completion of its organization, except as provided in this part. § 143.7 Federal savings association created in connection with an association in default or in danger of default. The preceding sections of this part do not apply to a Federal savings association which is proposed by the Federal Deposit Insurance Corporation under section 11(c) of the Federal Deposit Insurance Act (12 U.S.C. 1821(c)) or section 21A of the Federal Home Loan Bank Act (12 U.S.C. 1441A), or is otherwise chartered by the OCC in connection with an association in default or in danger of default. Incorporation and organization of such associations are complete when the OCC so determines. Conversion § 143.8 Conversion of depository institutions to Federal mutual charter. (a) With the approval of the OCC, any depository institution, as defined in § 152.13 of this chapter, that is in mutual form, may convert into a Federal mutual savings association, provided that: (1) The depository institution, upon conversion, will have its deposits PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 48993 insured by the Federal Deposit Insurance Corporation; (2) The depository institution, in accomplishing the conversion, complies with all applicable state and Federal statutes and regulations, and OCC policies, and obtains all necessary regulatory and member approvals; and (3) The resulting Federal mutual association conforms, within the time prescribed by the OCC, to the requirements of section 5(c) of the Home Owners’ Loan Act. (b) Recommendations regarding applications for issuance of Federal charters are privileged, confidential and subject to part 4, subpart C of this chapter. § 143.9 Application for conversion to Federal mutual charter. (a)(1) Filing. Any depository institution that proposes to convert to a Federal mutual association as provided in § 143.8 must, after approval by its board of directors, file an application on forms obtained from the OCC with the appropriate licensing office. The applicant must submit any financial statements or other information the OCC may require. (2) Procedures. An application for conversion filed under this section is subject to the procedures for organization of a Federal mutual association at § 143.2(d) through (f) of this chapter. (b) Plan of conversion. The applicant shall submit with its application a plan of conversion specifying the location of the home office and any branch offices to be maintained by the Federal savings association, and providing for: (1) Appropriate reserves and surplus for the Federal savings association; (2) Satisfaction in full or assumption by the Federal savings association of all creditor obligations of the applicant; (3) Issuance by the Federal savings association of savings accounts to current holders of withdrawable accounts in an amount equaling the value of such accounts; and (4) If applicable, issuance of additional savings accounts to current holders of nonwithdrawable capital stock of the applicant in an amount equaling the value of their nonwithdrawable capital stock, including the present value of any preference to which such holders are entitled. (c) Action on application. The OCC will consider such application and any information submitted with the application, and may approve the application in accordance with section 5(e) of the Home Owners’ Loan Act and § 143.2(g)(1). Converting depository E:\FR\FM\09AUR2.SGM 09AUR2 48994 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations institutions that have been in existence less than three years will be subject to all approval criteria and other requirements applicable to de novo Federal associations. Approval of an application and issuance by the OCC of a charter will be subject to: (1) Compliance by the applicant with all conditions prescribed in the approval; (2) Receipt by the applicant of approval of the plan of conversion by such vote as may be required by the laws of the applicant’s jurisdiction to consider such action; (3) In the case of a converting association the accounts of which are not insured by the Federal Deposit Insurance Corporation, receipt by the OCC of written confirmation from the Federal Deposit Insurance Corporation that the accounts of the converting association will be insured by the Federal Deposit Insurance Corporation; and (4) Receipt by the OCC of written confirmation from the appropriate Federal Home Loan Bank of approval of the converting institution’s application for Federal Home Loan Bank membership, if the institution is not a member. § 143.10 Organization after conversion. Except as provided in § 143.11, after a Federal charter is issued under § 143.9 the association’s members shall, after due notice, or upon a valid adjournment of a previous legal meeting, hold a meeting to elect directors and take all other action necessary fully to effect the conversion and operate the association in accordance with law and these rules and regulations. Immediately thereafter the board of directors shall meet, elect officers, and transact any other appropriate business. sroberts on DSK5SPTVN1PROD with RULES § 143.11 Organization plan for governance during first years after issuance of Federal mutual savings bank charter. (a) Organizational meeting. Except as provided in paragraph (c)(1) of this section, promptly upon receipt of a charter, the officers of a Federal mutual savings bank which, immediately prior to conversion, was a state chartered mutual savings bank, shall call a meeting of the members. Notice for, and conduct of, such meeting shall be in accordance with the bank’s Federal charter and bylaws. Business to be conducted at the organizational meeting shall include the election of trustees (who may also be known as a board of directors) and any other matters permitted by the charter and bylaws. Any action taken at such meeting shall be deemed an acceptance of the charter VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 and bylaws approved by the OTS prior to July 21, 2011 or by the OCC pursuant to § 144.1 of this chapter. (b) First meeting of trustees. Upon election or appointment, the board of trustees shall hold a meeting to elect the officers of the bank in accordance with its Federal charter and bylaws, and to take other action necessary to permit the operation of the bank in accordance with the Home Owners’ Loan Act of 1933, as amended, the bank’s charter and bylaws, these rules and regulations, and orders of the OCC. (c) Plan for governance of association during first six years after issuance of Federal charter. (1)(i) An applicant for a Federal mutual savings bank charter may submit a plan which provides that each member of its governing board, i.e., board of trustees, managers, or directors, may continue to serve, provided that within two years of the issuance of a Federal charter at least one-fifth of the members of such board shall have been elected by vote, either in person or by proxy, of the bank’s membership as provided in its Federal charter, that within three years of the issuance of its Federal charter at least two-fifths of the members of such board shall have been elected by such a membership vote, that within four years of the issuance of its Federal charter at least three-fifths of the members of such board shall have been elected by such a membership vote, that within five years of the issuance of its Federal charter at least four-fifths of the members of such board shall have been elected by such a membership vote, and that within six years of the issuance of its Federal charter all of the members of such board shall have been elected by such a membership vote. (ii) The plan: (A) Shall set forth the names of those persons who are being proposed for service on the applicant’s governing board after conversion to a Federal charter, (B) Shall show how trustees not elected by the converted bank’s membership will be appointed or otherwise selected, and (C) Shall provide that no trustees may be appointed or elected to terms of more than three years. (iii) The plan may provide that (A) After receipt of its Federal charter the bank will be organized by its existing governing board, (B) Within the first two years following receipt of its Federal charter, the bank’s charter may be amended without a membership vote, provided any such amendment is first approved by a two-thirds vote of its board of trustees and is thereafter approved by the OCC, and PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 (C) The bank’s first annua1 membership meeting need not take place until two years after receipt of its Federal charter. (2) Except to the extent that the OTS prior to July 21, 2011 or by the OCC approves a plan under this paragraph (c) which is inconsistent with other provisions of this section, a Federal mutual savings bank shall in all respects comply with those other provisions. § 143.12 Grandfathered authority. (a) A Federal savings bank formerly chartered or designated as a mutual savings bank under state law may exercise any authority it was authorized to exercise as a mutual savings bank under state law at the time of its conversion from a state mutual savings bank to a Federal or other state charter. Except to the extent such authority may be exercised by Federal savings associations not enjoying grandfathered rights hereunder, such authority may be exercised only to the degree authorized under state law at the time of such conversion. Unless otherwise determined by the OTS prior to July 21, 2011 or by the OCC an association, in the exercise of grandfathered authority, may continue to follow applicable state laws and regulations in effect at the time of such conversion. (b) A Federal savings association that acquires, or has acquired, a Federal savings bank by merger or consolidation may itself exercise any grandfathered rights enjoyed by the disappearing institution, whether such rights were obtained directly through conversion or through merger or consolidation. The extent of the grandfathered rights of a Federal savings association that disappeared prior to the effective date of this section shall be determined exclusively pursuant to this section. (c) This section shall not be construed to prevent the exercise by a Federal savings association enjoying grandfathered rights hereunder of authority that is available under the applicable state law only upon the occurrence of specific preconditions, such as the attainment of a particular future date or specified level of regulatory capital, which have not occurred at the time of conversion from a state mutual savings bank, provided they occur thereafter. (d) This section shall not be construed to permit the exercise of any particular authority on a more liberal basis than is allowable under the most liberal construction of either state or Federal law or regulation. E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations § 143.14 Continuity of existence. The corporate existence of an association converting under this part shall continue in its successor. Each savings or demand accountholder shall receive a savings account or accounts in the converted association equal in amount to the value of accounts held in the former association. PART 144—FEDERAL MUTUAL SAVINGS ASSOCIATIONS—CHARTER AND BYLAWS Sec. Charter 144.1 Federal mutual charter. 144.2 Charter amendments. 144.4 Issuance of charter. Bylaws 144.5 Federal mutual savings association bylaws. 144.6 Effect of subsequent charter or bylaw change. Availability 144.7 In association offices. 144.8 Communication between members of a Federal mutual savings association. Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et seq., 5412(b)(2)(B). Charter § 144.1 Federal mutual charter. sroberts on DSK5SPTVN1PROD with RULES A Federal mutual savings association shall have a charter in the following form, which may include any of the additional provisions set forth in § 144.2 of this part, if such provisions are specifically requested. A charter for a Federal mutual savings bank shall substitute the term ‘‘savings bank’’ for ‘‘association.’’ The term ‘‘trustee’’ may be substituted for the term ‘‘director.’’ Associations adopting this charter with existing borrower members must grandfather those borrower members who were members as of the date of issuance of the new charter by the OCC. Such borrowers shall have one vote for the period of time such borrowings are in existence. Federal Mutual Charter Section 1. Corporate title. The full corporate title of the Federal savings association is llll. Section 2. Office. The home office shall be located in llll [city, state]. Section 3. Duration. The duration of the association is perpetual. Section 4. Purpose and powers. The purpose of the association is to pursue any or all of the lawful objectives of a Federal mutual savings association chartered under section 5 of the Home Owners’ Loan Act and to exercise all the express, implied, and incidental powers conferred thereby and by all acts VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 amendatory thereof and supplemental thereto, subject to the Constitution and laws of the United States as they are now in effect, or as they may hereafter be amended, and subject to all lawful and applicable rules, regulations, and orders of the Office of the Comptroller of the Currency (‘‘OCC’’). Section 5. Capital. The association may raise capital by accepting payments on savings and demand accounts and by any other means authorized by the OCC. Section 6. Members. All holders of the association’s savings, demand, or other authorized accounts are members of the association. In the consideration of all questions requiring action by the members of the association, each holder of an account shall be permitted to cast one vote for each $100, or fraction thereof, of the withdrawal value of the member’s account. No member, however, shall cast more than 1000 votes. All accounts shall be nonassessable. Section 7. Directors. The association shall be under the direction of a board of directors. The authorized number of directors shall not be fewer than five nor more than fifteen persons, as fixed in the association’s bylaws, except that the number of directors may be decreased to a number less than five or increased to a number greater than fifteen with the prior approval of the OCC. Section 8. Capital, surplus, and distribution of earnings. The association shall maintain for the purpose of meeting losses the amount of capital required by section 5 of the Home Owners’ Loan Act and by regulations of the OCC. The association shall distribute net earnings on its accounts on such basis and in accordance with such terms and conditions as may from time to time be authorized by the OCC: Provided, That the association may establish minimum-balance requirements for accounts to be eligible for distribution of earnings. All holders of accounts of the association shall be entitled to equal distribution of assets, pro rata to the value of their accounts, in the event of voluntary or involuntary liquidation, dissolution, or winding up of the association. Moreover, in any such event, or in any other situation in which the priority of such accounts is in controversy, all such accounts shall, to the extent of their withdrawal value, be debts of the association having the same priority as the claims of general creditors of the association not having priority (other than any priority arising or resulting from consensual subordination) over other general creditors of the association. PO 00000 Frm 00047 Fmt 4701 Sfmt 4700 48995 Section 9. Amendment of charter. Adoption of any preapproved charter amendment shall be effective after such preapproved amendment has been approved by the members at a legal meeting. Any other amendment, addition, change, or repeal of this charter must be approved by the OCC prior to approval by the members at a legal meeting, and shall be effective upon filing with the OCC in accordance with regulatory procedures. Attest: lllllllllllllllll Secretary of the Association By: lllllllllllllllllll President or Chief Executive Officer of the Association Attest: lllllllllllllllll Deputy Comptroller for Licensing By: lllllllllllllllllll Comptroller of the Currency Effective Date: llllllllllllll § 144.2 Charter amendments. (a) General. In order to adopt a charter amendment, a Federal mutual savings association must comply with the following requirements: (1) Board of directors approval. The board of directors of the association must adopt a resolution proposing the charter amendment that states the text of such amendment; (2) Form of filing—(i) Application requirement. If the proposed charter amendment would: render more difficult or discourage a merger, proxy contest, the assumption of control by a mutual account holder of the association, or the removal of incumbent management; or involve a significant issue of law or policy; then, the association shall file the proposed amendment and obtain the prior approval of the OCC. (ii) Notice requirement. If the proposed charter amendment does not involve a provision that would be covered by paragraph (a)(2)(i) of this section and is permissible under all applicable laws, rules and regulations, then the association shall submit the proposed amendment to the appropriate OCC licensing office, at least 30 days prior to the effective date of the proposed charter amendment. (b) Approval. Any charter amendment filed pursuant to paragraph (a)(2)(ii) of this section shall automatically be approved 30 days from the date of filing of such amendment, provided that the association follows the requirements of its charter in adopting such amendment. This automatic approval does not apply if, prior to the expiration of such 30-day period, the OCC notifies the association that such amendment is rejected or that such amendment is deemed to be filed E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 48996 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations under the provisions of paragraph (a)(2)(i) of this section. In addition, notwithstanding anything in paragraph (a) of this section to the contrary, the following charter amendments, including the adoption of the Federal mutual charter as set forth in § 144.1 of this part, shall be effective and deemed approved at the time of adoption, if adopted without change and filed with the OCC, within 30 days after adoption, provided the association follows the requirements of its charter in adopting such amendments: (1) Purpose and powers. Add a second paragraph to section 4, as follows: Section 4. Purpose and powers. * * * The association shall have the express power: (i) To act as fiscal agent of the United States when designated for that purpose by the Secretary of the Treasury, under such regulations as the Secretary may prescribe, to perform all such reasonable duties as fiscal agent of the United States as may be required, and to act as agent for any other instrumentality of the United States when designated for that purpose by any such instrumentality; (ii) To sue and be sued, complain and defend in any court of law or equity; (iii) To have a corporate seal, affixed by imprint, facsimile or otherwise; (iv) To appoint officers and agents as its business shall require and allow them suitable compensation; (v) To adopt bylaws not inconsistent with the Constitution or laws of the United States and rules and regulations adopted thereunder and under this Charter; (vi) To raise capital, which shall be unlimited, by accepting payments on savings, demand, or other accounts, as are authorized by rules and regulations made by the OCC, and the holders of all such accounts or other accounts as shall, to such extent as may be provided by such rules and regulations, be members of the association and shall have such voting rights and such other rights as are thereby provided; (vii) To issue notes, bonds, debentures, or other obligations, or securities, provided by or under any provision of Federal statute as from time to time is in effect; (viii) To provide for redemption of insured accounts; (ix) To borrow money without limitation and pledge and otherwise encumber any of its assets to secure its debts; (x) To lend and otherwise invest its funds as authorized by statute and the rules and regulations of the OCC; (xi) To wind up and dissolve, merge, consolidate, convert, or reorganize; (xii) To purchase, hold, and convey real estate and personalty consistent with its objects, purposes, and powers; (xiii) To mortgage or lease any real estate and personalty and take such property by VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 gift, devise, or bequest; and (xiv) To exercise all powers conferred by law. In addition to the foregoing powers expressly enumerated, this association shall have power to do all things reasonably incident to the accomplishment of its express objects and the performance of its express powers. (2) Title change. A Federal mutual savings association that has complied with § 143.1(b) of this chapter may amend its charter by substituting a new corporate title in section 1. (3) Home office. A Federal mutual savings association may amend its charter by substituting a new home office in section 2, if it has complied with applicable requirements of § 145.95 of this chapter. (4) Maximum number of votes. A Federal mutual savings association may amend its charter by substituting ll votes per member in section 6. [Fill in a number from 1 to 1000.] (c) Reissuance of charter. A Federal mutual savings association that has amended its charter may apply to have its charter, including the amendments, reissued by the OCC. Such request for reissuance should be filed at the appropriate OCC licensing office and contain signatures required under § 144.1 of this part, together with such supporting documents as may be needed to demonstrate that the amendments were properly adopted. § 144.4 Issuance of charter. Issuance by the OCC of a charter to a Federal mutual savings association within the meaning of § 143.4 of this chapter constitutes the incorporation of that association by the OCC. Bylaws § 144.5 Federal mutual savings association bylaws. (a) General. A Federal mutual savings association shall operate under bylaws that contain provisions that comply with all requirements specified by the OCC in this section and that are not otherwise inconsistent with the provisions of this section, the association’s charter, and all other applicable laws, rules, and regulations provided that, a bylaw provision inconsistent with the provisions of this section may be adopted with the approval of the OCC. Bylaws may be adopted, amended or repealed by a majority of the votes cast by the members at a legal meeting or a majority of the association’s board of directors. The bylaws for a Federal mutual savings bank shall substitute the term ‘‘savings bank’’ for ‘‘association’’. The term PO 00000 Frm 00048 Fmt 4701 Sfmt 4700 ‘‘trustee’’ may be substituted for the term ‘‘director’’. (b) The following requirements are applicable to Federal mutual savings associations: (1) Annual meetings of members. An association shall provide for and conduct an annual meeting of its members for the election of directors and at which any other business of the association may be conducted. Such meeting shall be held, as designated by its board of directors, at a location within the state that constitutes the principal place of business of the association, or at any other convenient place the board of directors may designate, and at a date and time within 150 days after the end of the association’s fiscal year. At each annual meeting, the officers shall make a full report of the financial condition of the association and of its progress for the preceding year and shall outline a program for the succeeding year. (2) Special meetings of members. Procedures for calling any special meeting of the members and for conducting such a meeting shall be set forth in the bylaws. The subject matter of such special meeting must be established in the notice for such meeting. The board of directors of the association or the holders of 10 percent or more of the voting capital shall be entitled to call a special meeting. For purposes of this section, ‘‘voting capital’’ means FDIC-insured deposits as of the voting record date. (3) Notice of meeting of members. Notice specifying the date, time, and place of the annual or any special meeting and adequately describing any business to be conducted shall be published for two successive weeks immediately prior to the week in which such meeting shall convene in a newspaper of general circulation in the city or county in which the principal place of business of the association is located, or mailed postage prepaid at least 15 days and not more than 45 days prior to the date on which such meeting shall convene to each of its members of record at the last address appearing on the books of the association. A similar notice shall be posted in a conspicuous place in each of the offices of the association during the 14 days immediately preceding the date on which such meeting shall convene. The bylaws may permit a member to waive in writing any right to receive personal delivery of the notice. When any meeting is adjourned for 30 days or more, notice of the adjournment and reconvening of the meeting shall be given as in the case of the original meeting. E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (4) Fixing of record date. For the purpose of determining members entitled to notice of or to vote at any meeting of members or any adjournment thereof, or in order to make a determination of members for any other proper purpose, the bylaws shall provide for the fixing of a record date and a method for determining from the books of the association the members entitled to vote. Such date shall be not more than 60 days nor fewer than 10 days prior to the date on which the action, requiring such determination of members, is to be taken. The same determination shall apply to any adjourned meeting. (5) Member quorum. Any number of members present and voting, represented in person or by proxy, at a regular or special meeting of the members shall constitute a quorum. A majority of all votes cast at any meeting of the members shall determine any question, unless otherwise required by regulation. At any adjourned meeting, any business may be transacted that might have been transacted at the meeting as originally called. Members present at a duly constituted meeting may continue to transact business until adjournment. (6) Voting by proxy. Procedures shall be established for voting at any annual or special meeting of the members by proxy pursuant to the rules and regulations of the OCC, including the placing of such proxies on file with the secretary of the association, for verification, prior to the convening of such meeting. Proxies may be given telephonically or electronically as long as the holder uses a procedure for verifying the identity of the member. All proxies with a term greater than eleven months or solicited at the expense of the association must run to the board of directors as a whole, or to a committee appointed by a majority of such board. (7) Communications between members. Provisions relating to communications between members shall be consistent with § 144.8 of this part. No member, however, shall have the right to inspect or copy any portion of any books or records of a Federal mutual savings association containing: (i) A list of depositors in or borrowers from such association; (ii) Their addresses; (iii) Individual deposit or loan balances or records; or (iv) Any data from which such information could be reasonably constructed. (8) Number of directors, membership. The bylaws shall set forth a specific number of directors, not a range. The number of directors shall be not fewer VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 than five nor more than fifteen, unless a higher or lower number has been authorized by the OCC. Each director of the association shall be a member of the association. Directors may be elected for periods of one to three years and until their successors are elected and qualified, but if a staggered board is chosen, provision shall be made for the election of approximately one-third or one-half of the board each year, as appropriate. State-chartered savings banks converting to Federal savings banks may include alternative provisions for the election and term of office of directors so long as such provisions are authorized by the OCC, and provide for compliance with the standard provisions of this section no later than six years after the conversion to a Federal savings association. (9) Meetings of the board. The board of directors shall determine the place, frequency, time, procedure for notice, which shall be at least 24 hours unless waived by the directors, and waiver of notice for all regular and special meetings. The meetings shall be under the direction of a chairman, appointed annually by the board; or in the absence of the chairman, the meetings shall be under the direction of the president. The board also may permit telephonic participation at meetings. The bylaws may provide for action to be taken without a meeting if unanimous written consent is obtained for such action. A majority of the authorized directors shall constitute a quorum for the transaction of business. The act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board. (10) Officers, employees and agents. (i) The bylaws shall contain provisions regarding the officers of the association, their functions, duties, and powers. The officers of the association shall consist of a president, one or more vice presidents, a secretary, and a treasurer or comptroller, each of whom shall be elected annually by the board of directors. Such other officers and assistant officers and agents as may be deemed necessary may be elected or appointed by the board of directors or chosen in such other manner as may be prescribed in the bylaws. Any two or more offices may be held by the same person, except the offices of president and secretary. (ii) All officers and agents of the association, as between themselves and the association, shall have such authority and perform such duties in the management of the association as may be provided in the bylaws, or as may be determined by resolution of the board of directors not inconsistent with the PO 00000 Frm 00049 Fmt 4701 Sfmt 4700 48997 bylaws. In the absence of any such provision, officers shall have such powers and duties as generally pertain to their respective offices. Any officer may be removed by the board of directors with or without cause, but such removal, other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed. (iii) Any indemnification provision must provide that any indemnification is subject to applicable Federal law, rules, and regulations. (11) Vacancies, resignation or removal of directors. Members of the association shall elect directors by ballot: Provided, that in the event of a vacancy on the board, the board of directors may, by their affirmative vote, fill such vacancy, even if the remaining directors constitute less than a quorum. A director elected to fill a vacancy shall be elected to serve only until the next election of directors by the members. The bylaws shall set out the procedure for the resignation of a director, which shall be by written notice or by any other procedure established in the bylaws. Directors may be removed only for cause as defined in § 163.39 of this chapter, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. (12) Powers of the board. The board of directors shall have the power: (i) By resolution, to appoint from among its members and remove an executive committee and one or more other committees, which committee[s] shall have and may exercise all the powers of the board between the meetings or the board; but no such committee shall have the authority of the board to amend the charter or bylaws, adopt a plan of merger, consolidation, dissolution, or provide for the disposition of all or substantially all the property and assets of the association. Such committee shall not operate to relieve the board, or any member thereof, of any responsibility imposed by law; (ii) To fix the compensation of directors, officers, and employees; and to remove any officer or employee at any time with or without cause; (iii) To exercise any and all of the powers of the association not expressly reserved by the charter to the members. (13) Nominations for directors. The bylaws shall provide that nominations for directors may be made at the annual meeting by any member and shall be voted upon, except, however, the bylaws may require that nominations by a member must be submitted to the secretary and then prominently posted in the principal place of business, at least 10 days prior to the date of the E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 48998 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations annual meeting. However, if such provision is made for prior submission of nominations by a member, then the bylaws must provide for a nominating committee, which, except in the case of a nominee substituted as a result of death or other incapacity, must submit nominations to the secretary and have such nominations similarly posted at least 15 days prior to the date of the annual meeting. (14) New business. The bylaws shall provide procedures for the introduction of new business at the annual meeting. Those provisions may require that such new business be stated in writing and filed with the secretary prior to the annual meeting at least 30 days prior to the date of the annual meeting. (15) Amendment. Bylaws may include any provision for their amendment that would be consistent with applicable law, rules, and regulations and adequately addresses its subject and purpose. (i) Amendments shall be effective: (A) After approval by a majority vote of the authorized board, or by a majority of the vote cast by the members of the association at a legal meeting; and (B) After receipt of any applicable regulatory approval. (ii) When an association fails to meet its quorum requirement, solely due to vacancies on the board, the bylaws may be amended by an affirmative vote of a majority of the sitting board. (16) Miscellaneous. The bylaws may also address the subject of age limitations for directors or officers as long as they are consistent with applicable Federal law, rules or regulations, and any other subjects necessary or appropriate for effective operation of the association. (c) Form of filing—(1) Application requirement. (i) Any bylaw amendment shall be submitted to the appropriate OCC licensing office if it would: (A) Render more difficult or discourage a merger, proxy contest, the assumption of control by a mutual account holder of the association, or the removal of incumbent management; (B) Involve a significant issue of law or policy, including indemnification, conflicts of interest, and limitations on director or officer liability; or (C) Be inconsistent with the requirements of this section or with applicable laws, rules, regulations, or the association’s charter. (ii) Applications submitted under paragraph (c)(1)(i) of this section are subject to standard treatment processing procedures at part 116, subparts A and E of this chapter. (iii) For purposes of this paragraph (c), bylaw provisions that adopt the VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 language of the OCC’s model or optional bylaws, if adopted without change, and filed with the OCC within 30 days after adoption, are effective upon adoption. (2) Filing requirement. If the proposed bylaw amendment does not involve a provision that would be covered by paragraph (c)(1) or (c)(3) of this section, then the association shall submit the amendment to the appropriate OCC licensing office at least 30 days prior to the date the bylaw amendment is to be adopted by the association. (3) Corporate governance procedures. A Federal mutual association may elect to follow the corporate governance procedures of the laws of the state where the main office of the institution is located, provided that such procedures may be elected only to the extent not inconsistent with applicable Federal statutes, regulations, and safety and soundness, and such procedures are not of the type described in paragraph (c)(1) of this section. If this election is selected, a Federal mutual association shall designate in its bylaws the provision or provisions from the body of law selected for its corporate governance procedures, and shall file a copy of such bylaws, which are effective upon adoption, within 30 days after adoption. The submission shall indicate, where not obvious, why the bylaw provisions meet the requirements stated in paragraph (c)(1) of this section. (d) Effectiveness. Any bylaw amendment filed pursuant to paragraph (c)(2) of this section shall automatically be effective 30 days from the date of filing of such amendment, provided that the association follows the requirements of its charter and bylaws in adopting such amendment. This automatic effective date does not apply if, prior to the expiration of such 30-day period, the OCC notifies the association that such amendment is rejected or that such amendment requires an application to be filed pursuant to paragraph (c)(1) of this section. § 144.6 Effect of subsequent charter or bylaw change. Notwithstanding any subsequent change to its charter or bylaws, the authority of a Federal mutual savings association to engage in any transaction shall be determined only by the association’s charter or bylaws then in effect. Availability § 144.7 In association offices. A Federal mutual savings association shall make available to its members at all times in its offices a true copy of its charter and bylaws, including any PO 00000 Frm 00050 Fmt 4701 Sfmt 4700 amendments, and shall deliver such a copy to any member on request. § 144.8 Communication between members of a Federal mutual savings association. (a) Right of communication with other members. A member of a Federal mutual savings association has the right to communicate, as prescribed in paragraph (b) of this section, with other members of the Federal savings association regarding any matter related to the Federal savings association’s affairs, except for ‘‘improper’’ communications, as defined in paragraph (c) of this section. The association may not defeat that right by redeeming a savings member’s savings account in the Federal mutual savings association. (b) Member communication procedures. If a member of a Federal mutual savings association desires to communicate with other members, the following procedures shall be followed: (1) The member shall give the Federal mutual savings association a written request to communicate; (2) If the proposed communication is in connection with a meeting of the Federal savings association’s members, the request shall be given at least thirty days before the annual meeting or 10 days before a special meeting; (3) The request shall contain— (i) The member’s full name and address; (ii) The nature and extent of the member’s interest in the Federal savings association at the time the information is given; (iii) A copy of the proposed communication; and (iv) If the communication is in connection with a meeting of the members, the date of the meeting; (4) The Federal savings association shall reply to the request within either— (i) Fourteen days; (ii) Ten days, if the communication is in connection with the annual meeting; or (iii) Three days, if the communication is in connection with a special meeting; (5) The reply shall provide either— (i) The number of the Federal savings association’s members and the estimated reasonable cost to the Federal savings association of mailing to them the proposed communication; or (ii) Notification that the Federal savings association has determined not to mail the communication because it is ‘‘improper’’, as defined in paragraph (c) of this section; (6) After receiving the amount of the estimated costs of mailing and sufficient copies of the communication, the Federal savings association shall mail E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations the communication to all members, by a class of mail specified by the requesting member, either— (i) Within fourteen days; (ii) Within seven days, if the communication is in connection with the annual meeting; (iii) As soon as practicable before the meeting, if the communication is in connection with a special meeting; or (iv) On a later date specified by the member; (7) If the Federal savings association refuses to mail the proposed communication, it shall return the requesting member’s materials together with a written statement of the specific reasons for refusal, and shall simultaneously send to the appropriate OCC licensing office two copies each of the requesting member’s materials, the Federal savings association’s written statement, and any other relevant material. The materials shall be sent within: (i) Fourteen days, (ii) Ten days if the communication is in connection with the annual meeting, or (iii) Three days, if the communication is in connection with a special meeting, after the Federal savings association receives the request for communication. (c) Improper communication. A communication is an ‘‘improper communication’’ if it contains material which: (1) At the time and in the light of the circumstances under which it is made: (i) Is false or misleading with respect to any material fact; or (ii) Omits a material fact necessary to make the statements therein not false or misleading, or necessary to correct a statement in an earlier communication on the same subject which has become false or misleading; (2) Relates to a personal claim or a personal grievance, or is solicitous of personal gain or business advantage by or on behalf of any party; (3) Relates to any matter, including a general economic, political, racial, religious, social, or similar cause, that is not significantly related to the business of the Federal savings association or is not within the control of the Federal savings association; or (4) Directly or indirectly and without expressed factual foundation: (i) Impugns character, integrity, or personal reputation, (ii) Makes charges concerning improper, illegal, or immoral conduct, or (iii) Makes statements impugning the stability and soundness of the Federal savings association. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 PART 145—FEDERAL SAVINGS ASSOCIATIONS—OPERATIONS Sec. 145.1 General authority. 145.2 [Reserved] 145.16 Public deposits, depositaries, and fiscal agents. 145.17 Funds transfer services. 145.91 Home office. 145.92 Branch offices. 145.93 Application and notice requirements for branch and home offices. 145.95 What processing procedures apply to my home or branch office application or notice? 145.96 Agency office. 145.101 Fiscal agency. 145.121 Indemnification of directors, officers and employees. Authority: 12 U.S.C. 1462a, 1463, 1464, 1828. 5412(b)(2)(B). § 145.1 General authority. A Federal savings association may exercise all authority granted it by the Home Owners’ Loan Act of 1933 (‘‘Act’’), 12 U.S.C. 1464, as amended, and its charter and bylaws, whether or not implemented specifically by OCC regulations, subject to the limitations and interpretations contained in this part. § 145.2 [Reserved] § 145.16 Public deposits, depositaries, and fiscal agents. (a) Definitions. As used in this section— (1) Moneys includes monies and has the same meaning it has in applicable state law; (2) State law includes actions by a governmental body which has a charter adopted under the constitution of the state with provisions respecting deposits of public money of that body; (3) Surety means surety under real and/or personal suretyship, and includes guarantor; and (4) Terms in paragraph (b) of this section have the meanings they have under applicable state law. (b) Authority to act as surety for public deposits. (1) A Federal savings association that is a deposit association may give bond or security for deposit in it of public moneys or investment in it by a governmental unit if required to do so by state law, either as an alternative condition or otherwise, regardless of the amount required. Any bond or security may be given and any substitution or increase thereof may be made under this section at any time. (2) If state law requires as a condition of such deposit or investment that the Federal savings association or its bond or security, or any combination thereof, PO 00000 Frm 00051 Fmt 4701 Sfmt 4700 48999 be surety for or with respect to other deposits or instruments, whether of that depositor or investor or of any other(s), and whether in the Federal savings association or in any other institution(s) having, when the investments or deposits were made, insurance by the Federal Deposit Insurance Corporation, the same shall become, or if the state law is self-executing shall be, such surety. (c) Depositaries and fiscal agents. Subject to regulation of the United States Treasury Department, a Federal savings association may serve as a depositary for Federal taxes, as a Treasury tax and loan depositary, or as a depositary of public money and fiscal agent of the Government or any other instrumentality thereof when designated for that purpose by such instrumentality and approved by the OCC, and may satisfy any requirement in connection therewith, including maintaining accounts described in §§ 161.33, 161.52, 161.53, and 161.54 of this chapter; pledging collateral; and performing the services outlined in 31 CFR 202.3(b) or any section that supersedes or amends § 202.3(b). § 145.17 Funds transfer services. A Federal savings association is authorized to transfer, with or without fee, its customers’ funds from any account (including a line of credit) of the customer at the Federal savings association or at another financial intermediary to third parties or other accounts of the customer on the customer’s order or authorization by any mechanism or device, including cashier’s checks, conforming with applicable laws and established commercial practices. § 145.91 Home office. (a) All operations of a Federal savings association (‘‘you’’) are subject to direction from the home office. (b) You must notify the appropriate OCC licensing office if the permanent address of your home office changes, unless you have submitted an application or notice regarding the change under §§ 145.93 and 145.95 of this chapter. § 145.92 Branch offices. (a) Definition. A branch office of a Federal savings association (‘‘you’’) is any office other than your home office, agency office, administrative office, data processing office, or an electronic means or facility under part 155 of this chapter. (b) Branching. Subject to the application and notice requirements at §§ 145.93 and 145.95 of this chapter, you may branch in any state or states of E:\FR\FM\09AUR2.SGM 09AUR2 49000 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations the United States and its territories unless the location would violate: (1) Section 5(r) of the HOLA (12 U.S.C. 1464(r)); (2) Section 10(e)(3) of the HOLA (12 U.S.C. 1467a(e)(3)); or (3) Section 13(k)(4) of the FDIA (12 U.S.C. 1823(k)(4)). (c) Preemption. This exercise of the OCC’s authority is preemptive of any state law purporting to address the subject of branching by a Federal savings association. sroberts on DSK5SPTVN1PROD with RULES § 145.93 Application and notice requirements for branch and home offices. (a) Application and notice requirements. A Federal savings association (‘‘you’’) must file an application or notice with the appropriate OCC licensing office and receive approval or non-objection under § 145.95 before you change the permanent location of, or establish a new, home or branch office, except as provided in this section. (b) Exceptions. You are not required to submit an application or notice and receive OCC approval or non-objection under § 145.95 under the following circumstances: (1) Drive-in or pedestrian offices. You may establish a drive-in or pedestrian office that is located within 500 feet of a public entrance to your existing home or branch office, provided the functions performed at the office are limited to functions that are ordinarily performed at a teller window. (2) Short-distance relocation. You may change the permanent location of an existing home or branch office to a site that is within the market area and short-distance location area of the existing home or branch office. The short-distance relocation area of an existing office is the area that is within: (i) A 1000-foot radius of an existing office that is within a Principal City in a Metropolitan Statistical Area (MSA) designated by the U.S. Department of Commerce; (ii) A one-mile radius of an existing office that is within an MSA, but is not within a Principal City; or (iii) A two-mile radius of an existing office that is not in an MSA. (3) Highly-rated Federal savings associations. You may change the permanent location of, or establish a new, branch or home office if you meet all of the following requirements: (i) You are eligible for expedited treatment under § 116.5 of this chapter. For the purposes of that section, you must meet the capital requirements under part 167 of this chapter before and immediately after you change the location of your home or branch office or establish a new branch office. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (ii) You published a notice of your intent to change the location of your home or branch office or establish a new branch office. To satisfy this publication requirement, you must follow the procedures in subpart B of part 116 of this chapter except that: (A) Under § 116.55(d) and (e) of this chapter, your public notice must state that the public may submit comments to you and to the appropriate OCC licensing office, and must provide addresses for you and for the appropriate OCC licensing office where the public may submit comments; (B) Section 4.14(c) of this chapter, which addresses public inspections of filings with the OCC, does not apply; and (C) Under § 116.60 of this chapter, you must publish the public notice at least 35 days before you take the proposed action. If you publish a public notice more than 12 months before you take the proposed action, the publication is invalid. (iii) If you intend to change the location of an existing office, you must post a notice of your intent in a prominent location in the existing office to be relocated. You must post the notice for 30 days from the date of publication of the initial public notice described in paragraph (b)(3)(ii) of this section. (iv)(A) No person files a comment opposing the proposed action within 30 days after the date of the publication of the proposed notice; or (B) A person files a comment opposing the proposed action and the OCC determines that the comment raises issues that are not relevant to the approval standards in § 145.95(b) of this chapter or that OCC action in response to the comment is not required. (4) Re-designations of home and branch offices. You may re-designate an existing branch office as a home office at the same time that you re-designate your existing home office as a branch office. (c) Section 5(m) of the HOLA. If you are incorporated under the laws of, organized in, or do business in the District of Columbia and you satisfy the requirements of paragraph (b) of this section, the Comptroller has approved your home or branch office changes under section 5(m) of the HOLA. (d) Maintenance of branch and home office following conversion, consolidation, purchase of bulk assets, merger, or purchase from receiver. An existing savings association that converts to a Federal savings association may maintain an existing office and a Federal savings association may maintain any office acquired through PO 00000 Frm 00052 Fmt 4701 Sfmt 4700 consolidation, purchase of bulk assets, merger or purchase from the receiver of an association, except to the extent that the approval of the conversion, consolidation, merger, or purchase specifies otherwise. (e) Prohibition. You may not file an application or notice (or utilize any exception described in paragraph (b) of this section) to establish a branch office, if you filed an application to merge or otherwise surrender your charter and the application has been pending for less than six months. § 145.95 What processing procedures apply to my home or branch office application or notice? (a) Processing procedures. Applications and notices under § 145.93 are subject to expedited or standard treatment under the application processing procedures at part 116 of this chapter. (1) Publication and posting requirements. (i) You must publish a public notice of your application or notice in accordance with the procedures in subpart B of part 116 of this chapter. Promptly after publication, you must transmit copies of the public notice and the publisher’s affidavit to the appropriate OCC licensing office. (ii) If you propose to change the location of an existing office, you must also post a notice of the application in a prominent location in the office to be relocated. You must post the notice for 30 days from the date of publication of the initial public notice. (2) Comment procedures. Commenters may submit comments on your application or notice in accordance with the procedures in subpart C of part 116 of this chapter. (3) Meeting procedures. The OCC may arrange a meeting in accordance with the procedures in subpart D of part 116 of this chapter. (4) OCC Review. The OCC will process your application or notice in accordance with the procedures in subpart E of part 116 of this chapter. The applicable review period for applications filed under standard treatment is 30 days rather than the time period specified at § 116.270(a) of this chapter. (b) Approval standards. (1) The OCC will approve an application (or not object to a notice), if your overall policies, condition, and operations afford no basis for supervisory objection. (i) You should meet or exceed minimum capital requirements under part 167 of this chapter and should be at least adequately capitalized as described in § 165.4(b)(2) of this E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations chapter, before and immediately after the proposed action. If you are undercapitalized as described in § 165.4(b)(3) of this chapter, the OCC will deny your application (or disapprove your notice), unless the proposed action is otherwise permitted under section 38(e)(4) of the FDIA. (ii) The OCC will evaluate your record of helping to meet the credit needs of your entire community, including lowand moderate-income neighborhoods, under part 195 of this chapter. The OCC may: (A) Deny your application or disapprove your notice based upon this evaluation; or (B) Impose a condition to the approval of your application (or non-objection to your notice) requiring you to improve specific practices and/or aspects of your performance under part 195 of this chapter. In most cases, a commitment to improve will not be sufficient to overcome a seriously deficient record. (iii) The OCC will review the application or notice under the National Environmental Policy Act (42 U.S.C. 3421 et seq.) and the National Historic Preservation Act (16 U.S.C. 470). (2) In reviewing your application and notice, the OCC may consider information available from any source, including any comments submitted by interested parties or views expressed by interested parties at meetings with the OCC. (3) The OCC may approve an amendment to your charter in connection with a home office relocation under this section. (c) Expiration of OCC approval. (1) You must open or relocate your office within twelve months of OCC approval of your application (or the date of OCC non-objection to your notice), unless the OCC prescribes another time period. The OCC may extend the time period if it determines that you are making a good-faith effort to promptly open or relocate the proposed office. (2) If you do not open or relocate the proposed office within this time period, you must comply with the application and notice requirements of this section before you may open or relocate the proposed office. sroberts on DSK5SPTVN1PROD with RULES § 145.96 Agency office. (a) General. A Federal savings association may establish or maintain an agency office to engage in one or more of the following activities: (1) Servicing, originating, or approving loans and contracts; (2) Managing or selling real estate owned by the Federal savings association; and VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (3) Conducting fiduciary activities or activities ancillary to the association’s fiduciary business in compliance with subpart A of part 150 of this chapter. (b) Additional services. A Federal savings association may request, and the OCC may approve, any service not listed in paragraph (a) of this section, except for payment on savings accounts. (c) Records. A Federal savings association must maintain records of all business it transacts at an agency office. It must maintain these records at the agency office, and must transmit copies to a home or branch office. § 145.101 Fiscal agency. A Federal savings association designated fiscal agent by the Secretary of the Treasury or with OCC approval by another instrumentality of the United States, shall, as such, perform such reasonable duties and exercise only such powers and privileges as the Secretary of the Treasury or such instrumentality may prescribe. § 145.121 Indemnification of directors, officers and employees. A Federal savings association shall indemnify its directors, officers, and employees in accordance with the following requirements: (a) Definitions and rules of construction. (1) Definitions for purposes of this section. (i) Action. The term ‘‘action’’ means any judicial or administrative proceeding, or threatened proceeding, whether civil, criminal, or otherwise, including any appeal or other proceeding for review; (ii) Court. The term ‘‘court’’ includes, without limitation, any court to which or in which any appeal or any proceeding for review is brought. (iii) Final judgment. The term ‘‘final judgment’’ means a judgment, decree, or order which is not appealable or as to which the period for appeal has expired with no appeal taken. (iv) Settlement. The term ‘‘settlement’’ includes entry of a judgment by consent or confession or a plea of guilty or nolo contendere. (2) References in this section to any individual or other person, including any association, shall include legal representatives, successors, and assigns thereof. (b) General. Subject to paragraphs (c) and (g) of this section, a Federal savings association shall indemnify any person against whom an action is brought or threatened because that person is or was a director, officer, or employee of the association, for: (1) Any amount for which that person becomes liable under a judgment if such action; and PO 00000 Frm 00053 Fmt 4701 Sfmt 4700 49001 (2) Reasonable costs and expenses, including reasonable attorney’s fees, actually paid or incurred by that person in defending or settling such action, or in enforcing his or her rights under this section if he or she attains a favorable judgment in such enforcement action. (c) Requirements. (1) Indemnification shall be made to such person under paragraph (b) of this section only if: (i) Final judgment on the merits is in his or her favor; or (ii) In case of: (A) Settlement, (B) Final judgment against him or her, or (C) Final judgment in his or her favor, other than on the merits, if a majority of the disinterested directors of the Federal savings association determine that he or she was acting in good faith within the scope of his or her employment or authority as he or she could reasonably have perceived it under the circumstances and for a purpose he or she could reasonably have believed under the circumstances was in the best interests of the savings association or its members. (2) However, no indemnification shall be made unless the association gives the OCC at least 60 days’ notice of its intention to make such indemnification. Such notice shall state the facts on which the action arose, the terms of any settlement, and any disposition of the action by a court. Such notice, a copy thereof, and a certified copy of the resolution containing the required determination by the board of directors shall be sent to the association’s supervisory office, which shall promptly acknowledge receipt thereof. The notice period shall run from the date of such receipt. No such indemnification shall be made if the OCC advises the association in writing, within such notice period, the OCC’s objection thereto. (d) Insurance. A Federal savings association may obtain insurance to protect it and its directors, officers, and employees from potential losses arising from claims against any of them for alleged wrongful acts, or wrongful acts, committed in their capacity as directors, officers, or employees. However, no Federal savings association may obtain insurance which provides for payment of losses of any person incurred as a consequence of his or her willful or criminal misconduct. (e) Payment of expenses. If a majority of the directors of a Federal savings association concludes that, in connection with an action, any person ultimately may become entitled to indemnification under this section, the directors may authorize payment of E:\FR\FM\09AUR2.SGM 09AUR2 49002 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations reasonable costs and expenses, including reasonable attorneys’ fees, arising from the defense or settlement of such action. Nothing in this paragraph (e) shall prevent the directors of the savings association from imposing such conditions on a payment of expenses as they deem warranted and in the interests of the savings association. Before making advance payment of expenses under this paragraph (e), the savings association shall obtain an agreement that the savings association will be repaid if the person on whose behalf payment is made is later determined not to be entitled to such indemnification. (f) Exclusiveness of provisions. No Federal savings association shall indemnify any person referred to in paragraph (b) of this section or obtain insurance referred to in paragraph (d) of the section other than in accordance with this section. However, an association which has a bylaw in effect relating to indemnification of its personnel shall be governed solely by that bylaw, except that its authority to obtain insurance shall be governed by paragraph (d) of this section. (g) The indemnification provided for in paragraph (b) of this section is subject to and qualified by 12 U.S.C. 1821(k). PART 146—FEDERAL MUTUAL SAVINGS ASSOCIATIONS—MERGER, DISSOLUTION, REORGANIZATION, AND CONVERSION Sec. 146.1 Definitions. 146.2 Procedure; effective date. 146.3 Transfer of assets upon merger or consolidation. 146.4 Voluntary dissolution. Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et seq. 5412(b)(2)(B). § 146.1 Definitions. The terms used in §§ 146.2 and 146.3 shall have the same meaning as set forth in §§ 152.13(b) and 163.22(g) of this chapter. sroberts on DSK5SPTVN1PROD with RULES § 146.2 Procedure; effective date. (a) A Federal mutual savings association may combine with any depository institution, provided that: (1) The combination is in compliance with, and receives all approvals required under, any applicable statutes and regulations; (2) Any resulting Federal savings association meets the requirements for Federal Home Loan Bank membership and insurance of accounts; (3) Any resulting Federal savings association conforms within the time prescribed by the OCC to the VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 requirements of sections 5(c) and 10(m) of the Home Owners’ Loan Act; and (4) The resulting institution shall be a mutually held savings association, unless: (i) The transaction involves a supervisory merger; (ii) The transaction is approved under part 192 of this chapter; or (iii) The transaction involves a transfer in the context of a mutual holding company reorganization under section 10(o) of the Home Owners’ Loan Act. (b) Each Federal mutual savings association, by a two-thirds vote of its board of directors, shall approve a plan of combination evidenced by a combination agreement. The agreement shall state: (1) That the combination shall not be effective unless and until the combination receives any necessary approval from the OCC pursuant to § 163.22 (a) or (c), or in the case of a transaction requiring a notice pursuant to § 163.22(c), the notice has been filed, and the appropriate period of time has passed or the OCC has advised the parties that it will not disapprove the transaction; (2) Which constituent institution is to be the resulting institution; (3) The name of the resulting institution; (4) The location of the home office and any other offices of the resulting institution; (5) The terms and conditions of the combination and the method of effectuation; (6) Any charter amendments, or the new charter in the combination; (7) The basis upon which the resulting institution’s savings accounts will be issued; (8) If the Federal mutual savings association is the resulting institution, the number, names, residence addresses, and terms of directors; (9) The effect upon and assumption of any liquidation account of a disappearing institution by the resulting institution; and (10) Such other provisions, agreements, or understandings as relate to the combination. (c) Prior written notification or notice to the appropriate OCC licensing office or prior written approval of the OCC, pursuant to § 163.22 of this chapter, is required for every combination. In the case of applications and notices pursuant to 163.22 (a) or (c), the OCC shall apply the criteria set out in § 163.22 of this chapter and shall impose any conditions it deems necessary or appropriate to ensure compliance with those criteria and the requirements of this chapter. PO 00000 Frm 00054 Fmt 4701 Sfmt 4700 (d) Where the resulting institution is a Federal mutual savings association, the OCC may approve a temporary increase in the number of directors of the resulting institution provided that the association submits a plan for bringing the board of directors into compliance with the requirements of § 144.1 of this chapter within a reasonable period of time. (e) Notwithstanding any other provision of this part, the OCC may require that a plan of combination be submitted to the voting members of any of the mutual savings associations that are constituent institutions at a duly called meeting(s), and that the plan, to be effective, be approved by such voting members. (f) A conservator or receiver for a Federal mutual savings association may combine the association with another insured depository institution without submitting the plan to the association’s board of directors or members for their approval. (g) If a plan of combination provides for a resulting Federal mutual savings association’s name or location to be changed, its charter shall be amended accordingly. If the resulting institution is a Federal mutual savings association, the effective date of the combination shall be the date specified in the approval; if the resulting institution is not a Federal savings association, the effective date shall be that prescribed under applicable law. Approval of a merger automatically cancels the Federal charter of a Federal association that is a disappearing institution as of the effective date of merger, and the association shall, on that date, surrender its charter to the OCC. § 146.3 Transfer of assets upon merger or consolidation. On the effective date of a merger or consolidation in which the resulting institution is a Federal association, all assets and property of the disappearing institutions shall immediately, without any further act, become the property of the resulting institution to the same extent as they were the property of the disappearing institutions, and the resulting institution shall be a continuation of the entity which absorbed the disappearing institutions. All rights and obligations of the disappearing institutions shall remain unimpaired, and the resulting institution shall, on the effective date of the merger or consolidation, succeed to all those rights and obligations, subject to the Home Owners’ Loan Act and other applicable statutes. E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations § 146.4 Voluntary dissolution. sroberts on DSK5SPTVN1PROD with RULES (a) A Federal savings association’s board of directors may propose a plan for dissolution of the association. The plan may provide for either: (1) Appointment of the Federal Deposit Insurance Corporation (under section 5 of the Act and section 11 of the Federal Deposit Insurance Act, as amended or section 21A of the Federal Home Loan Bank Act, as amended) as receiver for the purpose of liquidation; (2) Transfer of all the association’s assets to another association or homefinancing institution under Federal or state charter either for cash sufficient to pay all obligations of the association and retire all outstanding accounts or in exchange for that association’s payment of all the association’s outstanding obligations and issuance of share accounts or other evidence of interest to the association’s members on a pro rata basis; or (3) Dissolution in a manner proposed by the directors which they consider best for all concerned. (b) The plan, and a statement of reasons for proposing dissolution and for proposing the plan, shall be submitted to the appropriate OCC licensing office for approval. The OCC will approve the plan if the OCC believes dissolution is advisable and the plan best for all concerned, but if the OCC considers the plan inadvisable, the OCC may either make recommendations to the association concerning the plan or disapprove it. When the plan is approved by the association’s board of directors and by the OCC, it shall be submitted to the association’s members at a duly called meeting and, when approved by a majority of votes cast at that meeting, shall become effective. After dissolution in accordance with the plan, a certificate evidencing dissolution, supported by such evidence as the may require, shall immediately be filed with the OCC. When the OCC receives such evidence satisfactory to the OCC, it will terminate the corporate existence of the dissolved association and the association’s charter shall thereby be canceled. A Federal savings association is not required to obtain approval under this section where the Federal savings association transfers all of its assets and liabilities to a bank in a transaction that is subject to § 163.22(b) of this chapter. PART 150—FIDUCIARY POWERS OF FEDERAL SAVINGS ASSOCIATIONS Sec. 150.10 What regulations govern the fiduciary operations of Federal savings associations? VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 150.20 What are fiduciary powers? 150.30 What fiduciary capacities does this part cover? 150.40 When do I have investment discretion? 150.50 What is a fiduciary account? 150.60 What other definitions apply to this part? Subpart A—Obtaining Fiduciary Powers 150.70 Must I obtain OCC approval or file a notice before I exercise fiduciary powers? 150.80 How do I obtain OCC approval? 150.90 What information must I include in my application? 150.100 What factors may the OCC consider in its review of my application? 150.110 [Reserved] 150.120 What action will the OCC take on my application? 150.125 How do I file the notice under § 150.70(c)? Subpart B—Exercising Fiduciary Powers 150.130 How may I conduct multi-state operations? 150.135 How do I determine which state’s laws apply to my operations? 150.136 To what extent do state laws apply to my fiduciary operations? 150.140 Must I adopt and follow written policies and procedures in exercising fiduciary powers? Fiduciary Personnel and Facilities 150.150 Who is responsible for the exercise of fiduciary powers? 150.160 What personnel and facilities may I use to perform fiduciary services? 150.170 May my other departments or affiliates use fiduciary personnel and facilities to perform other services? 150.180 May I perform fiduciary services for, or purchase fiduciary services from, another association or entity? 150.190 Must fiduciary officers and employees be bonded? Review of a Fiduciary Account 150.200 Must I review a prospective account before I accept it? 150.210 Must I conduct another review of an account after I accept it? 150.220 Are any other account reviews required? Custody and Control of Assets 150.230 Who must maintain custody or control of assets in a fiduciary account? 150.240 May I hold investments of a fiduciary account off-premises? 150.250 Must I keep fiduciary assets separate from other assets? Investing Funds of a Fiduciary Account 150.260 How may I invest funds of a fiduciary account? Funds Awaiting Investment or Distribution 150.290 What must I do with fiduciary funds awaiting investment or distribution? 150.300 Where may I deposit fiduciary funds awaiting investment or distribution? 150.310 What if the FDIC does not insure the deposits? PO 00000 Frm 00055 Fmt 4701 Sfmt 4700 49003 150.320 What is acceptable collateral for uninsured deposits? Restrictions on Self Dealing 150.330 Are there investments in which I may not invest funds of a fiduciary account? 150.340 May I exercise rights to purchase additional stock or fractional shares of my stock or obligations or the stock or obligations of my affiliates? 150.350 May I lend, sell, or transfer assets of a fiduciary account if I have an interest in the transaction? 150.360 May I make a loan to a fiduciary account that is secured by an interest in the assets of the account? 150.370 May I sell assets or lend money between fiduciary accounts? Compensation, Gifts, and Bequests 150.380 May I earn compensation for acting in a fiduciary capacity? 150.390 May my officer or employee retain compensation for acting as a cofiduciary? 150.400 May my fiduciary officer or employee accept a gift or bequest? Recordkeeping Requirements 150.410 What records must I keep? 150.420 How long must I keep these records? 150.430 Must I keep fiduciary records separate and distinct from other records? Audit Requirements 150.440 When do I have to audit my fiduciary activities? 150.450 What standards govern the conduct of the audit? 150.460 Who may conduct an audit? 150.470 Who directs the conduct of the audit? 150.480 How do I report the results of the audit? Subpart C—Depositing Securities With State Authorities 150.490 When must I deposit securities with state authorities? 150.500 How much must I deposit if I administer fiduciary assets in more than one state? 150.510 What must I do if state authorities refuse my deposit? Subpart D—Terminating Fiduciary Activities Receivership or Liquidation 150.520 What happens if I am placed in receivership or voluntary liquidation? Surrender of Fiduciary Powers 150.530 How do I surrender fiduciary powers? 150.540 When will the OCC terminate my fiduciary powers? 150.550 May I recover my deposit from state authorities? Revocation of Fiduciary Powers 150.560 When may the OCC revoke my fiduciary powers? 150.570 What procedures govern the revocation? E:\FR\FM\09AUR2.SGM 09AUR2 49004 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations Subpart E—Activities Exempt From This Part 150.580 When may I conduct fiduciary activities without obtaining OCC approval? 150.590 What standards must I observe when acting in exempt fiduciary capacities? 150.600 How may funds be invested when I act in an exempt fiduciary capacity? 150.610 What disclosures must I make when acting in exempt fiduciary capacities? 150.620 May I receive compensation for acting in exempt fiduciary capacities? (i) A fiduciary in a relationship established under a state law that is substantially similar to the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act as published by the American Law Institute. (j) Investment adviser, if you receive a fee for your investment advice. (k) Any capacity in which you have investment discretion on behalf of another. (l) Any other similar capacity that the OCC may authorize under 12 U.S.C. 1464(n). Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B). § 150.40 When do I have investment discretion? § 150.10 What regulations govern the fiduciary operations of Federal savings associations? (a) General. You have investment discretion when you have, 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 that account. It does not matter whether you have exercised this authority. (b) Delegations. You retain investment discretion if you delegate investment discretion to another. You also have investment discretion if you receive delegated authority to exercise investment discretion from another. A Federal savings association (‘‘you’’) must conduct its fiduciary operations in accordance with 12 U.S.C. 1464(n) and this part. § 150.20 What are fiduciary powers? Fiduciary powers are the authority that the OCC permits you to exercise under 12 U.S.C. 1464(n). § 150.30 What fiduciary capacities does this part cover? You are subject to this part if you act in a fiduciary capacity, except as described in subpart E of this part. You act in a fiduciary capacity when you act in any of the following capacities: (a) Trustee. (b) Executor. (c) Administrator. (d) Registrar of stocks and bonds. (e) Transfer agent. (f) Assignee. (g) Receiver. (h) Guardian or conservator of the estate of a minor, an incompetent person, an absent person, or a person over whose estate a court has taken jurisdiction, other than under bankruptcy or insolvency laws. § 150.50 What is a fiduciary account? A fiduciary account is an account that you administer acting in a fiduciary capacity. § 150.60 What other definitions apply to this part? Activities ancillary to your fiduciary business include advertising, marketing, or soliciting fiduciary business, contacting existing or potential customers, answering questions and providing information to customers related to their accounts, acting as liaison between you and your customer (for example, forwarding requests for distribution, changes in investment objectives, forms, or funds received from the customer), and inspecting or maintaining custody of fiduciary assets or holding title to real property. This list is illustrative and not comprehensive. Other activities may also be ‘‘ancillary activities’’ for purposes of this definition. Affiliate has the same meaning as in 12 U.S.C. 221a(b). For purposes of this part, substitute the term ‘‘Federal savings association’’ for the term ‘‘member bank’’ whenever it appears in 12 U.S.C. 221a(b). Applicable law means the law of a state or other jurisdiction governing your fiduciary relationships, any Federal law governing those relationships, the terms of the instrument governing a fiduciary relationship, and any court order pertaining to the relationship. Fiduciary activities include accepting a fiduciary appointment, executing fiduciary-related documents, providing investment advice for a fee regarding fiduciary assets, or making discretionary decisions regarding investment or distribution of assets. Fiduciary officers and employees means the officers and employees of a Federal savings association to whom the board of directors or its designee has assigned functions involving the exercise of the association’s fiduciary powers. Subpart A—Obtaining Fiduciary Powers § 150.70 Must I obtain OCC approval or file a notice before I exercise fiduciary powers? You should refer to the following chart to determine if you must obtain OCC approval or file a notice with the OCC before you exercise fiduciary powers. This chart does not apply to activities that are exempt under subpart E of this part. If you will conduct . . . Then . . . (a) Fiduciary activities for the first time and the OCC has not previously approved an application that you submitted under this part. (b) Fiduciary activities that are materially different from the activities that the OCC has previously approved for you, including fiduciary activities that the OCC has previously approved for you that you have not exercised for at least five years. (c) Fiduciary activities that are not materially different from the activities that the OCC has previously approved for you. You must obtain prior approval from the OCC under §§ 150.80 through 150.120 before you conduct the activities You must obtain prior approval from the OCC under §§ 150.80 through 150.120 before you conduct the activities sroberts on DSK5SPTVN1PROD with RULES (d) Activities that are ancillary to your fiduciary business ........................ § 150.80 How do I obtain OCC approval? You must file an application under part 116, subparts A and E of this chapter. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 You must file a written notice described at § 150.125 if you commence the activities in a new state. You do not need to file a written notice if you commence the activities at a new location in a state where you already conduct these activities. You do not have to obtain prior OCC approval or file a notice with the OCC. § 150.90 What information must I include in my application? You must describe the fiduciary powers that you or your affiliate will PO 00000 Frm 00056 Fmt 4701 Sfmt 4700 exercise. You must also include information necessary to enable the OCC to make the determinations described in § 150.100. E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations § 150.100 What factors may the OCC consider in its review of my application? § 150.135 How do I determine which state’s laws apply to my operations? The OCC may consider the following factors when reviewing your application: (a) Your financial condition. (b) Your capital and whether that capital is sufficient under the circumstances. (c) Your overall performance. (d) The fiduciary powers you propose to exercise. (e) Your proposed supervision of those powers. (f) The availability of legal counsel. (g) The needs of the community to be served. (h) Any other facts or circumstances that the OCC considers proper. (a) The state laws that apply to you by virtue of 12 U.S.C. 1464(n) are the laws of the states in which you conduct fiduciary activities. For each individual state, you may conduct fiduciary activities in the capacity of trustee, executor, administrator, guardian, or in any other fiduciary capacity the state permits for its state banks, trust companies, or other corporations that compete with Federal savings associations in the state. (b) For each fiduciary relationship, the state referred to in 12 U.S.C. 1464(n) is the state in which you conduct fiduciary activities for that relationship. § 150.110 § 150.136 To what extent do state laws apply to my fiduciary operations? [Reserved] § 150.120 What action will the OCC take on my application? The OCC may approve or deny your application. If your application is approved, the OCC may impose conditions to ensure that the requirements of this part are met. § 150.125 How do I file the notice under § 150.70(c)? (a) If you are required to file a notice under § 150.70(c), within ten days after you commence the fiduciary activities in a new state, you must file a written notice that identifies each new state in which you conduct or will conduct fiduciary activities, describe the fiduciary activities that you conduct or will conduct in each new state, and provide sufficient information supporting a conclusion that the activities are permissible in the state. (b) You must file the notice with the appropriate OCC licensing office. Subpart B—Exercising Fiduciary Powers sroberts on DSK5SPTVN1PROD with RULES § 150.130 How may I conduct multi-state operations? (a) Conducting fiduciary activities in more than one state. You may conduct fiduciary activities in any state, subject to the application and notice requirements in subpart A of this part. (b) Serving customers in more than one state. When you conduct fiduciary activities in a state: (1) You may market your fiduciary services to, and act as a fiduciary for, customers located in any state, may act as a fiduciary for relationships that include property located in other states, and may act as a testamentary trustee for a testator located in other states. (2) You may establish or utilize an office in any state to perform activities that are ancillary to your fiduciary business. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (a) Application of state law. To enhance safety and soundness and to enable Federal savings associations to conduct their fiduciary activities in accordance with the best practices of thrift institutions in the United States (by efficiently delivering fiduciary services to the public free from undue regulatory duplication and burden), the OCC intends to give Federal savings associations maximum flexibility to exercise their fiduciary powers in accordance with a uniform scheme of Federal regulation. Accordingly, Federal savings associations may exercise fiduciary powers as authorized under Federal law, including this part, without regard to state laws that purport to regulate or otherwise affect their fiduciary activities, except to the extent provided in 12 U.S.C. 1464(n) (state laws regarding scope of fiduciary powers, access to examination reports regarding trust activities, deposits of securities, oaths and affidavits, and capital) or in paragraph (c) of this section. For purposes of this section, ‘‘state law’’ includes any state statute, regulation, ruling, order, or judicial decision. (b) Illustrative examples. Examples of state laws that are preempted by the HOLA and this section include those regarding: (1) Registration and licensing; (2) Recordkeeping; (3) Advertising and marketing; (4) The ability of a Federal savings association conducting fiduciary activities to maintain an action or proceeding in state court; and (5) Fiduciary-related fees. (c) State laws that are not preempted. State laws of the following types are not preempted to the extent that they only incidentally affect the fiduciary operations of Federal savings associations or are otherwise consistent PO 00000 Frm 00057 Fmt 4701 Sfmt 4700 49005 with the purposes of paragraph (a) of this section: (1) Contract and commercial law; (2) Real property law; (3) Tort law; (4) Criminal law; (5) Probate law; and (6) Any other law that the OCC, upon review, finds: (i) Furthers a vital state interest; and (ii) Either has only an incidental effect on fiduciary operations or is not otherwise contrary to the purposes expressed in paragraph (a) of this section. § 150.140 Must I adopt and follow written policies and procedures in exercising fiduciary powers? You must adopt and follow written policies and procedures adequate to maintain your fiduciary activities in compliance with applicable law. Among other relevant matters, the policies and procedures should address, where appropriate, the following areas: (a) Your brokerage placement practices. (b) Your methods for ensuring that your fiduciary officers and employees do not use material inside information in connection with any decision or recommendation to purchase or sell any security. (c) Your methods for preventing selfdealing and conflicts of interest. (d) Your selection and retention of legal counsel who is ready and available to advise you and your fiduciary officers and employees on fiduciary matters. (e) Your investment of funds held as fiduciary, including short-term investments and the treatment of fiduciary funds awaiting investment or distribution. Fiduciary Personnel and Facilities § 150.150 Who is responsible for the exercise of fiduciary powers? The exercise of your fiduciary powers must be managed by or under the direction of your board of directors. In discharging its responsibilities, the board may assign any function related to the exercise of fiduciary powers to any director, officer, employee, or committee of directors, officers, or employees. § 150.160 What personnel and facilities may I use to perform fiduciary services? You may use your qualified personnel and facilities or an affiliate’s qualified personnel and facilities to perform services related to the exercise of fiduciary powers. E:\FR\FM\09AUR2.SGM 09AUR2 49006 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations § 150.170 May my other departments or affiliates use fiduciary personnel and facilities to perform other services? law, and you maintain adequate safeguards and controls. Your other departments or affiliates may use fiduciary officers, employees, and facilities to perform services unrelated to the exercise of fiduciary powers, to the extent not prohibited by applicable law. § 150.250 Must I keep fiduciary assets separate from other assets? § 150.180 May I perform fiduciary services for, or purchase fiduciary services from, another association or entity? You may perform services related to the exercise of fiduciary powers for another association or other entity under a written agreement. You may also purchase services related to the exercise of fiduciary powers from another association or other entity under a written agreement. § 150.190 Must fiduciary officers and employees be bonded? You must obtain an adequate bond for all fiduciary officers and employees. Review of a Fiduciary Account § 150.200 Must I review a prospective account before I accept it? Before accepting a prospective fiduciary account, you must review it to determine whether you can properly administer the account. § 150.210 Must I conduct another review of an account after I accept it? After you accept a fiduciary account for which you have investment discretion, you must conduct a prompt review of all assets of the account to evaluate whether they are appropriate, individually and collectively, for the account. § 150.220 Are any other account reviews required? At least once every calendar year, you must conduct a review of all assets of each fiduciary account for which you have investment discretion. In this review, you must evaluate whether the assets are appropriate, individually and collectively, for the account. Custody and Control of Assets sroberts on DSK5SPTVN1PROD with RULES § 150.230 Who must maintain custody or control of assets in a fiduciary account? You must place assets of fiduciary accounts in the joint custody or control of not fewer than two fiduciary officers or employees designated for that purpose by the board of directors. § 150.240 May I hold investments of a fiduciary account off-premises? You may hold the investments of a fiduciary account off-premises, if this practice is consistent with applicable VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 You must keep the assets of fiduciary accounts separate from your other assets. You must also keep the assets of each fiduciary account separate from all other accounts, or you must identify the investments as the property of a particular account, except as provided in § 150.260. Investing Funds of a Fiduciary Account § 150.260 How may I invest funds of a fiduciary account? (a) General. You must invest funds of a fiduciary account in a manner consistent with applicable law. (b) Collective investment funds. (1) You may invest funds of a fiduciary account in a collective investment fund, including a collective investment fund that you have established. In establishing and administering such funds, you must comply with 12 CFR 9.18. (2) If you must file a document with the OCC under 12 CFR 9.18, the OCC may review such documents for compliance with this part and other laws and regulations. (3) ‘‘Bank’’ and ‘‘national bank’’ as used in 12 CFR 9.18 shall be deemed to include a Federal savings association. Funds Awaiting Investment or Distribution § 150.290 What must I do with fiduciary funds awaiting investment or distribution? If you have investment discretion or discretion over distributions for a fiduciary account which contains funds awaiting investment or distribution, you must ensure that those funds do not remain uninvested and undistributed any longer than is reasonable for the proper management of the account and consistent with applicable law. You also must obtain a rate of return for those funds that is consistent with applicable law. § 150.300 Where may I deposit fiduciary funds awaiting investment or distribution? (a) Self deposits. You may deposit funds of a fiduciary account that are awaiting investment or distribution in your other departments, unless prohibited by applicable law. (b) Affiliate deposits. You may also deposit funds of a fiduciary account that are awaiting investment or distribution with an affiliated insured depository institution, unless prohibited by applicable law. PO 00000 Frm 00058 Fmt 4701 Sfmt 4700 § 150.310 What if the FDIC does not insure the deposits? If the FDIC does not insure the entire amount of a self deposit, you must set aside collateral as security. If the FDIC does not insure the entire amount of an affiliate deposit, you or your affiliate must set aside collateral as security. The market value of the collateral must at all times equal or exceed the amount of the uninsured fiduciary funds. You must place the collateral under the control of appropriate fiduciary officers and employees. § 150.320 What is acceptable collateral for uninsured deposits? Any of the following is acceptable collateral for self deposits or affiliate deposits under § 150.310: (a) Direct obligations of the United States, or other obligations fully guaranteed by the United States as to principal and interest. (b) Readily marketable securities of the classes in which state-chartered corporate fiduciaries are permitted to invest fiduciary funds under applicable state law. (c) Other readily marketable securities as the OCC may determine. (d) Surety bonds, to the extent they provide adequate security, unless prohibited by applicable law. (e) Any other assets that qualify under applicable state law as appropriate security for deposits of fiduciary funds. Restrictions on Self Dealing § 150.330 Are there investments in which I may not invest funds of a fiduciary account? You may not invest funds of a fiduciary account for which you have investment discretion in the following assets, unless authorized by applicable law: (a) The stock or obligations of, or assets acquired from, you or any of your directors, officers, or employees. (b) The stock or obligations of, or assets acquired from, your affiliates or any of their directors, officers, or employees. (c) The stock or obligations of, or assets acquired from, other individuals or organizations if you have an interest in the individual or organization that might affect the exercise of your best judgment. § 150.340 May I exercise rights to purchase additional stock or fractional shares of my stock or obligations or the stock or obligations of my affiliates? If the retention of investments in your stock or obligations or the stock or obligations of an affiliate in fiduciary accounts is consistent with applicable law, you may do either of the following: E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (a) Exercise rights to purchase additional stock (or securities convertible into additional stock) when these rights are offered pro rata to stockholders. (b) Purchase fractional shares to complement fractional shares acquired through the exercise of rights or through the receipt of a stock dividend resulting in fractional share holdings. sroberts on DSK5SPTVN1PROD with RULES § 150.350 May I lend, sell, or transfer assets of a fiduciary account if I have an interest in the transaction? § 150.360 May I make a loan to a fiduciary account that is secured by an interest in the assets of the account? You may make a loan to a fiduciary account that is secured by an interest in the assets of the account, if the 20:33 Aug 08, 2011 Jkt 223001 § 150.370 May I sell assets or lend money between fiduciary accounts? You may sell assets or lend money between fiduciary accounts, if the transaction is fair to both accounts and is not prohibited by applicable law. Compensation, Gifts, and Bequests § 150.380 May I earn compensation for acting in a fiduciary capacity? (a) General restriction. Except as provided in paragraph (b) of this section, you may not lend, sell, or otherwise transfer assets of a fiduciary account for which you have investment discretion to yourself or any of your directors, officers, or employees; to your affiliates or any of their directors, officers, or employees; or to other individuals or organizations with whom you have an interest that might affect the exercise of your best judgment. (b) Exceptions—(1) Funds for which you have investment discretion. You may lend, sell or otherwise transfer assets of a fiduciary account for which you have investment discretion to yourself or any of your directors, officers, or employees; to your affiliates or any of their directors, officers, or employees; or to other individuals or organizations with whom you have an interest that might affect the exercise of your best judgment, if you meet one of the following conditions: (i) The transaction is authorized by applicable law. (ii) Legal counsel advises you in writing that you have incurred, in your fiduciary capacity, a contingent or potential liability. Upon the sale or transfer of assets, you must reimburse the fiduciary account in cash in an amount equal to the greater of book or market value of the assets. (iii) The transaction is permitted under 12 CFR 9.18(b)(8)(iii) for defaulted fixed-income investments. (iv) The OCC requires you to do so. (2) Funds held as trustee. You may make loans of funds held in trust to any of your directors, officers, or employees if the funds are held in an employee benefit plan and the loan is made in accordance with the exemptions found at section 408 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1108). VerDate Mar<15>2010 transaction is fair to the account and is not prohibited by applicable law. If the amount of your compensation for acting in a fiduciary capacity is not set or governed by applicable law, you may charge a reasonable fee for your services. § 150.390 May my officer or employee retain compensation for acting as a cofiduciary? You may not permit your officers or employees to retain any compensation for acting as a co-fiduciary with you in the administration of a fiduciary account, except with the specific approval of your board of directors. § 150.400 May my fiduciary officer or employee accept a gift or bequest? You may not permit any fiduciary officer or employee to accept a bequest or gift of fiduciary assets, unless the bequest or gift is directed or made by a relative of the officer or employee or is specifically approved by your board of directors. 49007 (b) Continuous audit. Instead of an annual audit, you may adopt a continuous audit system. Under a continuous audit system, you must arrange for a discrete audit of each significant fiduciary activity (i.e., on an activity-by-activity basis) at an interval commensurate with the nature and risk of that activity. Some fiduciary activities may receive audits at intervals greater or less than one year, as appropriate. § 150.450 What standards govern the conduct of the audit? Auditors must follow generally accepted standards for attestation engagements and other standards established by the OCC. An audit must ascertain whether your internal control policies and procedures provide reasonable assurance of three things: (a) You are administering fiduciary activities in accordance with applicable law. (b) You are properly safeguarding fiduciary assets. (c) You are accurately recording transactions in appropriate accounts in a timely manner. § 150.460 Who may conduct an audit? Internal auditors, external auditors, or other qualified persons who are responsible only to the board of directors, may conduct an audit. § 150.470 audit? Who directs the conduct of the You must keep fiduciary records for three years after the termination of the account or the termination of any litigation relating to the account, whichever is later. Your fiduciary audit committee directs the conduct of the audit. Your fiduciary audit committee may consist of a committee of your directors or an audit committee of an affiliate. There are two restrictions on who may serve on the committee: (a) Your officers and officers of an affiliate who participate significantly in administering your fiduciary activities may not serve on the audit committee. (b) A majority of the members of the audit committee may not serve on any committee to which the board of directors has delegated power to manage and control your fiduciary activities. § 150.430 Must I keep fiduciary records separate and distinct from other records? § 150.480 audit? You must keep fiduciary records separate and distinct from your other records. (a) Annual audit. If you conduct an annual audit, you must note the results of the audit (including significant actions taken as a result of the audit) in the minutes of the board of directors. (b) Continuous audit. If you adopt a continuous audit system, you must note the results of all discrete audits conducted since the last audit report (including significant actions taken as a result of the audits) in the minutes of the board of directors at least once during each calendar year. Recordkeeping Requirements § 150.410 What records must I keep? You must keep adequate records for all fiduciary accounts. For example, you must keep documents on the establishment and termination of each fiduciary account. § 150.420 records? How long must I keep these Audit Requirements § 150.440 When do I have to audit my fiduciary activities? (a) Annual audit. If you do not use a continuous audit system described in paragraph (b) of this section, then you must arrange for a suitable audit of all significant fiduciary activities at least once during each calendar year. PO 00000 Frm 00059 Fmt 4701 Sfmt 4700 E:\FR\FM\09AUR2.SGM How do I report the results of the 09AUR2 49008 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations Subpart C—Depositing Securities With State Authorities § 150.490 When must I deposit securities with state authorities? You must deposit securities with a state’s authorities or, if applicable, a Federal Home Loan Bank under § 150.510, if you meet all of the following: (a) You are located in the state. (b) You act as a private or courtappointed trustee. (c) The law of the state requires corporations acting in a fiduciary capacity to deposit securities with state authorities for the protection of private or court trusts. § 150.500 How much must I deposit if I administer fiduciary assets in more than one state? If you administer fiduciary assets in more than one state, you must compute the amount of deposit required for each state on the basis of fiduciary assets that you administer primarily from offices located in that state. § 150.510 What must I do if state authorities refuse my deposit? If state authorities refuse to accept your deposit under § 150.490, you must deposit the securities with the Federal Home Loan Bank of which you are a member. The Federal Home Loan Bank will hold the securities for the protection of private or court trusts to the same extent as if the securities had been deposited with state authorities. Subpart D—Terminating Fiduciary Activities Receivership or Liquidation § 150.520 What happens if I am placed in receivership or voluntary liquidation? If the OCC appoints a conservator or receiver, or if you place yourself in voluntary liquidation, the receiver, conservator, or liquidating agent must promptly close or transfer all fiduciary accounts to a substitute fiduciary, in accordance with OCC instructions and the orders of the court having jurisdiction. Surrender of Fiduciary Powers sroberts on DSK5SPTVN1PROD with RULES § 150.530 powers? How do I surrender fiduciary discharged from all fiduciary duties, the appropriate OCC licensing office will issue a written notice indicating that you are no longer authorized to exercise fiduciary powers. § 150.550 May I recover my deposit from state authorities? Upon issuance of the OCC written notice under § 150.540, you may recover any securities deposited with state authorities, or a Federal Home Loan Bank, under subpart C of this part. Revocation of Fiduciary Powers § 150.560 When may the OCC revoke my fiduciary powers? The OCC may revoke your fiduciary powers if it determines that you have done any of the following: (a) Exercised those fiduciary powers unlawfully or unsoundly. (b) Failed to exercise those fiduciary powers for five consecutive years. (c) Otherwise failed to follow the requirements of this part. § 150.570 What procedures govern the revocation? The procedures for revocation of fiduciary powers are set forth in 12 U.S.C. 1464(n)(10). The OCC will conduct the hearing required under 12 U.S.C. 1464(n)(10)(B) under part 109 of this chapter. Subpart E—Activities Exempt From This Part § 150.580 When may I conduct fiduciary activities without obtaining OCC approval? Subject to the requirements of this subpart E, you do not need OCC approval under subpart B if you conduct fiduciary activities in the following fiduciary capacities: (a) Trustee of a trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan qualifying for specific tax treatment under section 401(d) of the Internal Revenue Code of 1954 (26 U.S.C. 401(d)). (b) Trustee or custodian of a Individual Retirement Account within the meaning of section 408(a) of the Internal Revenue Code of 1954 (26 U.S.C. 408(a)). If you want to surrender your fiduciary powers, you must file a certified copy of a resolution of your board of directors evidencing that intent. You must file the resolution with the appropriate OCC licensing office. § 150.590 What standards must I observe when acting in exempt fiduciary capacities? § 150.540 When will the OCC terminate my fiduciary powers? § 150.600 How may funds be invested when I act in an exempt fiduciary capacity? If, after appropriate investigation, the OCC is satisfied that you have been If you act in an exempt fiduciary capacity under § 150.580, the funds of VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 You must observe principles of sound fiduciary administration, including those related to recordkeeping and segregation of assets. PO 00000 Frm 00060 Fmt 4701 Sfmt 4700 the fiduciary account may be invested only in the following: (a) Your accounts, deposits, obligations, or securities. (b) Other assets as the customer may direct, provided you do not exercise any investment discretion and do not directly or indirectly provide any investment advice for the fiduciary account. § 150.610 What disclosures must I make when acting in exempt fiduciary capacities? (a) If you act in an exempt fiduciary capacity under § 150.580 and fiduciary investments are not limited to accounts or deposits insured by the FDIC, you must include the following language in bold type on the first page of any contract documents: (b) Funds invested pursuant to this agreement are not insured by the FDIC merely because the trustee or custodian is a Federal savings association the accounts of which are covered by such insurance. Only investments in the accounts of a Federal savings association are insured by the FDIC, subject to its rules and regulations. § 150.620 May I receive compensation for acting in exempt fiduciary capacities? You may receive reasonable compensation. PART 151—RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR SECURITIES TRANSACTIONS Sec. 151.10 What does this part do? 151.20 Must I comply with this part? 151.30 What requirements apply to all transactions? 151.40 What definitions apply to this part? Subpart A—Recordkeeping Requirements 151.50 What records must I maintain for securities transactions? 151.60 How must I maintain my records? Subpart B—Content and Timing of Notice 151.70 What type of notice must I provide when I effect a securities transaction for a customer? 151.80 How do I provide a registered broker-dealer confirmation? 151.90 How do I provide a written notice? 151.100 What are the alternate notice requirements? 151.110 May I provide a notice electronically? 151.120 May I charge a fee for a notice? Subpart C—Settlement of Securities Transactions 151.130 When must I settle a securities transaction? Subpart D—Securities Trading Policies and Procedures 151.140 What policies and procedures must I maintain and follow for securities transactions? E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 151.150 How do my officers and employees file reports of personal securities trading transactions? Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B). § 151.10 What does this part do? This part establishes recordkeeping and confirmation requirements that apply when a Federal savings association (‘‘you’’) effects certain securities transactions for customers. sroberts on DSK5SPTVN1PROD with RULES § 151.20 Must I comply with this part? (a) General. Except as provided under paragraph (b) of this section, you must comply with this part 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. (4) You effect a securities transaction as fiduciary. You also must comply with 12 CFR part 150 when you effect such a transaction. (b) Exceptions—(1) Small number of transactions. You are not required to comply with § 151.50(b) through (d) (recordkeeping) and § 151.140(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 § 151.50 (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 part when you conduct municipal securities transactions. (4) Foreign branches. You are not required to comply with this part when you conduct a transaction at your foreign branch. (5) Transactions by registered brokerdealers. You are not required to comply with this part for securities transactions effected by a registered broker-dealer, if the registered broker-dealer 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’’). VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 § 151.30 What requirements apply to all transactions? You must effect all transactions, including transactions excepted under § 151.20, 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. § 151.40 part? 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 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 any fund established under 12 CFR 150.260(b) or 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 PO 00000 Frm 00061 Fmt 4701 Sfmt 4700 49009 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: (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 the same as under 12 CFR 150.40(a). 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: E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 49010 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (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: (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. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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 other instrument the OCC determines does not constitute a security for purposes of this part. 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. Subpart A—Recordkeeping Requirements § 151.50 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 PO 00000 Frm 00062 Fmt 4701 Sfmt 4700 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 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 subpart B of this part. § 151.60 How must I maintain my records? (a) You may maintain the records required under § 151.50 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 OCC 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 OCC examiners; and (iii) To reasonably ensure that any reproduction of a non-electronic E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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. Subpart B—Content and Timing of Notice § 151.70 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 § 151.80, or the written notice described at § 151.90. For certain types of transactions, you may elect to provide the alternate notices described in § 151.100. § 151.80 How do I provide a registered broker-dealer confirmation? (a) If you elect to satisfy § 151.70 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 If you effect a transaction involving . . 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. § 151.90 notice? How do I provide a written If you elect to satisfy § 151.70 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 (2) A debt security that you effected exclusively on the basis of a dollar price. sroberts on DSK5SPTVN1PROD with RULES (3) A debt security that you effected on basis of yield ............................ 20:33 Aug 08, 2011 Jkt 223001 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 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: You must provide the following additional information in your written notice . . . . (1) A debt security subject to redemption before maturity ....................... VerDate Mar<15>2010 49011 PO 00000 Frm 00063 Fmt 4701 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. Sfmt 4700 E:\FR\FM\09AUR2.SGM 09AUR2 49012 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations If you effect a transaction involving . . You must provide the following additional information in your written notice . . . . (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 ............................ § 151.100 What are the alternate notice requirements? (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. described in the following chart for certain types of transactions. You may elect to satisfy § 151.70 by providing the alternate notices If you effect a securities transaction . . . Then you may elect to . . . (a) For or with the account of a customer under a periodic plan, sweep account, or investment company plan. 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 § 151.80 or the written notice described in § 151.90 within a reasonable time after the customer’s written request. 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 § 151.80 or the written notice described in § 151.90 within a reasonable time after the customer’s written request. Give or send the registered broker-dealer confirmation described in § 151.80 or the written notice described in § 151.90 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 § 151.80 or the written notice described in § 151.90 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. (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. (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. sroberts on DSK5SPTVN1PROD with RULES (f) For a common or collective investment fund ...................................... § 151.110 May I provide a notice electronically? You may provide any written notice required under this subpart B electronically. If a customer has a facsimile machine, you may send the notice by facsimile transmission. You VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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; PO 00000 Frm 00064 Fmt 4701 Sfmt 4700 (c) Your electronic communications system cannot automatically delete the electronic notice; and (d) Both parties are able to receive electronic messages. E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations § 151.120 May I charge a fee for a notice? You may not charge a fee for providing a notice required under this subpart B, except that you may charge a reasonable fee for the notices provided under §§ 151.100(a), (d), and (e). Subpart C—Settlement of Securities Transactions § 151.130 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 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. Subpart D—Securities Trading Policies and Procedures sroberts on DSK5SPTVN1PROD with RULES § 151.140 What policies and procedures must I maintain and follow for securities transactions? If you effect securities transactions for customers, you must maintain and 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: VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 49013 (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 reports described at § 151.150, 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. (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 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). § 151.150 How do my officers and employees file reports of personal securities trading transactions? Sec. 152.1 Procedure for organization of Federal stock association. 152.2 Procedures for organization of interim Federal stock association. 152.3 Charters for Federal stock associations. 152.4 Charter amendments. 152.5 Bylaws. 152.6 Shareholders. 152.7 Board of directors. 152.8 Officers. 152.9 Certificates for shares and their transfer. 152.10 Annual reports to stockholders. 152.11 Books and records. 152.12 [Reserved] 152.13 Combinations involving Federal stock associations. 152.14 Dissenter and appraisal rights. 152.15 Supervisory combinations. 152.16 Effect of subsequent charter or bylaw change. 152.17 Federal stock association created in connection with an association in default or in danger of default. An officer or employee described in § 151.140(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). PO 00000 Frm 00065 Fmt 4701 Sfmt 4700 PART 152—FEDERAL STOCK ASSOCIATIONS—INCORPORATION, ORGANIZATION, AND CONVERSION E:\FR\FM\09AUR2.SGM 09AUR2 49014 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 152.18 Conversion from stock form depository institution to Federal stock association. 152.19 Conversion to National banking association or state bank. Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 5412(b)(2)(B). sroberts on DSK5SPTVN1PROD with RULES § 152.1 Procedure for organization of Federal stock association. (a) Application for permission to organize. Applications for permission to organize a Federal stock association are subject to this section and to § 143.3 of this chapter. Recommendations by employees of the OCC regarding applications for permission to organize are privileged, confidential, and subject to Part 4, subpart C of this chapter. The processing of an application under this section shall be subject to the following procedures: (1) Publication. (i) The applicant shall publish a public notice of the application to organize in accordance with the procedures specified in subpart B of part 116 of this chapter. (ii) Promptly after publication of the public notice, the applicant shall transmit copies of the public notice and publisher’s affidavit of publication to the appropriate OCC licensing office in the same manner as the original filing. (iii) Any person may inspect the application and all related communications at the offices specified in 12 CFR 4.14(c) during regular business hours, unless such information is exempt from public disclosure. (2) Notification to interested parties. The OCC shall give notice of the application to the state official who supervises savings associations in the state in which the new association is to be located. (3) Submission of comments. Commenters may submit comments on the application in accordance with the procedures specified in subpart C of part 116 of this chapter. (4) Meetings. The OCC may arrange a meeting in accordance with the procedures in subpart D of part 116 of this chapter. (b) Conditions of approval. The OCC will decide all applications for permission to organize a Federal stock association. (1) Factors that will be considered on all applications for permission to organize a Federal stock association are: (i) Whether the applicants are persons of good character and responsibility; (ii) Whether a necessity exists for such association in the community to be served; (iii) Whether there is a reasonable probability of the association’s usefulness and success; VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (iv) Whether the association can be established without undue injury to properly conducted existing local thrift and home financing institutions; and (v) Whether the association will perform a role of providing credit for housing consistent with safe and sound operation of a Federal savings association. (2) [Reserved] (3) Approvals of applications will be conditioned on the following: (i) Receipt by the OCC of written confirmation from the Federal Deposit Insurance Corporation that the accounts of the association will be insured by the Federal Deposit Insurance Corporation; (ii) The sale of a minimum amount of fully-paid capital stock of the association prior to commencing business; (iii) The submission of a statement that: (A) The applicants have incurred no expense in organization which is chargeable to the association, and that no such expense will be incurred, and (B) No funds will be accepted for deposit by the association until organization has been completed; (iv) Compliance with all applicable laws, rules, and regulations; and (v) The satisfaction of any other requirement or condition the OCC may impose. (c) Issuance of charter. Upon approval of an application, the OCC shall issue to the association a charter for a Federal stock savings association or for a Federal stock savings bank, as requested by the applicants, which shall be in the form provided in this part. Issuance of the charter shall be subject to the condition subsequent that the organization of the association is completed pursuant to this section. (d) Interim board of directors and officers. Upon approval of the application and the issuance of the charter, the applicants shall constitute the interim board of directors of the association until the board of directors of the association are elected by its stockholders at the organizational meeting required by paragraph (g) of this section, and the interim officers of the association shall be those persons set forth in the application for permission to organize. (e) Sale of capital stock. Upon the issuance of the charter, the association shall proceed to offer and sell its capital stock pursuant to the requirements of part 197 of this chapter. (f) Bank membership and insurance of accounts. Promptly upon the issuance of the charter, a Federal stock association must qualify as a member of the appropriate Federal Home Loan PO 00000 Frm 00066 Fmt 4701 Sfmt 4700 Bank and meet all requirements necessary to obtain insurance of accounts by the Federal Deposit Insurance Corporation. (g) Organizational meeting. Promptly upon the completion of the sale of its capital stock, the association shall provide notice, pursuant to § 152.6(b), of a meeting of its stockholders to elect a board of directors. Immediately following such election, the directors shall meet to elect the officers of the association and to undertake any other action necessary under the charter or bylaws to complete corporate organization. (h) Completion of organization. Organization of a Federal stock association shall be deemed complete for the purposes of this part when: (1) The association has obtained Federal Home Loan Bank membership and insurance of its accounts from the Federal Deposit Insurance Corporation; (2) It has completed the sale of and received full payment for its capital stock; (3) It has complied with all requirements of part 197 of this chapter; (4) It has held its organizational meeting for the election of directors and all directors have been elected; (5) Its officers have been elected and bonded; and (6) It has met the requirements and conditions imposed by the OCC in connection with approval of the application. (i) Failure of completion. If organization of a Federal stock association is not completed within six months after approval of the application, or unless extended for an additional period for good cause shown, the charter shall become null and void and all subscriptions to capital stock shall be returned. § 152.2 Procedures for organization of interim Federal stock association. (a) Applications for permission to organize an interim Federal savings association are not subject to subparts B, C and D of part 116 of this chapter or § 152.1(b)(3) of this part. (b) Approval of an application for permission to organize an interim Federal stock association shall be conditioned upon approval by the OCC of an application to merge the interim Federal stock association, or upon approval by the OCC of another transaction which the interim was chartered to facilitate. Applications for permission to organize an interim Federal stock association shall be submitted in the same manner as the related filing(s). In evaluating the application, the OCC will consider the E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations purpose for which the association will be organized, the form of any proposed transactions involving the association, the effect of the transactions on existing associations involved in the transactions, and the factors specified in § 152.1(b)(1) to the extent relevant. (c) If a merger or other transaction facilitated by the existence of the interim Federal stock association has not been approved within six months of the approval of the application for permission to organize, unless extended for good cause shown, the charter shall be void and all subscriptions for capital stock shall be returned. sroberts on DSK5SPTVN1PROD with RULES § 152.3 Charters for Federal stock associations. The charter of a Federal stock association shall be in the following form, except that an association that has converted from the mutual form pursuant to part 192 of this chapter shall include in its charter a section establishing a liquidation account as required by § 192.3(c)(13) of this chapter. A charter for a Federal stock savings bank shall substitute the term ‘‘savings bank’’ for ‘‘association.’’ Charters may also include any preapproved optional provision contained in § 152.4 of this part. Federal Stock Charter Section 1. Corporate title. The full corporate title of the association is ll. Section 2. Office. The home office shall be located in ll [city, state]. Section 3. Duration. The duration of the association is perpetual. Section 4. Purpose and powers. The purpose of the association is to pursue any or all of the lawful objectives of a Federal savings association chartered under section 5 of the Home Owners’ Loan Act and to exercise all of the express, implied, and incidental powers conferred thereby and by all acts amendatory thereof and supplemental thereto, subject to the Constitution and laws of the United States as they are now in effect, or as they may hereafter be amended, and subject to all lawful and applicable rules, regulations, and orders of the Office of the Comptroller of the Currency (‘‘OCC’’). Section 5. Capital stock. The total number of shares of all classes of the capital stock that the association has the authority to issue is ll, all of which shall be common stock of par [or if no par is specified then shares shall have a stated] value of ll per share. The shares may be issued from time to time as authorized by the board of directors without the approval of its shareholders, except as otherwise provided in this Section 5 or to the extent that such approval is required by governing law, VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 rule, or regulation. The consideration for the issuance of the shares shall be paid in full before their issuance and shall not be less than the par [or stated] value. Neither promissory notes nor future services shall constitute payment or part payment for the issuance of shares of the association. The consideration for the shares shall be cash, tangible or intangible property (to the extent direct investment in such property would be permitted to the association), labor, or services actually performed for the association, or any combination of the foregoing. In the absence of actual fraud in the transaction, the value of such property, labor, or services, as determined by the board of directors of the association, shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, that part of the retained earnings of the association that is transferred to common stock or paid-in capital accounts upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance. Except for shares issued in the initial organization of the association or in connection with the conversion of the association from the mutual to stock form of capitalization, no shares of capital stock (including shares issuable upon conversion, exchange, or exercise of other securities) shall be issued, directly or indirectly, to officers, directors, or controlling persons of the association other than as part of a general public offering or as qualifying shares to a director, unless the issuance or the plan under which they would be issued has been approved by a majority of the total votes eligible to be cast at a legal meeting. The holders of the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by such holder, except as to the cumulation of votes for the election of directors, unless the charter provides that there shall be no such cumulative voting. Subject to any provision for a liquidation account, in the event of any liquidation, dissolution, or winding up of the association, the holders of the common stock shall be entitled, after payment or provision for payment of all debts and liabilities of the association, to receive the remaining assets of the association available for distribution, in cash or in kind. Each share of common stock shall have the same relative rights as and be identical in all respects with all the other shares of common stock. PO 00000 Frm 00067 Fmt 4701 Sfmt 4700 49015 Section 6. Preemptive rights. Holders of the capital stock of the association shall not be entitled to preemptive rights with respect to any shares of the association which may be issued. Section 7. Directors. The association shall be under the direction of a board of directors. The authorized number of directors, as stated in the association’s bylaws, shall not be fewer than five nor more than fifteen except when a greater or lesser number is approved by the OCC. Section 8. Amendment of charter. Except as provided in Section 5, no amendment, addition, alteration, change or repeal of this charter shall be made, unless such is proposed by the board of directors of the association, approved by the shareholders by a majority of the votes eligible to be cast at a legal meeting, unless a higher vote is otherwise required, and approved or preapproved by the OCC. Attest: lllllllllllllllll Secretary of the Association By: lllllllllllllllllll President or Chief Executive Officer of the Association Attest: lllllllllllllllll Deputy Comptroller for Licensing By: lllllllllllllllllll Comptroller of the Currency Effective Date: llllllllllllll § 152.4 Charter amendments. (a) General. In order to adopt a charter amendment, a Federal stock association must comply with the following requirements: (1) Board of directors approval. The board of directors of the association must adopt a resolution proposing the charter amendment that states the text of such amendment. (2) Form of filing—(i) Application requirement. If the proposed charter amendment would render more difficult or discourage a merger, tender offer, or proxy contest, the assumption of control by a holder of a block of the association’s stock, the removal of incumbent management, or involve a significant issue of law or policy, the association shall file the proposed amendment and shall obtain the prior approval of the OCC; and (ii) Notice requirement. If the proposed charter amendment does not involve a provision that would be covered by paragraph (a)(2)(i) of this section and such amendment is permissible under all applicable laws, rules or regulations, then the association shall submit the proposed amendments to the appropriate OCC licensing office, at least 30 days prior to the date the proposed charter amendment is to be mailed for consideration by the association’s shareholders. E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 49016 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (b) Approval. Any charter amendment filed pursuant to paragraph (a)(2)(ii) of this section shall automatically be approved 30 days from the date of filing of such amendment, provided that the association follows the requirements of its charter in adopting such amendment, unless prior to the expiration of such 30-day period the OCC notifies the association that such amendment is rejected or that such amendment is deemed to be filed under the provisions of paragraph (a)(2)(i) of this section. In addition, the following charter amendments, including the adoption of the Federal stock charter as set forth in § 152.3 of this part, shall be approved at the time of adoption, if adopted without change and filed with the OCC within 30 days after adoption, provided the association follows the requirements of its charter in adopting such amendments: (1) Title change. A Federal stock association that has complied with § 143.1(b) of this chapter may amend its charter by substituting a new corporate title in section 1. (2) Home office. A Federal savings association may amend its charter by substituting a new home office in section 2, if it has complied with applicable requirements of § 145.95 of this chapter. (3) Number of shares of stock and par value. A Federal stock association may amend Section 5 of its charter to change the number of authorized shares of stock, the number of shares within each class of stock, and the par or stated value of such shares. (4) Capital stock. A Federal stock association may amend its charter by revising Section 5 to read as follows: Section 5. Capital stock. The total number of shares of all classes of capital stock that the association has the authority to issue is ll, of which ll shall be common stock of par [or if no par value is specified the stated] value of ll per share and of which [list the number of each class of preferred and the par or if no par value is specified the stated value per share of each such class]. The shares may be issued from time to time as authorized by the board of directors without further approval of shareholders, except as otherwise provided in this Section 5 or to the extent that such approval is required by governing law, rule, or regulation. The consideration for the issuance of the shares shall be paid in full before their issuance and shall not be less than the par [or stated] value. Neither promissory notes nor future services shall constitute payment or part payment for the issuance of shares of the association. The consideration for the shares shall be VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 cash, tangible or intangible property (to the extent direct investment in such property would be permitted), labor, or services actually performed for the association, or any combination of the foregoing. In the absence of actual fraud in the transaction, the value of such property, labor, or services, as determined by the board of directors of the association, shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, that part of the retained earnings of the association that is transferred to common stock or paidin capital accounts upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance. Except for shares issued in the initial organization of the association or in connection with the conversion of the association from the mutual to the stock form of capitalization, no shares of capital stock (including shares issuable upon conversion, exchange, or exercise of other securities) shall be issued, directly or indirectly, to officers, directors, or controlling persons of the association other than as part of a general public offering or as qualifying shares to a director, unless their issuance or the plan under which they would be issued has been approved by a majority of the total votes eligible to be cast at a legal meeting. Nothing contained in this Section 5 (or in any supplementary sections hereto) shall entitle the holders of any class of a series of capital stock to vote as a separate class or series or to more than one vote per share, except as to the cumulation of votes for the election of directors, unless the charter otherwise provides that there shall be no such cumulative voting: Provided, That this restriction on voting separately by class or series shall not apply: (i) To any provision which would authorize the holders of preferred stock, voting as a class or series, to elect some members of the board of directors, less than a majority thereof, in the event of default in the payment of dividends on any class or series of preferred stock; (ii) To any provision that would require the holders of preferred stock, voting as a class or series, to approve the merger or consolidation of the association with another corporation or the sale, lease, or conveyance (other than by mortgage or pledge) of properties or business in exchange for securities of a corporation other than the association if the preferred stock is exchanged for securities of such other corporation: Provided, That no provision may require such approval for PO 00000 Frm 00068 Fmt 4701 Sfmt 4700 transactions undertaken with the assistance or pursuant to the direction of the OCC or the Federal Deposit Insurance Corporation; (iii) To any amendment which would adversely change the specific terms of any class or series of capital stock as set forth in this Section 5 (or in any supplementary sections hereto), including any amendment which would create or enlarge any class or series ranking prior thereto in rights and preferences. An amendment which increases the number of authorized shares of any class or series of capital stock, or substitutes the surviving association in a merger or consolidation for the association, shall not be considered to be such an adverse change. A description of the different classes and series (if any) of the association’s capital stock and a statement of the designations, and the relative rights, preferences, and limitations of the shares of each class of and series (if any) of capital stock are as follows: A. Common stock. Except as provided in this Section 5 (or in any supplementary sections thereto) the holders of the common stock shall exclusively possess all voting power. Each holder of shares of the common stock shall be entitled to one vote for each share held by each holder, except as to the cumulation of votes for the election of directors, unless the charter otherwise provides that there shall be no such cumulative voting. Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and of sinking fund, retirement fund, or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends out of any assets legally available for the payment of dividends. In the event of any liquidation, dissolution, or winding up of the association, the holders of the common stock (and the holders of any class or series of stock entitled to participate with the common stock in the distribution of assets) shall be entitled to receive, in cash or in kind, the assets of the association available for distribution remaining after: (i) Payment or provision for payment of the association’s debts and liabilities; (ii) distributions or provision for distributions in settlement of its E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations liquidation account; and (iii) distributions or provision for distributions to holders of any class or series of stock having preference over the common stock in the liquidation, dissolution, or winding up of the association. Each share of common stock shall have the same relative rights as and be identical in all respects with all the other shares of common stock. B. Preferred stock. The association may provide in supplementary sections to its charter for one or more classes of preferred stock, which shall be separately identified. The shares of any class may be divided into and issued in series, with each series separately designated so as to distinguish the shares thereof from the shares of all other series and classes. The terms of each series shall be set forth in a supplementary section to the charter. All shares of the same class shall be identical except as to the following relative rights and preferences, as to which there may be variations between different series: (a) The distinctive serial designation and the number of shares constituting such series; (b) The dividend rate or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date(s), the payment date(s) for dividends, and the participating or other special rights, if any, with respect to dividends; (c) The voting powers, full or limited, if any, of shares of such series; (d) Whether the shares of such series shall be redeemable and, if so, the price(s) at which, and the terms and conditions on which, such shares may be redeemed; (e) The amount(s) payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the association; (f) Whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price(s) at which such shares may be redeemed or purchased through the application of such fund; (g) Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes of stock of the association and, if so, the conversion price(s) or the rate(s) of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 conditions of such conversion or exchange. (h) The price or other consideration for which the shares of such series shall be issued; and (i) Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock. Each share of each series of serial preferred stock shall have the same relative rights as and be identical in all respects with all the other shares of the same series. The board of directors shall have authority to divide, by the adoption of supplementary charter sections, any authorized class of preferred stock into series, and, within the limitations set forth in this section and the remainder of this charter, fix and determine the relative rights and preferences of the shares of any series so established. Prior to the issuance of any preferred shares of a series established by a supplementary charter section adopted by the board of directors, the association shall file with the OCC a dated copy of that supplementary section of this charter established and designating the series and fixing and determining the relative rights and preferences thereof. (5) Limitations on subsequent issuances. A Federal stock association may amend its charter to require shareholder approval of the issuance or reservation of common stock or securities convertible into common stock under circumstances which would require shareholder approval under the rules of the New York or American Stock Exchange if the shares were then listed on the New York or American Stock Exchange. (6) Cumulative voting. A Federal stock association may amend its charter by substituting the following sentence for the second sentence in the third paragraph of Section 5: ‘‘Each holder of shares of common stock shall be entitled to one vote for each share held by such holder and there shall be no right to cumulate votes in an election of directors.’’ (7) [Reserved] (8) Anti-takeover provisions following mutual to stock conversion. Notwithstanding the law of the state in which the association is located, a Federal stock association may amend its charter by renumbering existing sections as appropriate and adding a new section 8 as follows: Section 8. Certain Provisions Applicable for Five Years. Notwithstanding anything contained in PO 00000 Frm 00069 Fmt 4701 Sfmt 4700 49017 the Association’s charter or bylaws to the contrary, for a period of [specify number of years up to five] years from the date of completion of the conversion of the Association from mutual to stock form, the following provisions shall apply: A. Beneficial Ownership Limitation. No person shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10 percent of any class of an equity security of the association. This limitation shall not apply to a transaction in which the association forms a holding company without change in the respective beneficial ownership interests of its stockholders other than pursuant to the exercise of any dissenter and appraisal rights, the purchase of shares by underwriters in connection with a public offering, or the purchase of shares by a tax-qualified employee stock benefit plan which is exempt from the approval requirements under § 174.3(c)(2)(i)(D) of the OCC’s regulations. In the event shares are acquired in violation of this section 8, all shares beneficially owned by any person in excess of 10% shall be considered ‘‘excess shares’’ and shall not be counted as shares entitled to vote and shall not be voted by any person or counted as voting shares in connection with any matters submitted to the stockholders for a vote. For purposes of this section 8, the following definitions apply: (1) The term ‘‘person’’ includes an individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of the equity securities of the association. (2) The term ‘‘offer’’ includes every offer to buy or otherwise acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of, a security or interest in a security for value. (3) The term ‘‘acquire’’ includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise. (4) The term ‘‘acting in concert’’ means (a) knowing participation in a joint activity or conscious parallel action towards a common goal whether or not pursuant to an express agreement, or (b) 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 E:\FR\FM\09AUR2.SGM 09AUR2 49018 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations arrangements, whether written or otherwise. B. Cumulative Voting Limitation. Stockholders shall not be permitted to cumulate their votes for election of directors. C. Call for Special Meetings. Special meetings of stockholders relating to changes in control of the association or amendments to its charter shall be called only upon direction of the board of directors. (c) Anti-takeover provisions. The OCC may grant approval to a charter amendment not listed in paragraph (b) of this section regarding the acquisition by any person or persons of its equity securities provided that the association shall file as part of its application for approval an opinion, acceptable to the OCC, of counsel independent from the association that the proposed charter provision would be permitted to be adopted by a corporation chartered by the state in which the principal office of the association is located. Any such provision must be consistent with applicable statutes, regulations, and OCC policies. Further, any such provision that would have the effect of rendering more difficult a change in control of the association and would require for any corporate action (other than the removal of directors) the affirmative vote of a larger percentage of shareholders than is required by this part, shall not be effective unless adopted by a percentage of shareholder vote at least equal to the highest percentage that would be required to take any action under such provision. (d) Reissuance of charter. A Federal stock association that has amended its charter may apply to have its charter, including the amendments, reissued by the OCC. Such requests for reissuance should be filed with the appropriate OCC licensing office, and contain signatures required under § 152.3 of this part, together with such supporting documents as needed to demonstrate that the amendments were properly adopted. sroberts on DSK5SPTVN1PROD with RULES § 152.5 Bylaws. (a) General. At its first organizational meeting, the board of directors of a Federal stock association shall adopt a set of bylaws for the administration and regulation of its affairs. Bylaws may be adopted, amended or repealed by either a majority of the votes cast by the shareholders at a legal meeting or a majority of the board of directors. The bylaws shall contain sufficient provisions to govern the association in accordance with the requirements of §§ 152.6, 152.7, 152.8, and 152.9 of this part and shall not contain any provision VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 that is inconsistent with those sections or with applicable laws, rules, regulations or the association’s charter, except that a bylaw provision inconsistent with §§ 152.6, 152.7, and 152.9, of this part may be adopted with the approval of the OCC. (b) Form of Filing—(1) Application requirement. (i) Any bylaw amendment shall be submitted to the OCC for approval if it would: (A) Render more difficult or discourage a merger, tender offer, or proxy contest, the assumption of control by a holder of a large block of the association’s stock, or the removal of incumbent management; or (B) Be inconsistent with §§ 152.6, 152.7, 152.8, and 152.9 of this part, with applicable laws, rules, regulations or the association’s charter or involve a significant issue of law or policy, including indemnification, conflicts of interest, and limitations on director or officer liability. (ii) Applications submitted under paragraph (b)(1)(i) of this section are subject to standard treatment processing procedures at part 116, subparts A and E of this chapter. (iii) Bylaw provisions that adopt the language of the OCC’s model or optional bylaws, if adopted without change, and filed with the OCC within 30 days after adoption, are effective upon adoption. (2) Filing requirement. If the proposed bylaw amendment does not involve a provision that would be covered by paragraph (b)(1) or (b)(3) of this section and is permissible under all applicable laws, rules, or regulations, then the association shall submit the amendment to the OCC at least 30 days prior to the date the bylaw amendment is to be adopted by the association. (3) Corporate governance procedures. A Federal stock association may elect to follow the corporate governance procedures of: The laws of the state where the main office of the association is located; the laws of the state where the association’s holding company, if any, is incorporated or chartered; Delaware General Corporation law; or The Model Business Corporation Act, provided that such procedures may be elected to the extent not inconsistent with applicable Federal statutes and regulations and safety and soundness, and such procedures are not of the type described in paragraph (b)(1) of this section. If this election is selected, a Federal stock association shall designate in its bylaws the provision or provisions from the body or bodies of law selected for its corporate governance procedures, and shall file a copy of such bylaws, which are effective upon adoption, within 30 days after adoption. The PO 00000 Frm 00070 Fmt 4701 Sfmt 4700 submission shall indicate, where not obvious, why the bylaw provisions meet the requirements stated in paragraph (b)(1) of this section. (c) Effectiveness. Any bylaw amendment filed pursuant to paragraph (b)(2) of this section shall automatically be effective 30 days from the date of filing of such amendment, provided that the association follows the requirements of its charter and bylaws in adopting such amendment, unless prior to the expiration of such 30-day period the OCC notifies the association that such amendment is rejected or that such amendment requires an application to be filed pursuant to paragraph (b)(1) of this section. (d) Effect of subsequent charter or bylaw change. Notwithstanding any subsequent change to its charter or bylaws, the authority of a Federal stock association to engage in any transaction shall be determined only by the association’s charter or bylaws then in effect, unless otherwise provided by Federal law or regulation. § 152.6 Shareholders. (a) Shareholder meetings. A meeting of the shareholders of the association for the election of directors and for the transaction of any other business of the association shall be held annually within 150 days after the end of the association’s fiscal year. Unless otherwise provided in the association’s charter, special meetings of the shareholders may be called by the board of directors or on the request of the holders of 10 percent or more of the shares entitled to vote at the meeting, or by such other persons as may be specified in the bylaws of the association. All annual and special meetings of shareholders shall be held at such place as the board of directors may determine in the state in which the association has its principal place of business, or at any other convenient place the board of directors may designate. (b) Notice of shareholder meetings. Written notice stating the place, day, and hour of the meeting and the purpose or purposes for which the meeting is called shall be delivered not fewer than 20 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the chairman of the board, the president, the secretary, or the directors, or other persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the mail, addressed to the shareholder at the address appearing on the stock transfer E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations books or records of the association as of the record date prescribed in paragraph (c) of this section, with postage thereon prepaid. When any shareholders’ meeting, either annual or special, is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Notwithstanding anything in this section, however, a Federal stock association that is wholly owned shall not be subject to the shareholder notice requirement. (c) Fixing of record date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall be not more than 60 days and, in case of a meeting of shareholders, not less than 10 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. (d) Voting lists. (1) At least 20 days before each meeting of the shareholders, the officer or agent having charge of the stock transfer books for the shares of the association shall make a complete list of the stockholders of record entitled to vote at such meeting, or any adjournments thereof, arranged in alphabetical order, with the address and the number of shares held by each. This list of shareholders shall be kept on file at the home office of the association and shall be subject to inspection by any shareholder of record or the stockholder’s agent during the entire time of the meeting. The original stock transfer book shall constitute prima facie evidence of the stockholders entitled to examine such list or transfer books or to vote at any meeting of stockholders. Notwithstanding anything in this section, however, a Federal stock association that is wholly owned shall not be subject to the voting list requirements. (2) In lieu of making the shareholders list available for inspection by any shareholders as provided in paragraph (d)(1) of this section, the board of directors may perform such acts as required by paragraphs (a) and (b) of Rule 14a–7 of the General Rules and Regulations under the Securities and VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 Exchange Act of 1934 (17 CFR 240.14a– 7) as may be duly requested in writing, with respect to any matter which may be properly considered at a meeting of shareholders, by any shareholder who is entitled to vote on such matter and who shall defray the reasonable expenses to be incurred by the association in performance of the act or acts required. (e) Shareholder quorum. A majority of the outstanding shares of the association entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the vote of a greater number of stockholders voting together or voting by classes is required by law or the charter. Directors, however, are elected by a plurality of the votes cast at an election of directors. (f) Shareholder voting—(1) Proxies. Unless otherwise provided in the association’s charter, at all meetings of shareholders, a shareholder may vote in person or by proxy executed in writing by the shareholder or by a duly authorized attorney in fact. Proxies may be given telephonically or electronically as long as the holder uses a procedure for verifying the identity of the shareholder. A proxy may designate as holder a corporation, partnership or company as defined in part 174 of this chapter, or other person. Proxies solicited on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid more than eleven months from the date of its execution except for a proxy coupled with an interest. (2) Shares controlled by association. Neither treasury shares of its own stock held by the association nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the association, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting. (g) Nominations and new business submitted by shareholders. Nominations for directors and new business submitted by shareholders shall be voted upon at the annual meeting if such nominations or new business are PO 00000 Frm 00071 Fmt 4701 Sfmt 4700 49019 submitted in writing and delivered to the secretary of the association at least five days prior to the date of the annual meeting. Ballots bearing the names of all the persons nominated shall be provided for use at the annual meeting. (h) Informal action by stockholders. If the bylaws of the association so provide, any action required to be taken at a meeting of the stockholders, or any other action that may be taken at a meeting of the stockholders, may be taken without a meeting if consent in writing has been given by all the stockholders entitled to vote with respect to the subject matter. § 152.7 Board of directors. (a) General powers and duties. The business and affairs of the association shall be under the direction of its board of directors. The board of directors shall annually elect a chairman of the board from among its members and shall designate the chairman of the board, when present, to preside at its meeting. Directors need not be stockholders unless the bylaws so require. (b) Number and term. The bylaws shall set forth a specific number of directors, not a range. The number of directors shall be not fewer than five nor more than fifteen, unless a higher or lower number has been authorized by the OTS, prior to July 21, 2011 or the OCC. Directors shall be elected for a term of one to three years and until their successors are elected and qualified. If a staggered board is chosen, the directors shall be divided into two or three classes as nearly equal in number as possible and one class shall be elected by ballot annually. In the case of a converting or newly chartered association where all directors shall be elected at the first election of directors, if a staggered board is chosen, the terms shall be staggered in length from one to three years. (c) Regular meetings. A regular meeting of the board of directors shall be held immediately after, and at the same place as, the annual meeting of shareholders. The board of directors shall determine the place, frequency, time and procedure for notice of regular meetings. (d) Quorum. A majority of the number of directors shall constitute a quorum for the transaction of business at any meeting of the board of directors. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by regulation of the OCC. (e) Vacancies. Any vacancy occurring in the board of directors may be filled by the affirmative vote of a majority of E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 49020 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations the remaining directors although less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected to serve only until the next election of directors by the shareholders. Any directorship to be filled by reason of an increase in the number of directors may be filled by election by the board of directors for a term of office continuing only until the next election of directors by the shareholders. (f) Removal or resignation of directors. (1) At a meeting of shareholders called expressly for that purpose, any director may be removed only for cause, as defined in § 163.39 of this chapter, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. Associations may provide for procedures regarding resignations in the bylaws. (2) If less than the entire board is to be removed, no one of the directors may be removed if the votes cast against the removal would be sufficient to elect a director if then cumulatively voted at an election of the class of directors of which such director is a part. (3) Whenever the holders of the shares of any class are entitled to elect one or more directors by the provisions of the charter or supplemental sections thereto, the provisions of this section shall apply, in respect to the removal of a director or directors so elected, to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole. (g) Executive and other committees. The board of directors, by resolution adopted by a majority of the full board, may designate from among its members an executive committee and one or more other committees each of which, to the extent provided in the resolution or bylaws of the association, shall have and may exercise all of the authority of the board of directors, except no committee shall have the authority of the board of directors with reference to: the declaration of dividends; the amendment of the charter or bylaws of the association; recommending to the stockholders a plan of merger, consolidation, or conversion; the sale, lease, or other disposition of all, or substantially all, of the property and assets of the association otherwise than in the usual and regular course of its business; a voluntary dissolution of the association; a revocation of any of the foregoing; or the approval of a transaction in which any member of the executive committee, directly or indirectly, has any material beneficial interest. The designation of any committee and the delegation of authority thereto shall not operate to VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 relieve the board of directors, or any director, of any responsibility imposed by law or regulation. (h) Notice of special meetings. Written notice of at least 24 hours regarding any special meeting of the board of directors or of any committee designated thereby shall be given to each director in accordance with the bylaws, although such notice may be waived by the director. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting need be specified in the notice or waiver of notice of such meeting. The bylaws may provide for telephonic participation at a meeting. (i) Action without a meeting. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the actions so taken, shall be signed by all of the directors. (j) Presumption of assent. A director of the association who is present at a meeting of the board of directors at which action on any association matter is taken shall be presumed to have assented to the action taken unless his or her dissent or abstention shall be entered in the minutes of the meeting or unless a written dissent to such action shall be filed with the person acting as the secretary of the meeting before the adjournment thereof or shall be forwarded by registered mail to the secretary of the association within five days after the date on which a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a director who voted in favor of such action. (k) Age limitation on directors. A Federal association may provide a bylaw on age limitation for directors. Bylaws on age limitations must comply with all Federal laws, rules and regulations. § 152.8 Officers. (a) Positions. The officers of the association shall be a president, one or more vice presidents, a secretary, and a treasurer or comptroller, each of whom shall be elected by the board of directors. The board of directors may also designate the chairman of the board as an officer. The offices of the secretary and treasurer or comptroller may be held by the same person and the vice president may also be either the secretary or the treasurer or comptroller. PO 00000 Frm 00072 Fmt 4701 Sfmt 4700 The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the association may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices. (b) Removal. Any officer may be removed by the board of directors whenever in its judgment the best interests of the association will be served thereby; but such removal, other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed. Employment contracts shall conform with § 163.39 of this chapter. (c) Age limitation on officers. A Federal association may provide a bylaw on age limitation for officers. Bylaws on age limitations must comply with all Federal laws, rules, and regulations. § 152.9 Certificates for shares and their transfer. (a) Certificates for shares. Certificates representing shares of capital stock of the association shall be in such form as shall be determined by the board of directors and approved by the OCC. The certificates shall be signed by the chief executive officer or by any other officer of the association authorized by the board of directors, attested by the secretary or an assistant secretary, and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar other than the association itself or one of its employees. Each certificate for shares of capital stock shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the association. All certificates surrendered to the association for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in the case of a lost or destroyed certificate a new certificate may be issued upon such terms and indemnity to the association as the board of directors may prescribe. E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (b) Transfer of shares. Transfer of shares of capital stock of the association shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record or by a legal representative, who shall furnish proper evidence of such authority, or by an attorney authorized by a duly executed power of attorney and filed with the association. The transfer shall be made only on surrender for cancellation of the certificate for the shares. The person in whose name shares of capital stock stand on the books of the association shall be deemed by the association to be the owner for all purposes. § 152.10 Annual reports to stockholders. A Federal stock association not wholly-owned by a holding company shall, within 130 days after the end of its fiscal year, mail to each of its stockholders entitled to vote at its annual meeting an annual report containing financial statements that satisfy the requirements of rule 14a–3 under the Securities Exchange Act of 1934. (17 CFR 240.14a–3). Concurrently with such mailing a certification of such mailing signed by the chairman of the board, the president or a vice president of the association, together with copies of the report, shall be transmitted by the association to the OCC. sroberts on DSK5SPTVN1PROD with RULES § 152.11 Books and records. (a) Each Federal stock association shall keep correct and complete books and records of account; shall keep minutes of the proceedings of its stockholders, board of directors, and committees of directors; and shall keep at its home office or at the office of its transfer agent or registrar, a record of its stockholders, giving the names and addresses of all stockholders, and the number, class and series, if any, of the shares held by each. (b)(1) Any stockholder or group of stockholders of a Federal stock association, holding of record the number of voting shares of such association specified below, upon making written demand stating a proper purpose, shall have the right to examine, in person or by agent or attorney, at any reasonable time or times, nonconfidential portions of its books and records of account, minutes and record of stockholders and to make extracts therefrom. Such right of examination is limited to a stockholder or group of stockholders holding of record: (i) Voting shares having a cost of not less than $100,000 or constituting not less than one percent of the total outstanding voting shares, provided in VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 either case such stockholder or group of stockholders have held of record such voting shares for a period of at least six months before making such written demand, or (ii) Not less than five percent of the total outstanding voting shares. (2) No stockholder or group of stockholders of a Federal stock association shall have any other right under this section or common law to examine its books and records of account, minutes and record of stockholders, except as provided in its bylaws with respect to inspection of a list of stockholders. (c) The right to examination authorized by paragraph (b) of this section and the right to inspect the list of stockholders provided by a Federal stock association’s bylaws may be denied to any stockholder or group of stockholders upon the refusal of any such stockholder or group of stockholders to furnish such association, its transfer agent or registrar an affidavit that such examination or inspection is not desired for any purpose which is in the interest of a business or object other than the business of the association, that such stockholder has not within the five years preceding the date of the affidavit sold or offered for sale, and does not now intend to sell or offer for sale, any list of stockholders of the association or of any other corporation, and that such stockholder has not within said fiveyear period aided or abetted any other person in procuring any list of stockholders for purposes of selling or offering for sale such list. (d) Notwithstanding any provision of this section or common law, no stockholder or group of stockholders shall have the right to obtain, inspect or copy any portion of any books or records of a Federal stock association containing: (1) A list of depositors in or borrowers from such association; (2) Their addresses; (3) Individual deposit or loan balances or records; or (4) Any data from which such information could be reasonably constructed. § 152.12 [Reserved] § 152.13 Combinations involving Federal stock associations. (a) Scope and authority. Federal stock associations may enter into combinations only in accordance with the provisions of this section, section 18(c) of the Federal Deposit Insurance Act, sections 5(d)(3)(A) and 10(s) of the Home Owners’ Loan Act, and § 163.22 of this part. PO 00000 Frm 00073 Fmt 4701 Sfmt 4700 49021 (b) Definitions. The following definitions apply to §§ 152.13 and 152.14 of this part: (1) Combination. A merger or consolidation with another depository institution, or an acquisition of all or substantially all of the assets or assumption of all or substantially all of the liabilities of a depository institution by another depository institution. Combine means to be a constituent institution in a combination. (2) Consolidation. Fusion of two or more depository institutions into a newly-created depository institution. (3) Constituent institution. Resulting, disappearing, acquiring, or transferring depository institution in a combination. (4) Depository institution means any commercial bank (including a private bank), a savings bank, a trust company, a savings and loan association, a building and loan association, a homestead association, a cooperative bank, an industrial bank or a credit union, chartered in the United States and having its principal office located in the United States. (5) Disappearing institution. A depository institution whose corporate existence does not continue after a combination. (6) Merger. Uniting two or more depository institutions by the transfer of all property rights and franchises to the resulting depository institution, which retains its corporate identity. (7) Mutual savings association. Any savings association organized in a form not requiring non-withdrawable stock under Federal or state law. (8) Resulting institution. The depository institution whose corporate existence continues after a combination. (9) Savings association has the same meaning as defined in § 161.43 of this chapter. (10) State. Includes the District of Columbia, Commonwealth of Puerto Rico, and states, territories, and possessions of the United States. (11) Stock association. Any savings association organized in a form requiring non-withdrawable stock. (c) Forms of combination. A Federal stock association may combine with any depository institution, provided that: (1) The combination is in compliance with, and receives all approvals required under, any applicable statutes and regulations; (2) Any resulting Federal savings association meets the requirements for Federal Home Loan Bank membership and insurance of accounts; (3) Any resulting Federal savings association conforms within the time prescribed by the OCC to the E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 49022 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations requirements of sections 5(c) and 10(m) of the Home Owners’ Loan Act; and (4) If any constituent savings association is a mutual savings association, the resulting institution shall be mutually held, unless: (i) The transaction involves a supervisory merger; (ii) The transaction is approved under part 192 of this chapter; (iii) The transaction involves an interim Federal stock association or an interim state stock savings association; or (iv) The transaction involves a transfer in the context of a mutual holding company reorganization under section 10(o) of the Home Owners’ Loan Act. (d) Combinations. Prior written notification to, notice to, or prior written approval of, the OCC pursuant to § 163.22 of this chapter is required for every combination. In the case of applications and notices pursuant to § 163.22 (a) or (c), the OCC shall apply the criteria set out in § 163.22 of this chapter and shall impose any conditions it deems necessary or appropriate to ensure compliance with those criteria and the requirements of this chapter. (e) Approval of the board of directors. Before filing a notice or application for any combination involving a Federal stock association, the combination shall be approved: (1) By a two-thirds vote of the entire board of each constituent Federal savings association; and (2) As required by other applicable Federal or state law, for other constituent institutions. (f) Combination agreement. All terms, conditions, agreements or understandings, or other provisions with respect to a combination involving a Federal savings association shall be set forth fully in a written combination agreement. The combination agreement shall state: (1) That the combination shall not be effective unless and until: (i) The combination receives any necessary approval from the OCC pursuant to § 163.22 (a) or (c); (ii) In the case of a transaction requiring a notification pursuant to § 163.22(b), notification has been provided to the OCC; or (iii) In the case of a transaction requiring a notice pursuant to § 163.22(c), the notice has been filed, and the appropriate period of time has passed or the OCC has advised the parties that it will not disapprove the transaction; (2) Which constituent institution is to be the resulting institution; (3) The name of the resulting institution; VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (4) The location of the home office and any other offices of the resulting institution; (5) The terms and conditions of the combination and the method of effectuation; (6) Any charter amendments, or the new charter in the combination; (7) The basis upon which the savings accounts of the resulting institution shall be issued; (8) If a Federal association is the resulting institution, the number, names, residence addresses, and terms of directors; (9) The effect upon and assumption of any liquidation account of a disappearing institution by the resulting institution; and (10) Such other provisions, agreements, or understandings as relate to the combination. (g) [Reserved] (h) Approval by stockholders—(1) General rule. Except as otherwise provided in this section, an affirmative vote of two-thirds of the outstanding voting stock of any constituent Federal savings association shall be required for approval of the combination agreement. If any class of shares is entitled to vote as a class pursuant to § 152.4 of this part, an affirmative vote of a majority of the shares of each voting class and twothirds of the total voting shares shall be required. The required vote shall be taken at a meeting of the savings association. (2) General exception. Stockholders of the resulting Federal stock association need not authorize a combination agreement if: (i) It does not involve an interim Federal savings association or an interim state savings association; (ii) The association’s charter is not changed; (iii) Each share of stock outstanding immediately prior to the effective date of the combination is to be an identical outstanding share or a treasury share of the resulting Federal stock association after such effective date; and (iv) Either: (A) No shares of voting stock of the resulting Federal stock association and no securities convertible into such stock are to be issued or delivered under the plan of combination, or (B) The authorized unissued shares or the treasury shares of voting stock of the resulting Federal stock association to be issued or delivered under the plan of combination, plus those initially issuable upon conversion of any securities to be issued or delivered under such plan, do not exceed 15% of the total shares of voting stock of such association outstanding immediately PO 00000 Frm 00074 Fmt 4701 Sfmt 4700 prior to the effective date of the combination. (3) Exceptions for certain combinations involving an interim association. Stockholders of a Federal stock association need not authorize by a two-thirds affirmative vote combinations involving an interim Federal savings association or interim state savings association when the resulting Federal stock association is acquired pursuant to regulations of the Board of Governors of the Federal Reserve System. In those cases, an affirmative vote of 50 percent of the shares of the outstanding voting stock of the Federal stock association plus one affirmative vote shall be required. If any class of shares is entitled to vote as a class pursuant to § 152.4 of this part, an affirmative vote of 50 percent of the shares of each voting class plus one affirmative vote shall be required. The required votes shall be taken at a meeting of the association. (i) Disclosure. The OCC may require, in connection with a combination under this section, such disclosure of information as the OCC deems necessary or desirable for the protection of investors in any of the constituent associations. (j) Articles of combination. (1) Following stockholder approval of any combination in which a Federal savings association is the resulting institution, articles of combination shall be executed in duplicate by each constituent institution, by its chief executive officer or executive vice president and by its secretary or an assistant secretary, and verified by one of the officers of each institution signing such articles, and shall set forth: (i) The plan of combination; (ii) The number of shares outstanding in each depository institution; and (iii) The number of shares in each depository institution voted for and against such plan. (2) Both sets of articles of combination shall be filed with the OCC. If the OCC determines that such articles conform to the requirements of this section, the OCC shall endorse the articles and return one set to the resulting institution. (k) Effective date. No combination under this section shall be effective until receipt of any approvals required by the OCC. The effective date of a combination in which the resulting institution is a Federal stock association shall be the date of consummation of the transaction or such other later date specified on the endorsement of the articles of combination by the OCC. If a disappearing institution combining under this section is a Federal stock E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations association, its charter shall be deemed to be cancelled as of the effective date of the combination and such charter must be surrendered to the OCC as soon as practicable after the effective date. (l) Mergers and consolidations: transfer of assets and liabilities to the resulting institution. Upon the effective date of a merger or consolidation under this section, if the resulting institution is a Federal savings association, all assets and property (real, personal and mixed, tangible and intangible, choses in action, rights, and credits) then owned by each constituent institution or which would inure to any of them, shall, immediately by operation of law and without any conveyance, transfer, or further action, become the property of the resulting Federal savings association. The resulting Federal savings association shall be deemed to be a continuation of the entity of each constituent institution, the rights and obligations of which shall succeed to such rights and obligations and the duties and liabilities connected therewith, subject to the Home Owners’ Loan Act and other applicable statutes. sroberts on DSK5SPTVN1PROD with RULES § 152.14 Dissenter and appraisal rights. (a) Right to demand payment of fair or appraised value. Except as provided in paragraph (b) of this section, any stockholder of a stock association combining in accordance with § 152.13 of this part shall have the right to demand payment of the fair or appraised value of his stock: Provided, That such stockholder has not voted in favor of the combination and complies with the provisions of paragraph (c) of this section. (b) Exceptions. No stockholder required to accept only qualified consideration for his or her stock shall have the right under this section to demand payment of the stock’s fair or appraised value, if such stock was listed on a national securities exchange or quoted on the National Association of Securities Dealers’ Automated Quotation System (‘‘NASDAQ’’) on the date of the meeting at which the combination was acted upon or stockholder action is not required for a combination made pursuant to § 152.13(h)(2) of this part. ‘‘Qualified consideration’’ means cash, shares of stock of any association or corporation which at the effective date of the combination will be listed on a national securities exchange or quoted on NASDAQ, or any combination of such shares of stock and cash. (c) Procedure—(1) Notice. Each constituent Federal stock association shall notify all stockholders entitled to rights under this section, not less than VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 twenty days prior to the meeting at which the combination agreement is to be submitted for stockholder approval, of the right to demand payment of appraised value of shares, and shall include in such notice a copy of this section. Such written notice shall be mailed to stockholders of record and may be part of management’s proxy solicitation for such meeting. (2) Demand for appraisal and payment. Each stockholder electing to make a demand under this section shall deliver to the Federal stock association, before voting on the combination, a writing identifying himself or herself and stating his or her intention thereby to demand appraisal of and payment for his or her shares. Such demand must be in addition to and separate from any proxy or vote against the combination by the stockholder. (3) Notification of effective date and written offer. (i) Within ten days after the effective date of the combination, the resulting association shall: (A) Give written notice by mail to stockholders of constituent Federal stock associations who have complied with the provisions of paragraph (c)(2) of this section and have not voted in favor of the combination, of the effective date of the combination; (B) Make a written offer to each stockholder to pay for dissenting shares at a specified price deemed by the resulting association to be the fair value thereof; and (C) Inform them that, within sixty days of such date, the respective requirements of paragraphs (c)(5) and (c)(6) of this section (set out in the notice) must be satisfied. (ii) The notice and offer shall be accompanied by a balance sheet and statement of income of the association the shares of which the dissenting stockholder holds, for a fiscal year ending not more than sixteen months before the date of notice and offer, together with the latest available interim financial statements. (4) Acceptance of offer. If within sixty days of the effective date of the combination the fair value is agreed upon between the resulting association and any stockholder who has complied with the provisions of paragraph (c)(2) of this section, payment therefore shall be made within ninety days of the effective date of the combination. (5) Petition to be filed if offer not accepted. If within sixty days of the effective date of the combination the resulting association and any stockholder who has complied with the provisions of paragraph (c)(2) of this section do not agree as to the fair value, then any such stockholder may file a PO 00000 Frm 00075 Fmt 4701 Sfmt 4700 49023 petition with the OCC, with a copy by registered or certified mail to the resulting association, demanding a determination of the fair market value of the stock of all such stockholders. A stockholder entitled to file a petition under this section who fails to file such petition within sixty days of the effective date of the combination shall be deemed to have accepted the terms offered under the combination. (6) Stock certificates to be noted. Within sixty days of the effective date of the combination, each stockholder demanding appraisal and payment under this section shall submit to the transfer agent his certificates of stock for notation thereon that an appraisal and payment have been demanded with respect to such stock and that appraisal proceedings are pending. Any stockholder who fails to submit his or her stock certificates for such notation shall no longer be entitled to appraisal rights under this section and shall be deemed to have accepted the terms offered under the combination. (7) Withdrawal of demand. Notwithstanding the foregoing, at any time within sixty days after the effective date of the combination, any stockholder shall have the right to withdraw his or her demand for appraisal and to accept the terms offered upon the combination. (8) Valuation and payment. The Comptroller shall, as he or she may elect, either appoint one or more independent persons or direct appropriate staff of the OCC to appraise the shares to determine their fair market value, as of the effective date of the combination, exclusive of any element of value arising from the accomplishment or expectation of the combination. Appropriate staff of the OCC shall review and provide an opinion on appraisals prepared by independent persons as to the suitability of the appraisal methodology and the adequacy of the analysis and supportive data. The Comptroller after consideration of the appraisal report and the advice of the appropriate staff shall, if he or she concurs in the valuation of the shares, direct payment by the resulting association of the appraised fair market value of the shares, upon surrender of the certificates representing such stock. Payment shall be made, together with interest from the effective date of the combination, at a rate deemed equitable by the Comptroller. (9) Costs and expenses. The costs and expenses of any proceeding under this section may be apportioned and assessed by the Comptroller as he or she may deem equitable against all or some E:\FR\FM\09AUR2.SGM 09AUR2 49024 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations of the parties. In making this determination the Comptroller shall consider whether any party has acted arbitrarily, vexatiously, or not in good faith in respect to the rights provided by this section. (10) Voting and distribution. Any stockholder who has demanded appraisal rights as provided in paragraph (c)(2) of this section shall thereafter neither be entitled to vote such stock for any purpose nor be entitled to the payment of dividends or other distributions on the stock (except dividends or other distribution payable to, or a vote to be taken by stockholders of record at a date which is on or prior to, the effective date of the combination): Provided, That if any stockholder becomes unentitled to appraisal and payment of appraised value with respect to such stock and accepts or is deemed to have accepted the terms offered upon the combination, such stockholder shall thereupon be entitled to vote and receive the distributions described above. (11) Status. Shares of the resulting association into which shares of the stockholders demanding appraisal rights would have been converted or exchanged, had they assented to the combination, shall have the status of authorized and unissued shares of the resulting association. § 152.15 Supervisory combinations. Notwithstanding the foregoing provisions of this part, the Comptroller may waive or deem inapplicable any provision of § 152.13 or § 152.14 of this part if he or she determines that grounds exist, or may imminently exist, for appointment of a conservator or receiver for an association under subsection 5(d) of the Home Owners’ Loan Act. § 152.16 Effect of subsequent charter or bylaw change. Notwithstanding any subsequent change to its charter or bylaws, the authority of a Federal stock association to engage in any transaction shall be determined only by the association’s charter or bylaws then in effect. sroberts on DSK5SPTVN1PROD with RULES § 152.17 Federal stock association created in connection with an association in default or in danger of default. Sections 152.1 and 152.2 of this part do not apply to a Federal stock association which is proposed by the Federal Deposit Insurance Corporation, or the Resolution Trust Corporation under section 5(p) of the Home Owner’s Loan Act of 1933, section 11(c) of the Federal Deposit Insurance Act, or section 21A of the Federal Home Loan Bank Act, or is otherwise chartered by the OCC in connection with an VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 association in default or in danger of default. Incorporation and organization of such associations are complete when and under such conditions as the OCC so determines. § 152.18 Conversion from stock form depository institution to Federal stock association. (a) With the approval of the OCC, any stock depository institution that is, or is eligible to become, a member of a Federal Home Loan Bank, may convert to a Federal stock association, provided that the depository institution, at the time of the conversion, has deposits insured by the Federal Deposit Insurance Corporation, and provided further, that the depository institution, in accomplishing the conversion, complies with all applicable statutes and regulations, including, without limitation, section 5(d) of the Federal Deposit Insurance Act. The resulting Federal stock association must conform within the time prescribed by the OCC to the requirements of section 5(c) of the Home Owners’ Loan Act. For purposes of this section, the term ‘‘depository institution’’ shall have the meaning set forth at 12 CFR 152.13(b). An application for conversion filed under this section is subject to the procedures for organization of a Federal stock organization at § 152.1. (b) Any and all of the assets and other property (whether real, personal, mixed, tangible or intangible, including choses in action, rights, and credits) of the former stock form depository institution become assets and property of the Federal stock association when the conversion occurs. Similarly, any and all of the obligations and debts of or claims against the former stock form depository institution become obligations and debts of and claims against the Federal stock association when the conversion occurs. In effect, the Federal stock association is the same as the former stock form depository institution with respect to any and all assets, property, claims and debts of or claims against the former stock form depository institution. § 152.19 Conversion to National banking association or state bank. A Federal stock association may convert to a national banking association or a state bank after filing a notification or application, as appropriate, with the appropriate OCC licensing office in accordance with the applicable provisions of § 163.22(b) of this chapter. PO 00000 Frm 00076 Fmt 4701 Sfmt 4700 PART 155—ELECTRONIC OPERATIONS Sec. 155.100 What does this part do? 155.200 How may I use or participate with others to use electronic means and facilities? 155.210 What precautions must I take? 155.300 Must I inform the OCC before I use electronic means or facilities? 155.310 How do I notify the OCC? Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B). § 155.100 What does this part do? This part describes how a Federal savings association may provide products and services through electronic means and facilities. § 155.200 How may I use or participate with others to use electronic means and facilities? (a) General. A Federal savings association (‘‘you’’) may use, or participate with others to use, electronic means or facilities to perform any function, or provide any product or service, as part of an authorized activity. Electronic means or facilities include, but are not limited to, automated teller machines, automated loan machines, personal computers, the Internet, the World Wide Web, telephones, and other similar electronic devices. (b) Other. To optimize the use of your resources, you may market and sell, or participate with others to market and sell, electronic capacities and byproducts to third-parties, if you acquired or developed these capacities and by-products in good faith as part of providing financial services. § 155.210 What precautions must I take? If you use electronic means and facilities under this subpart, your management must: (a) Identify, assess, and mitigate potential risks and establish prudent internal controls; and (b) Implement security measures designed to ensure secure operations. Such measures must be adequate to: (1) Prevent unauthorized access to your records and your customers’ records; (2) Prevent financial fraud through the use of electronic means or facilities; and (3) Comply with applicable security devices requirements of part 168 of this chapter. § 155.300 Must I inform the OCC before I use electronic means or facilities? (a) General. You are not required to inform the OCC before you use electronic means or facilities, except as E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations provided in paragraphs (b) and (c) of this section. However, you are encouraged to consult with the OCC 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 § 155.310 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 OCC 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. § 155.310 How do I notify the OCC? You must file a written notice with your OCC supervisory office at least 30 days before you establish a transactional Web site. The notice must do three things: (a) Describe the transactional web site. (b) Indicate the date the transactional web site will become operational. (c) List a contact familiar with the deployment, operation, and security of the transactional web site. PART 157—DEPOSITS Sec. 157.1 What does this part do? 157.10 What authorities govern the issuance of deposit accounts by a Federal savings association? 157.11 To what extent does Federal law preempt state laws? 157.12 [Reserved] 157.13 [Reserved] 157.14 What interest rate may I pay on accounts? 157.15 Who owns a deposit account? 157.20 What records should I maintain on deposit activities? Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B). § 157.1 What does this part do? sroberts on DSK5SPTVN1PROD with RULES This part applies to the deposit activities of Federal savings associations. § 157.10 What authorities govern the issuance of deposit accounts by Federal savings associations? A Federal savings association (‘‘you’’) may raise funds through accounts and may issue evidence of accounts under section 5(b)(1) of the HOLA (12 U.S.C. 1464(b)(1)), your charter, and this part. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 Additionally, 12 CFR parts 204 and 230 apply to your deposit activities. § 157.11 To what extent does Federal law preempt deposit-related state laws? State law applies to the deposit activities of Federal savings associations and their subsidiaries to the same extent and in the same manner that those laws apply to national banks and their subsidiaries. § 157.12 [Reserved] § 157.13 [Reserved] § 157.14 What interest rate may I pay on accounts? (a) You may pay interest at any rate or anticipated rate of return on accounts, either in deposit or in share form, as provided in your charter and the account’s terms. (b) You may pay fixed or variable rates. If you pay a variable rate, you must base it on a schedule, index, or formula that you specify in the account’s terms. § 157.15 Who owns a deposit account? You may treat the holder of record as the account owner, even if you receive contrary notice, until you transfer the account on your records. § 157.20 What records should I maintain on deposit activities? 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. PART 159—SUBORDINATE ORGANIZATIONS Sec. 159.1 What does this part cover? 159.2 Definitions. 159.3 What are the characteristics of, and what requirements apply to, subordinate organizations of Federal savings associations? 159.4 What activities are preapproved for service corporations? 159.5 How much may a Federal savings association invest in service corporations or lower-tier entities? 159.10 How must separate corporate identities be maintained? 159.11 What notices are required to establish or acquire a new subsidiary or engage in new activities through an existing subsidiary? 159.12 How may a subsidiary of a Federal savings association issue securities? PO 00000 Frm 00077 Fmt 4701 Sfmt 4700 49025 159.13 How may a Federal savings association exercise its salvage power in connection with its service corporation or lower-tier entities? Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1828, 5412(b)(2)(B). § 159.1 What does this part cover? (a) The OCC is issuing this part 159 pursuant to its general rulemaking and supervisory authority under the Home Owners’ Loan Act, 12 U.S.C. 1462 et seq., and its specific authority under section 18(m) of the Federal Deposit Insurance Act, 12 U.S.C. 1828(m). This part 159 applies to subordinate organizations of Federal savings associations. The OCC may, at any time, limit a Federal 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 part are applications for purposes of statutory and regulatory references to ‘‘applications.’’ Any conditions that the OCC imposes in approving any application are enforceable as a condition imposed in writing by the OCC in connection with the granting of a request by a Federal savings association within the meaning of 12 U.S.C. 1818(b) or 1818(i). § 159.2 Definitions. For purposes of this part: Control has the same meaning as in part 174 of this chapter. GAAP-consolidated subsidiary means an entity in which a Federal 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 the savings association has a majority ownership interest. Lower-tier entity includes any company in which an operating subsidiary or a service corporation has a direct or indirect ownership interest. Operating subsidiary means any entity that satisfies all of the requirements for an operating subsidiary set forth in § 159.3 of this part and that is designated by the parent Federal savings association as an operating subsidiary pursuant to § 159.3 of this part. More than 50% of the voting shares of an operating subsidiary must be owned, directly or indirectly, by a Federal savings association and no other person or entity may exercise effective operating control. An operating subsidiary may only engage in activities E:\FR\FM\09AUR2.SGM 09AUR2 49026 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations permissible for a Federal savings association. Ownership interest means any equity interest in a business organization, including stock, limited or general partnership interests, or shares in a limited liability company. Service corporation means any entity that satisfies all of the requirements for service corporations in 12 U.S.C. 1464(c)(4)(B) and § 159.3 of this part and that is designated by the investing Federal savings association as a service corporation pursuant to § 159.3 of this part. A service corporation must be organized under the laws of the state where the Federal savings association’s home office is located, may only be owned by savings associations with home offices in that state, and may engage in the activities identified in §§ 159.3(e)(2) and 159.4 of this part. Subordinate organization means any corporation, partnership, business trust, association, joint venture, pool, syndicate, or other similar business organization in which a Federal savings association has a direct or indirect ownership interest, unless that ownership interest qualifies as a passthrough investment pursuant to § 160.32 of this chapter and is so designated by the investing savings association. Subsidiary means any subordinate organization directly or indirectly controlled by a Federal savings association. § 159.3 What are the characteristics of, and what requirements apply to, subordinate organizations of Federal savings associations? A Federal savings association (‘‘you’’) that meets the requirements of this section, as detailed in the following chart, may establish, or obtain an interest in an operating subsidiary or a service corporation. For ease of reference, this section cross-references other regulations in this chapter affecting operating subsidiaries and service corporations. You should refer to those regulations for the details of how they apply. The chart also discusses the regulations that may apply to lower-tier entities in which you have an indirect ownership interest through your operating subsidiary or service corporation. The chart follows: Operating subsidiary (a) How may a Federal savings association (‘‘you’’) establish an operating subsidiary or a service corporation? (b) Who may be an owner? (c) What ownership requirements apply? (d) What geographic restrictions apply? sroberts on DSK5SPTVN1PROD with RULES (e) What activities are permissible? VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 Service corporation (1) You must file a notice, with the appropriate OCC licensing office, satisfying § 159.11. Any finance subsidiary that existed on January 1, 1997 is deemed an operating subsidiary without further action on your part. (1) Anyone may have an ownership interest in an operating subsidiary. (2) You must file a notice, with the appropriate OCC licensing office, satisfying § 159.11. Depending upon your condition and the activities in which the service corporation will engage, § 159.3(e)(2) may require you to file an application. (2) Only Federal or state chartered savings associations with home offices in the state where you have your home office may have an ownership interest in any service corporation in which you invest. (2) You are not required to have any particular percentage ownership interest and need not have control of the service corporation. (2) A service corporation must be organized in the state where your home office is located. (2)(i) If you are eligible for expedited treatment under § 116.5 of this chapter, and notify the OCC as required by § 159.11, your service corporation may engage in the preapproved activities listed in § 159.4. You may request OCC approval for your service corporation to engage in any other activity reasonably related to the activities of financial institutions by filing an application in accordance with standard treatment processing procedures at part 116, subparts A and E of this chapter. (ii) If you are subject to standard treatment under § 116.5 of this chapter, and notify the OCC as required by § 159.11, your service corporation may engage in any activity that you may conduct directly except taking deposits. You may request OCC approval for your service corporation to engage in any other activity reasonably related to the activities of financial institutions, including the activities set forth in § 159.4(b)–(j), by filing an application in accordance with standard treatment processing procedures at part 116, subparts A and E of this chapter. (1) You must own, directly or indirectly, more than 50% of the voting shares of the operating subsidiary. No one else may exercise effective operating control. (1) An operating subsidiary may be organized in any geographic location. (1) After you have notified the OCC in accordance with § 159.11, an operating subsidiary may engage in any activity that you may conduct directly. You may hold another insured depository institution as an operating subsidiary. PO 00000 Frm 00078 Fmt 4701 Sfmt 4700 E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 49027 Operating subsidiary (f) May the operating subsidiary or service corporation invest in lower-tier entities? (g) How much may a Federal savings association invest? Service corporation (1)(i) An operating subsidiary may itself hold an operating subsidiary. Part 159 applies equally to a lower-tier operating subsidiary. In applying the regulations in this part, the investing operating subsidiary should substitute ‘‘investing operating subsidiary’’ wherever the part uses ‘‘you’’ or ‘‘savings association.’’ (ii) An operating subsidiary may also invest in other types of lower-tier entities. These entities must comply with all of the requirements of this part 159 that apply to service corporations except for paragraphs (b)(2) and (d)(2) of this section. (1) There are no limits on the amount you may invest in your operating subsidiaries, either separately or in the aggregate. (2) A service corporation may invest in all types of lower-tier entities as long as the lower-tier entity is engaged solely in activities that are permissible for a service corporation. All of the requirements of this part apply to such entities except for paragraphs (b)(2) and (d)(2) of this section. (1) Unless otherwise specifically provided by statute, regulation, or OCC policy, all Federal statutes and regulations apply to operating subsidiaries in the same manner as they apply to you. You and your operating subsidiary are generally consolidated and treated as a unit for statutory and regulatory purposes. (i) Do the investment limits that apply to Federal savings associations (HOLA section 5(c) and part 160 of this chapter) apply? (1) Your assets and those of your operating subsidiary are aggregated when calculating investment limitations. (j) How does the capital regulation (part 167 of this chapter) apply? (1) Your assets and those of your operating subsidiary are consolidated for all capital purposes. (k) How does the loans-to-one-borrower (LTOB) regulation (§ 160.93 of this chapter) apply? sroberts on DSK5SPTVN1PROD with RULES (h) Do Federal statutes and regulations that apply to the savings association apply? (1) The LTOB regulation does not apply to loans from you to your operating subsidiary or loans from your operating subsidiary to you. Other loans made by your operating subsidiary are aggregated with your loans for LTOB purposes. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 PO 00000 Frm 00079 Fmt 4701 Sfmt 4700 (2) Section 159.5 limits your aggregate investments in service corporations and indicates when your investments (both debt and equity) in lower-tier entities must be aggregated with your investments in service corporations. (2)(i) If the Federal statute or regulation specifically refers to ‘‘service corporation,’’ it applies to all service corporations, even if you do not control the service corporation or it is not a GAAP-consolidated subsidiary. (ii) If the Federal statute or regulation refers to ‘‘subsidiary,’’ it applies only to service corporations that you directly or indirectly control. (2) Your service corporation’s assets are not subject to the same investment limitations that apply to you. The investment activities of your service corporation are governed by paragraph (e)(2) of this section and § 159.4. (2) The capital treatment of a service corporation depends upon whether it is an includable subsidiary. That determination is based upon factors set forth in part 167 of this chapter, including your percentage ownership of the service corporation and the activities in which the service corporation engages. Both debt and equity investments in service corporations that are GAAP-consolidated subsidiaries are considered investments in subsidiaries for purposes of the capital regulation, regardless of the authority under which they are made. (2) The LTOB regulation does not apply to loans from you to your service corporation or from your service corporation to you. However, § 159.5 imposes restrictions on the amount of loans you may make to certain service corporations. Loans made by a service corporation that you control to entities other than you or your subordinate organizations are aggregated with your loans for LTOB purposes. E:\FR\FM\09AUR2.SGM 09AUR2 49028 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations Operating subsidiary Service corporation (l) How do the transactions with affiliates (TWA) regulations of the Board of Governors of the Federal Reserve System (Board) apply? (1) Board rules explain how TWA applies. Generally, an operating subsidiary is not an affiliate, unless it is a depository institution; is directly controlled by another affiliate of the savings association or by shareholders that control the savings association; or is an employee stock option plan, trust, or similar organization that exists for the benefit of shareholders, partners, members, or employees of the savings association or an affiliate. A non-affiliate operating subsidiary is treated as a part of the savings association and its transactions with affiliates of the savings association are aggregated with those of the savings association (m) How does the Qualified Thrift Lender (QTL) (12 U.S.C. 1467a(m)) test apply? (1) Under 12 U.S.C. 1467a(m)(5), you may determine whether to consolidate the assets of a particular operating subsidiary for purposes of calculating your qualified thrift investments. If the operating subsidiary’s assets are not consolidated with yours for that purpose, your investment in the operating subsidiary will be considered in calculating your qualified thrift investments. (1) State law applies to operating subsidiaries regardless of whether it applies to you. (1) An operating subsidiary is subject to examination by the OCC. (1) Before redesignating an operating subsidiary as a service corporation, you should consult with the OCC licensing office in the district in which your home office is located. You must maintain adequate internal records, available for examination by the OCC, demonstrating that the redesignated service corporation meets all of the applicable requirements of this part and that your board of directors has approved the redesignation. (1) If an operating subsidiary, or any lower-tier entity in which the operating subsidiary invests pursuant to paragraph (f)(1) of this section fails to meet any of the requirements of this section, you must notify the appropriate OCC licensing office. Unless otherwise advised by the OCC, if the company cannot comply within 90 days with all of the requirements for either an operating subsidiary or a service corporation under this section, or any other investment authorized by 12 U.S.C. 1464(c) or part 160 of this chapter, you must promptly dispose of your investment. (2) Board rules explain how TWA applies. Generally, a service corporation is not an affiliate, unless it is a depository institution; is directly controlled by another affiliate of the savings association or by shareholders that control the savings association; or is an employee stock option plan, trust, or similar organization that exists for the benefit of shareholders, partners, members, or employees of the savings association or an affiliate. If a savings association directly or indirectly controls a service corporation and the service corporation is not otherwise an affiliate under Board rules, the service corporation is treated as a part of the savings association and its transactions with affiliates of the savings association are aggregated with those of the savings association. (2) Under 12 U.S.C. 1467a(m)(5), you may determine whether to consolidate the assets of a particular service corporation for purposes of calculating your qualified thrift investments. If a service corporation’s assets are not consolidated with yours for that purpose, your investment in the service corporation will be considered in calculating your qualified thrift investments. (2) State law applies to service corporations regardless of whether it applies to you. (2) A service corporation is subject to examination by the OCC. (2) Before redesignating a service corporation as an operating subsidiary, you should consult with the OCC licensing office in the district in which your home office is located. You must maintain adequate internal records, available for examination by the OCC, demonstrating that the redesignated operating subsidiary meets all of the applicable requirements of this part and that your board of directors has approved the redesignation. (2) If a service corporation, or any lower-tier entity in which the service corporation invests pursuant to paragraph (f)(2) of this section, fails to meet any of the requirements of this section, you must notify the appropriate OCC licensing office. Unless otherwise advised by the OCC, if the company cannot comply within 90 days with all of the requirements for either an operating subsidiary or a service corporation under this section, or any other investment authorized by 12 U.S.C. 1464(c) or part 160 of this chapter, you must promptly dispose of your investment. (n) Does state law apply? (o) May the OCC conduct examinations? (p) What must be done to redesignate an operating subsidiary as a service corporation or a service corporation as an operating subsidiary? (q) What are the consequences of failing to comply with the requirements of this part? sroberts on DSK5SPTVN1PROD with RULES § 159.4 What activities are preapproved for service corporations? This section sets forth the activities that have been preapproved for service corporations. Section 159.3(e)(2) of this part sets forth the procedures for engaging in a broader scope of activities on a case-by-case basis. You should read these two sections together to determine whether you must file a notice with the OCC under § 159.11 of this part, or whether you must file an application under part 116 of this chapter and VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 receive prior written OCC approval for your service corporation to engage in a particular activity. The notice or application should be filed with the appropriate OCC licensing office. To the extent permitted by § 159.3(e)(2) of this part, a service corporation may engage in the following activities: (a) Any activity that all Federal savings associations may conduct directly, except taking deposits. (b) Business and professional services. The following services are preapproved PO 00000 Frm 00080 Fmt 4701 Sfmt 4700 for service corporations only when they are limited to financial documents or financial clients or are generally finance-related: (1) Accounting or internal audit; (2) Advertising, marketing research and other marketing; (3) Clerical; (4) Consulting; (5) Courier; (6) Data processing; (7) Data storage facilities operation and related services; E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (8) Office supplies, furniture, and equipment purchasing and distribution; (9) Personnel benefit program development or administration; (10) Printing and selling forms that require Magnetic Ink Character Recognition (MICR) encoding; (11) Relocation of personnel; (12) Research studies and surveys; (13) Software development and systems integration; and (14) Remote service unit operation, leasing, ownership or establishment. (c) Credit-related activities. (1) Abstracting; (2) Acquiring and leasing personal property; (3) Appraising; (4) Collection agency; (5) Credit analysis; (6) Check or credit card guaranty and verification; (7) Escrow agent or trustee (under deeds of trust, including executing and deliverance of conveyances, reconveyances and transfers of title); and (8) Loan inspection. (d) Consumer services. (1) Financial advice or consulting; (2) Foreign currency exchange; (3) Home ownership counseling; (4) Income tax return preparation; (5) Postal services; (6) Stored value instrument sales; (7) Welfare benefit distribution; (8) Check printing and related services; and (9) Remote service unit operation, leasing, ownership, or establishment. (e) Real estate related services. (1) Acquiring real estate for prompt development or subdivision, for construction of improvements, for resale or leasing to others for such construction, or for use as manufactured home sites, in accordance with a prudent program of property development; (2) Acquiring improved real estate or manufactured homes to be held for rental or resale, for remodeling, renovating, or demolishing and rebuilding for sale or rental, or to be used for offices and related facilities of a stockholder of the service corporation; (3) Maintaining and managing real estate; and (4) Real estate brokerage for property owned by a savings association that owns capital stock of the service corporation, the service corporation, or a lower-tier entity in which the service corporation invests. (f) Securities activities, liquidity management, and coins. (1) Execution of transactions in securities on an agency or riskless principal basis solely upon the order VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 and for the account of customers or the provision of investment advice. The service corporation must register with the Securities and Exchange Commission and state securities regulators, as required by applicable Federal and state law and regulations; (2) Liquidity management; (3) Issuing notes, bonds, debentures, or other obligations or securities; (4) Purchase or sale of coins issued by the U.S. Treasury. (g) Investments. (1) Tax-exempt bonds used to finance residential real property for family units; (2) Tax-exempt obligations of public housing agencies used to finance housing projects with rental assistance subsidies; (3) Small business investment companies and new markets venture capital companies licensed by the U.S. Small Business Administration; (4) Rural business investment companies; and (5) Investing in savings accounts of an investing thrift. (h) Community development and charitable activities: (1) Investments in governmentally insured, guaranteed, subsidized or otherwise sponsored programs for housing, small farms, or businesses that are local in character; (2) Investments designed primarily to promote the public welfare, including the welfare of low- and moderateincome communities or families (such as providing housing, services, or jobs); (3) Investments in low-income housing tax credit and new markets tax credit projects and entities authorized by statute (e.g., community development financial institutions) to promote community, inner city, and community development purposes; and (4) Establishing a corporation that is recognized by the Internal Revenue Service as organized for charitable purposes under 26 U.S.C. 501(c)(3) of the Internal Revenue Code and making a reasonable contribution to capitalize it, provided that the corporation engages exclusively in activities designed to promote the well-being of communities in which the owners of the service corporation operate. (i) Activities conducted on behalf of a customer on an other than ‘‘as principal’’ basis. (j) Activities reasonably incident to those listed in paragraphs (a) through (i) of this section if the service corporation engages in those activities. § 159.5 How much may a Federal savings association invest in service corporations or lower-tier entities? The amount that a Federal savings association (‘‘you’’) may invest in a PO 00000 Frm 00081 Fmt 4701 Sfmt 4700 49029 service corporation or any lower-tier entity depends upon several factors. These include your total assets, your capital, the purpose of the investment, and your ownership interest in the service corporation or entity. (a) Under section 5(c)(4)(B) of the HOLA, you may invest up to 3% of your assets in the capital stock, obligations, and other securities of service corporations. Any investment you make under this paragraph that would cause your investment, in the aggregate, to exceed 2% of your assets must serve primarily community, inner city, or community development purposes. You must designate the investments serving those purposes, which include: (1) Investments in governmentally insured, guaranteed, subsidized or otherwise sponsored programs for housing, small farms, or businesses that are local in character; (2) Investments for the preservation or revitalization of either urban or rural communities; (3) Investments designed to meet the community development needs of, and primarily benefit, low- and moderateincome communities; or (4) Other community, inner city, or community development-related investments approved by the OTS or the OCC. (b) In addition to the amounts you may invest under paragraph (a) of this section, and to the extent that you have authority under other provisions of section 5(c) of the HOLA and part 160 of this chapter, and available capacity within any applicable investment limits, you may make loans to any service corporation and any lower-tier entity, subject to the following conditions: (1) You and your GAAP-consolidated subsidiaries may, in the aggregate, make loans of up to 15% of your total capital, as described in part 167 of this chapter to each subordinate organization that does not qualify as a GAAPconsolidated subsidiary. All loans made under this paragraph (b)(1) may not, in the aggregate, exceed 50% of your total capital, as described in part 167 of this chapter. (2) The OCC may limit the amount of loans to a GAAP-consolidated subsidiary, or may adjust the limits set forth in paragraph (b)(1) of this section where safety and soundness considerations warrant such action. (c) For purposes of this section, the terms ‘‘loans’’ and ‘‘obligations’’ include all loans and other debt instruments (except accounts payable incurred in the ordinary course of business and paid within 60 days) and all guarantees or take-out commitments of such loans or debt instruments. E:\FR\FM\09AUR2.SGM 09AUR2 49030 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations § 159.10 How must separate corporate identities be maintained? (a) Each Federal 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 savings association has guaranteed a loan to the subordinate organization, all borrowings by the subordinate organization indicate that the parent is not liable. (b) OCC regulations that apply both to Federal savings associations and subordinate organizations shall not be construed as requiring a savings association and its subordinate organizations to operate as a single entity. § 159.11 What notices are required to establish or acquire a new subsidiary or engage in new activities through an existing subsidiary? sroberts on DSK5SPTVN1PROD with RULES When required by section 18(m) of the Federal Deposit Insurance Act, a Federal savings association (‘‘you’’) must file a notice (‘‘Notice’’) under part 116, subpart A of this chapter at least 30 days before establishing or acquiring a subsidiary or engaging in new activities in a subsidiary. The Notice should be filed with the appropriate OCC licensing office and must contain all of the information the Federal Deposit Insurance Corporation (FDIC) requires under 12 CFR 362.15. Providing the OCC with a copy of the notice you file with the FDIC will satisfy this requirement. If the OCC 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 OCC’s prior written approval under the standard treatment processing procedures at part 116, subpart A and E of this chapter before establishing or acquiring the subsidiary or engaging in new activities in the subsidiary. § 159.12 How may a subsidiary of a Federal savings association issue securities? (a) A subsidiary may issue, either directly or through a third party intermediary, any securities that its parent Federal savings association VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (‘‘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 appropriate OCC licensing office in accordance with § 159.11 of this part 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 OCC notifies you within 30 days that the notice presents supervisory concerns or raises significant issues of law or policy, you must receive the OCC’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 OCC. 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 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. PO 00000 Frm 00082 Fmt 4701 Sfmt 4700 § 159.13 How may a Federal savings association exercise its salvage power in connection with its service corporation or lower-tier entities? (a) In accordance with this section, a Federal 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 your service corporation or lower-tier entity (‘‘salvage investment’’) that exceeds the maximum amount otherwise permitted under law or regulation. You must notify the appropriate OCC licensing office at least 30 days before making such a salvage investment. This notice must demonstrate that: (1) The salvage investment protects your interest in the service corporation or 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 (a)(2) of this section. (b) If the OCC 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 OCC’s prior written approval under the standard treatment processing procedures at part 116, subparts A and E of this chapter before making a salvage investment. (c) If your service corporation or lower-tier entity is a GAAP-consolidated subsidiary, your salvage investment under this section will be considered an investment in a subsidiary for purposes of part 167 of this chapter. PART 160—LENDING AND INVESTMENT Sec. 160.1 General. 160.2 Applicability of law. 160.3 Definitions. 160.30 General lending and investment powers of Federal savings associations. 160.31 Election regarding categorization of loans or investments and related calculations. 160.32 Pass-through investments. 160.33 Late charges. 160.34 Prepayments. 160.35 Adjustments to home loans. 160.36 De minimis investments. 160.37 Real estate for office and related facilities. 160.40 Commercial paper and corporate debt securities. 160.41 Leasing. 160.42 State and local government obligations. 160.43 Foreign assistance investments. E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 160.50 Letters of credit and other independent undertakings—authority. 160.60 Suretyship and guaranty. 160.93 Lending limitations. 160.100 Real estate lending standards; purpose and scope. 160.101 Real estate lending standards. 160.110 Most favored lender usury preemption. 160.120 Letters of credit and other independent undertakings to pay against documents. 160.121 Investment in state housing corporations. 160.130 Prohibition on loan procurement fees. 160.160 Asset classification. 160.170 Records for lending transactions. 160.172 Re-evaluation of real estate owned. 160.210 [Reserved] 160.220 [Reserved] § 160.3 Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1701j–3, 1828, 3803, 3806, 5412(b)(2)(B); 42 U.S.C. 4106. § 160.1 General. (a) Authority and scope. This part is being issued by the OCC under its general rulemaking and supervisory authority under the Home Owners’ Loan Act (HOLA), 12 U.S.C. 1462 et seq. (b) General lending standards. Each savings association is expected to conduct its lending and investment activities prudently. Each 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 association should adequately monitor the condition of its portfolio and the adequacy of any collateral securing its loans. § 160.2 Definitions. For purposes of this part and any determination under 12 U.S.C. 1467a(m): 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 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 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, for purposes of this part, is a loan for which the 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: Applicability of law. State law applies to the lending activities of Federal savings associations and their subsidiaries to the same extent and in the same manner that those laws apply to national banks and their subsidiaries. 49031 (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 Federal 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 Federal 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. § 160.30 General lending and investment powers of Federal savings associations. Pursuant to section 5(c) of the Home Owners’ Loan Act (‘‘HOLA’’), 12 U.S.C. 1464(c), a Federal savings association may make, invest in, purchase, sell, participate in, or otherwise deal in (including brokerage or warehousing) all loans and investments allowed under section 5(c) of the HOLA including, without limitation, the following loans, extensions of credit, and investments, subject to the limitations indicated and any such terms, conditions, or limitations as may be prescribed from time to time by the OCC by policy directive, order, or regulation: LENDING AND INVESTMENT POWERS CHART 5(c)(4)(E) .......................................................... 5(c)(4)(A) .......................................................... Commercial loans ............................................... 5(c)(2)(A) .......................................................... Commercial paper and corporate debt securities. Community development loans and equity investments. 5(c)(2)(D) .......................................................... Statutory investment limitations (Endnotes contain applicable regulatory limitations) Statutory authorization 1 Bankers’ bank stock ........................................... Business development credit corporations ........ sroberts on DSK5SPTVN1PROD with RULES Category VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 5(c)(3)(A) .......................................................... PO 00000 Frm 00083 Fmt 4701 Sfmt 4700 Same terms as applicable to national banks. The lesser of .5% of total outstanding loans or $250,000. 20% of total assets, provided that amounts in excess of 10% of total assets may be used only for small business loans. Up to 35% of total assets.2 3 5% of total assets, provided equity investments do not exceed 2% of total assets.4 E:\FR\FM\09AUR2.SGM 09AUR2 49032 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations LENDING AND INVESTMENT POWERS CHART—Continued Statutory investment limitations (Endnotes contain applicable regulatory limitations) Statutory authorization 1 Construction loans without security .................... 5(c)(3)(C) .......................................................... Consumer loans ................................................. Credit card loans or loans made through credit card accounts. Deposits in insured depository institutions ......... Education loans .................................................. Federal government and government-sponsored enterprise securities and instruments. Finance leasing .................................................. Foreign assistance investments ......................... General leasing .................................................. Home improvement loans .................................. Home (residential) loans 9 .................................. HUD-insured or guaranteed investments ........... Insured loans ...................................................... Liquidity investments .......................................... Loans secured by deposit accounts .................. Loans to financial institutions, brokers, and dealers. Manufactured home loans .................................. Mortgage-backed securities ............................... National Housing Partnership Corporation and related partnerships and joint ventures. New markets venture capital companies ........... Nonconforming loans ......................................... Nonresidential real property loans ..................... Open-end management investment companies 15. Rural business investment companies ............... Service corporations ........................................... 5(c)(2)(D) .......................................................... 5(c)(1)(T) .......................................................... In the aggregate, the greater of total capital or 5% of total assets. Up to 35% of total assets.2 5 None.6 5(c)(1)(G) ......................................................... 5(c)(1)(U) .......................................................... 5(c)(1)(C), 5(c)(1)(D), 5(c)(1)(E), 5(c)(1)(F) ..... None.6 None.6 None.6 5(c)(1)(B), 5(c)(2)(A), 5(c)(2)(B), 5(c)(2)(D) ..... 5(c)(4)(C) .......................................................... 5(c)(2)(C) .......................................................... 5(c)(1)(J) .......................................................... 5(c)(1)(B) .......................................................... 5(c)(1)(O) ......................................................... 5(c)(1)(I), 5(c)(1)(K) .......................................... 5(c)(1)(M) ......................................................... 5(c)(1)(A) .......................................................... 5(c)(1)(L) .......................................................... Based on purpose and property financed.7 1% of total assets.8 10% of assets.7 None.6 None.6 10 None.6 None.6 None.6 None.6 11 None.6 12 5(c)(1)(J) .......................................................... 5(c)(1)(R) .......................................................... 5(c)(1)(N) .......................................................... None.6 13 None.6 None.6 5(c)(4)(F) .......................................................... 5(c)(3)(B) .......................................................... 5(c)(2)(B) .......................................................... 5(c)(1)(Q) ......................................................... 5% of total capital. 5% of total assets. 400% of total capital.14 None.6 7 U.S.C. 2009cc–9 ........................................... 5(c)(4)(B) .......................................................... Small business investment companies .............. Small business-related securities ....................... State and local government obligations ............. 15 U.S.C. 682(b)(2) ......................................... 5(c)(1)(S) .......................................................... 5(c)(1)(H) .......................................................... State housing corporations ................................ Transaction account loans, including overdrafts sroberts on DSK5SPTVN1PROD with RULES Category 5(c)(1)(P) .......................................................... 5(c)(1)(A) .......................................................... Five percent of total capital. 3% of total assets, as long as any amounts in excess of 2% of total assets further community, inner city, or community development purposes.16 5% of total capital. None.6 None for general obligations. Per issuer limitation of 10% of capital for other obligations.6 17 None.6 18 None.6 19 Endnotes 1 All references are to section 5 of the Home Owners’ Loan Act (12 U.S.C. 1464) unless otherwise indicated. 2 For purposes of determining a Federal savings association’s percentage of assets limitation, investment in commercial paper and corporate debt securities must be aggregated with the Federal savings association’s investment in consumer loans. 3 A Federal savings association may invest in commercial paper and corporate debt securities, which includes corporate debt securities convertible into stock, subject to the provisions of § 160.40 of this part. Amounts in excess of 30% of assets, in the aggregate, may be invested only in obligations purchased by the association directly from the original obligor and for which no finder’s or referral fees have been paid. 4 The 2% of assets limitation is a sublimit for investments within the overall 5% of assets limitation on community development loans and investments. The qualitative standards for such loans and investments are set forth in HOLA section 5(c)(3)(A) (formerly 5(c)(3)(B)), as explained in an opinion of the Office of Thrift Supervision Chief Counsel dated May 10, 1995. 5 Amounts in excess of 30% of assets, in the aggregate, may be invested only in loans made by the association directly to the original obligor and for which no finder’s or referral fees have been paid. A Federal savings association may include loans to dealers in consumer goods to finance inventory and floor planning in the total investment made under this section. 6 While there is no statutory limit on certain categories of loans and investments, including credit card loans, home improvement loans, education loans, and deposit account loans, the OCC may establish an individual limit on such loans or investments if the association’s concentration in such loans or investments presents a safety and soundness concern. 7 A Federal savings association may engage in leasing activities subject to the provisions of § 160.41 of this part. 8 This 1% of assets limitation applies to the aggregate outstanding investments made under the Foreign Assistance Act and in the capital of the Inter-American Savings and Loan Bank. Such investments may be made subject to the provisions of § 160.43 of this part. 9 A home (or residential) loan includes loans secured by one-to-four family dwellings, multi-family residential property, and loans secured by a unit or units of a condominium or housing cooperative. 10 A Federal savings association may make home loans subject to the provisions of §§ 160.33, 160.34, and 160.35 of this part. 11 Loans secured by savings accounts and other time deposits may be made without limitation, provided the Federal savings association obtains a lien on, or a pledge of, such accounts. Such loans may not exceed the withdrawable amount of the account. 12 A Federal savings association may only invest in these loans if they are secured by obligations of, or by obligations fully guaranteed as to principal and interest by, the United States or any of its agencies or instrumentalities, the borrower is a financial institution insured by the Federal Deposit Insurance Corporation or is a broker or dealer registered with the Securities and Exchange Commission, and the market value of the securities for each loan at least equals the amount of the loan at the time it is made. 13 If the wheels and axles of the manufactured home have been removed and it is permanently affixed to a foundation, a loan secured by a combination of a manufactured home and developed residential lot on which it sits may be treated as a home loan. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 PO 00000 Frm 00084 Fmt 4701 Sfmt 4700 E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 49033 14 Without regard to any limitations of this part, a Federal savings association may make or invest in the fully insured or guaranteed portion of nonresidential real estate loans insured or guaranteed by the Economic Development Administration, the Farmers Home Administration, or the Small Business Administration. Unguaranteed portions of guaranteed loans must be aggregated with uninsured loans when determining an association’s compliance with the 400% of capital limitation for other real estate loans. 15 This authority is limited to investments in open-end management investment companies that are registered with the Securities and Exchange Commission under the Investment Company Act of 1940. The portfolio of the investment company must be restricted by the company’s investment policy (changeable only if authorized by shareholder vote) solely to investments that a Federal savings association may, without limitation as to percentage of assets, invest in, sell, redeem, hold, or otherwise deal in. Separate and apart from this authority, a Federal savings association may make pass-through investments to the extent authorized by § 160.32 of this part. 16 A Federal savings association may invest in service corporations subject to the provisions of part 159 of this chapter. 17 This category includes obligations issued by any state, territory, or possession of the United States or political subdivision thereof (including any agency, corporation, or instrumentality of a state or political subdivision), subject to § 160.42 of this part. 18 A Federal savings association may invest in state housing corporations subject to the provisions of § 160.121 of this part. 19 Payments on accounts in excess of the account balance (overdrafts) on commercial deposit or transaction accounts shall be considered commercial loans for purposes of determining the association’s percentage of assets limitation. § 160.31 Election regarding categorization of loans or investments and related calculations. (a) If a loan or other investment is authorized under more than one section of the HOLA, as amended, or this part, a Federal savings association may designate under which section the loan or investment has been made. Such a loan or investment may be apportioned among appropriate categories, and may be moved, in whole or part, from one category to another. A loan commitment shall be counted as an investment and included in total assets of a Federal savings association for purposes of calculating compliance with HOLA section 5(c)’s investment limitations only to the extent that funds have been advanced and not repaid pursuant to the commitment. (b) Loans or portions of loans sold to a third party shall be included in the calculation of a percentage-of-assets or percentage-of-capital investment limitation only to the extent they are sold with recourse. (c) A Federal savings association may make a loan secured by an assignment of loans to the extent that it could, under applicable law and regulations, make or purchase the underlying assigned loans. sroberts on DSK5SPTVN1PROD with RULES § 160.32 Pass-through investments. (a) A Federal savings association (‘‘you’’) may make pass-through investments. A pass-through investment occurs when you invest in an entity (‘‘company’’) that engages only in activities that you may conduct directly and the investment meets the requirements of this section. If an investment is authorized under both this section and some other provision of law, you may designate under which authority or authorities the investment is made. When making a pass-through investment, you must comply with all the statutes and regulations that would apply if you were engaging in the activity directly. For example, your proportionate share of the company’s assets will be aggregated with the assets you hold directly in calculating VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 investment limits (e.g., no more than 400% of total capital may be invested in nonresidential real property loans). (b) You may make a pass-through investment without prior notice to the OCC if all of the following conditions are met: (1) You do not invest more than 15% of your total capital in one company; (2) The book value of your aggregate pass-through investments does not exceed 50% of your total capital after making the investment; (3) Your investment would not give you direct or indirect control of the company; (4) Your liability is limited to the amount of your investment; and (5) The company falls into one of the following categories: (i) A limited partnership; (ii) An open-end mutual fund; (iii) A closed-end investment trust; (iv) A limited liability company; or (v) An entity in which you are investing primarily to use the company’s services (e.g., data processing). (c) If you want to make other passthrough investments, you must provide the OCC with 30 days’ advance notice. If within that 30-day period the OCC notifies you that an investment presents supervisory, legal, or safety and soundness concerns, you must apply for and receive the OCC’s prior written approval under the standard treatment processing procedures at part 116, subparts A and E of this chapter before making the investment. Notices under this section are deemed to be applications for purposes of statutory and regulatory references to ‘‘applications.’’ Any conditions that the OCC imposes on any pass-through investment shall be enforceable as a condition imposed in writing by the OCC in connection with the granting of a request by a Federal savings association within the meaning of 12 U.S.C. 1818(b) or 1818(i). § 160.33 Late charges. A Federal savings association may include in a home loan contract a PO 00000 Frm 00085 Fmt 4701 Sfmt 4700 provision authorizing the imposition of a late charge with respect to the payment of any delinquent periodic payment. With respect to any loan made after July 31, 1976, on the security of a home occupied or to be occupied by the borrower, no late charge, regardless of form, shall be assessed or collected by a Federal savings association, unless any billing, coupon, or notice the Federal savings association may provide regarding installment payments due on the loan discloses the date after which the charge may be assessed. A Federal savings association may not impose a late charge more than one time for late payment of the same installment, and any installment payment made by the borrower shall be applied to the longest outstanding installment due. A Federal savings association shall not assess a late charge as to any payment received by it within fifteen days after the due date of such payment. No form of such late charge permitted by this paragraph shall be considered as interest to the Federal savings association and the Federal savings association shall not deduct late charges from the regular periodic installment payments on the loan, but must collect them as such from the borrower. § 160.34 Prepayments. Any prepayment on a real estate loan must be applied directly to reduce the principal balance on the loan unless the loan contract or the borrower specifies otherwise. Subject to the terms of the loan contract, a Federal savings association may impose a fee for any prepayment of a loan. § 160.35 Adjustments to home loans. (a) For any home loan secured by borrower-occupied property, or property to be occupied by the borrower, adjustments to the interest rate, payment, balance, or term to maturity must comply with the limitations of this section and the disclosure and notice requirements of 560.210 until superseding regulations are issued by the Consumer Financial Protection Bureau. E:\FR\FM\09AUR2.SGM 09AUR2 49034 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (b) Adjustments to the interest rate shall correspond directly to the movement of an index satisfying the requirements of paragraph (d) of this section. A Federal savings association also may increase the interest rate pursuant to a formula or schedule that specifies the amount of the increase, the time at which it may be made, and which is set forth in the loan contract. A Federal savings association may decrease the interest rate at any time. (c) Adjustments to the payment and the loan balance that do not reflect an interest-rate adjustment may be made if: (1) The adjustments reflect a change in an index that may be used pursuant to paragraph (d) of this section; (2) In the case of a payment adjustment, the adjustment reflects a change in the loan balance or is made pursuant to a formula, or to a schedule specifying the percentage or dollar change in the payment as set forth in the loan contract; or (3) In the case of an open-end line-ofcredit loan, the adjustment reflects an advance taken by the borrower under the line-of-credit and is permitted by the loan contract. (d)(1) Any index used must be readily available and independently verifiable. If set forth in the loan contract, an association may use any combination of indices, a moving average of index values, or more than one index during the term of a loan. (2) Except as provided in paragraph (d)(3) of this section, any index used must be a national or regional index. (3) A Federal savings association may use an index not satisfying the requirements of paragraph (d)(2) of this section 30 days after filing a notice unless, within that 30-day period, the OCC has notified the association that the notice presents supervisory concerns or raises significant issues of law or policy. If the OCC notifies the association of such concerns or issues, the Federal savings association may not use such an index unless it applies for and receives the OCC’s prior written approval under the standard treatment processing procedures at part 116, subparts A and E of this chapter. sroberts on DSK5SPTVN1PROD with RULES § 160.36 De minimis investments. A Federal savings association may invest in the aggregate up to the greater of 1% of its total capital or $250,000 in community development investments of the type permitted for a national bank under 12 CFR part 24. § 160.37 Real estate for office and related facilities. A Federal savings association may invest in real estate (improved or VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 unimproved) to be used for office and related facilities of the association, or for such office and related facilities and for rental or sale, if such investment is made and maintained under a prudent program of property acquisition to meet the Federal savings association’s present needs or its reasonable future needs for office and related facilities. A Federal savings association may not make an investment that would cause the outstanding book value of all such investments (including investments under § 159.4(e)(2) of this chapter) to exceed its total capital. § 160.40 Commercial paper and corporate debt securities. Pursuant to HOLA section 5(c)(2)(D), a Federal savings association may invest in, sell, or hold commercial paper and corporate debt securities subject to the provisions of this section. (a) Limitations. (1) Commercial paper must be: (i) As of the date of purchase, rated in either one of the two highest categories by at least two nationally recognized investment ratings services as shown by the most recently published rating made of such investments; or (ii) If unrated, guaranteed by a company having outstanding paper that is rated as provided in paragraph (a)(1)(i) of this section. (2) Corporate debt securities must be: (i) Securities that may be sold with reasonable promptness at a price that corresponds reasonably to their fair value; and (ii) Rated in one of the four highest categories as to the portion of the security in which the association is investing by a nationally recognized investment ratings service at its most recently published rating before the date of purchase of the security. (3) A Federal savings association’s total investment in the commercial paper and corporate debt securities of any one issuer, or issued by any one person or entity affiliated with such issuer, together with other loans, shall not exceed the general lending limitations contained in § 160.93(c) of this part. (4) Investments in corporate debt securities convertible into stock are subject to the following additional limitations: (i) The purchase of securities convertible into stock at the option of the issuer is prohibited; (ii) At the time of purchase, the cost of such securities must be written down to an amount that represents the investment value of the securities considered independently of the conversion feature; and PO 00000 Frm 00086 Fmt 4701 Sfmt 4700 (iii) Federal savings associations are prohibited from exercising the conversion feature. (5) A Federal savings association shall maintain information in its files adequate to demonstrate that it has exercised prudent judgment in making investments under this section. (b) Notwithstanding the limitations contained in this section, the OCC may permit investment in corporate debt securities of another savings association in connection with the purchase or sale of a branch office or in connection with a supervisory merger or acquisition. (c) Underwriting. Before committing to acquire any investment security, a Federal savings association must determine whether the investment is safe and sound and suitable for the association. The Federal savings association must consider, as appropriate, the interest rate, credit, liquidity, price, transaction, and other risks associated with the investment activity. The Federal savings association must also determine that the issuer has adequate resources and the willingness to provide for all required payments on its obligations in a timely manner. § 160.41 Leasing. (a) Permissible activities. Subject to the limitations of this section, a Federal savings association may engage in leasing activities. These activities include becoming the legal or beneficial owner of tangible personal property or real property for the purpose of leasing such property, obtaining an assignment of a lessor’s interest in a lease of such property, and incurring obligations incidental to its position as the legal or beneficial owner and lessor of the leased property. (b) Definitions. For the purposes of this section: (1) The term net lease means a lease under which the Federal savings association will not, directly or indirectly, provide or be obligated to provide for: (i) The servicing, repair or maintenance of the leased property during the lease term; (ii) The purchasing of parts and accessories for the leased property, except that improvements and additions to the leased property may be leased to the lessee upon its request in accordance with the full-payout requirements of paragraph (c)(2)(i) of this section; (iii) The loan of replacement or substitute property while the leased property is being serviced; (iv) The purchasing of insurance for the lessee, except where the lessee has failed to discharge a contractual E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations obligation to purchase or maintain insurance; or (v) The renewal of any license, registration, or filing for the property unless such action by the Federal savings association is necessary to protect its interest as an owner or financier of the property. (2) The term full-payout lease means a lease transaction in which any unguaranteed portion of the estimated residual value relied on by the association to yield the return of its full investment in the leased property, plus the estimated cost of financing the property over the term of the lease, does not exceed 25% of the original cost of the property to the lessor. In general, a lease will qualify as a full-payout lease if the scheduled payments provide at least 75% of the principal and interest payments that a lessor would receive if the finance lease were structured as a market-rate loan. (3) The term realization of investment means that a Federal savings association that enters into a lease financing transaction must reasonably expect to realize the return of its full investment in the leased property, plus the estimated cost of financing the property over the term of the lease from: (i) Rentals; (ii) Estimated tax benefits, if any; and (iii) The estimated residual value of the property at the expiration of the term of the lease. (c) Finance leasing—(1) Investment limits. A Federal savings association may exercise its authority under HOLA sections 5(c)(1)(B) (residential real estate loans), 5(c)(2)(A) (commercial, business, corporate or agricultural loans), 5(c)(2)(B) (nonresidential real estate loans), and 5(c)(2)(D) (consumer loans) by conducting leasing activities that are the functional equivalent of loans made under those HOLA sections. These activities are commonly referred to as financing leases. Such financing leases are subject to the same investment limits that apply to loans made under those sections. For example, a financing lease of tangible personal property made to a natural person for personal, family or household purposes is subject to all limitations applicable to the amount of a Federal savings association’s investment in consumer loans. A financing lease made for commercial, corporate, business, or agricultural purposes is subject to all limitations applicable to the amount of a Federal savings association’s investment in commercial loans. A financing lease of residential or nonresidential real property is subject to all limitations applicable to the amount of a Federal savings association’s investment in these types of real estate loans. (2) Functional equivalent of lending. To qualify as the functional equivalent of a loan: (i) The lease must be a net, full-payout lease representing a non-cancelable obligation of the lessee, notwithstanding the possible early termination of the lease; (ii) The portion of the estimated residual value of the property relied upon by the lessor to satisfy the requirements of a full-payout lease must be reasonable in light of the nature of the leased property and all relevant circumstances so that realization of the lessor’s full investment plus the cost of financing the property depends primarily on the creditworthiness of the lessee, and not on the residual market value of the leased property; and (iii) At the termination of a financing lease, either by expiration or default, property acquired must be liquidated or released on a net basis as soon as practicable. Any property held in anticipation of re-leasing must be reevaluated and recorded at the lower of fair market value or book value. (d) General leasing. Pursuant to section 5(c)(2)(C) of the HOLA, a Federal savings association may invest in tangible personal property, including vehicles, manufactured homes, machinery, equipment, or furniture, for the purpose of leasing that property. In contrast to financing leases, lease investments made under this authority need not be the functional equivalent of loans. (e) Leasing salvage powers. If, in good faith, a Federal savings association believes that there has been an unanticipated change in conditions that threatens its financial position by significantly increasing its exposure to loss, it may: (1) As the owner and lessor, take reasonable and appropriate action to salvage or protect the value of the property or its interest arising under the lease; (2) As the assignee of a lessor’s interest in a lease, become the owner and lessor of the leased property pursuant to its contractual right, or take any reasonable and appropriate action to salvage or protect the value of the property or its interest arising under the lease; or (3) Include any provisions in a lease, or make any additional agreements, to protect its financial position or investment in the circumstances set forth in paragraphs (e)(1) and (e)(2) of this section. § 160.42 State and local government obligations. (a) What limitations apply? Pursuant to HOLA section 5(c)(1)(H), a Federal savings association (‘‘you’’) may invest in obligations issued by any state, territory, possession, or political subdivision thereof (‘‘governmental entity’’), subject to appropriate underwriting and the following conditions: Aggregate limitation sroberts on DSK5SPTVN1PROD with RULES (1) General obligations .................................................................................................. (2) Other obligations of a governmental entity ( e.g., revenue bonds) that hold one of the four highest investment grade ratings by a nationally recognized rating agency or that are nonrated but of investment quality. (3) Obligations of a governmental entity that do not qualify under any other paragraph but are approved by the OCC. (b) What is a political subdivision? Political subdivision means a county, city, town, or other municipal corporation, a public authority, or a publicly-owned entity that is an instrumentality of a state or a municipal corporation. (c) What is a general obligation of a state or political subdivision? A general VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 Frm 00087 Fmt 4701 Sfmt 4700 Per-issuer limitation None ................................... None ................................... None. 10% of total capital. As approved by the OCC ... 10% of total capital. obligation is an obligation that is guaranteed by the full faith and credit of a state or political subdivision that has the power to tax. Indirect payments, such as through a special fund, may qualify as general obligations if a state or political subdivision with taxing authority has unconditionally agreed to provide funds to cover payments. PO 00000 49035 (d) What is appropriate underwriting for this type of investment? In the case of a security rated in one of the four highest investment grades by a nationally recognized rating agency, your assessment of the obligor’s credit quality may be based, in part, on reliable rating agency estimates of the obligor’s performance. For all other E:\FR\FM\09AUR2.SGM 09AUR2 49036 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations securities, you must perform your own detailed analysis of credit quality. In doing so, you must consider, as appropriate, the interest rate, credit, liquidity, price, transaction, and other risks associated with the investment activity and determine that such investment is appropriate for your institution. You must also determine that the obligor has adequate resources and willingness to provide for all required payments on its obligations in a timely manner. § 160.43 Foreign assistance investments. Pursuant to HOLA section 5(c)(4)(C), a Federal savings association may make foreign assistance investments in an aggregate amount not to exceed one percent of its assets, subject to the following conditions: (a) For any investment made under the Foreign Assistance Act, the loan agreement shall specify what constitutes an event of default, and provide that upon default in payment of principal or interest under such agreement, the entire amount of outstanding indebtedness thereunder shall become immediately due and payable, at the lender’s option. Additionally, the contract of guarantee shall cover 100% of any loss of investment thereunder, except for any portion of the loan arising out of fraud or misrepresentation for which the party seeking payment is responsible, and provide that the guarantor shall pay for any such loss in U.S. dollars within a specified reasonable time after the date of application for payment. (b) To make any investments in the share capital and capital reserve of the Inter-American Savings and Loan Bank, a Federal savings association must be adequately capitalized and have adequate allowances for loan and lease losses. The Federal savings association’s aggregate investment in such capital or capital reserve, including the amount of any obligations undertaken to provide said Bank with reserve capital in the future (call-able capital), must not, as a result of such investment, exceed the lesser of one-quarter of 1% of its assets or $100,000. sroberts on DSK5SPTVN1PROD with RULES § 160.50 Letters of credit and other independent undertakings—authority. A Federal savings association may issue letters of credit and may issue such other independent undertakings as are approved by the OCC, subject to the restrictions in § 160.120. § 160.60 Suretyship and guaranty. Pursuant to section 5(b)(2) of the HOLA, a Federal savings association may enter into a repayable suretyship or VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 guaranty agreement, subject to the conditions in this section. (a) What is a suretyship or guaranty agreement? Under a suretyship, a Federal savings association is bound with its principal to pay or perform an obligation to a third person. Under a guaranty agreement, a Federal savings association agrees to satisfy the obligation of the principal only if the principal fails to pay or perform. (b) What requirements apply to suretyship and guaranty agreements under this section? A Federal savings association may enter into a suretyship or guaranty agreement under this section, subject to each of the following requirements: (1) The Federal savings association must limit its obligations under the agreement to a fixed dollar amount and a specified duration. (2) The Federal savings association’s performance under the agreement must create an authorized loan or other investment. (3) The Federal savings association must treat its obligation under the agreement as a loan to the principal for purposes of §§ 160.93 and 163.43 of this chapter. (4) The Federal savings association must take and maintain a perfected security interest in collateral sufficient to cover its total obligation under the agreement. (c) What collateral is sufficient? (1) The Federal savings association must take and maintain a perfected security interest in real estate or marketable securities equal to at least 110 percent of its obligation under the agreement, except as provided in paragraph (c)(2) of this section. (i) If the collateral is real estate, the Federal savings association must establish the value by a signed appraisal or evaluation in accordance with part 164 of this chapter. In determining the value of the collateral, the Federal savings association must factor in the value of any existing senior mortgages, liens or other encumbrances on the property, except those held by the principal to the suretyship or guaranty agreement. (ii) If the collateral is marketable securities, the Federal savings association must be authorized to invest in that security taken as collateral. The Federal savings association must ensure that the value of the security is 110 percent of the obligation at all times during the term of agreement. (2) The Federal savings association may take and maintain a perfected security interest in collateral which is at all times equal to at least 100 percent of its obligation, if the collateral is: PO 00000 Frm 00088 Fmt 4701 Sfmt 4700 (i) Cash; (ii) Obligations of the United States or its agencies; (iii) Obligations fully guarantied by the United States or its agencies as to principal and interest; or (iv) Notes, drafts, or bills of exchange or bankers’ acceptances that are eligible for rediscount or purchase by a Federal Reserve Bank. § 160.93 Lending limitations. (a) Scope. This section applies to all loans and extensions of credit to third parties made by a savings association and its subsidiaries. This section does not apply to loans made by a savings association or a GAAP-consolidated subsidiary to subordinate organizations or affiliates of the savings association. The terms subsidiary, GAAPconsolidated subsidiary, and subordinate organization have the same meanings as specified in § 159.2 of this chapter. The term affiliate has the same meaning as specified in 12 CFR 563.41 until superseded by regulations of the Board of Governors of the Federal Reserve System regarding transactions with affiliates. (b) Definitions. In applying these lending limitations, savings associations shall apply the definitions and interpretations promulgated by the OCC consistent with 12 U.S.C. 84. See 12 CFR part 32. In applying these definitions, pursuant to 12 U.S.C. 1464, savings associations shall use the terms savings association, savings associations, and savings association’s in place of the terms national bank and bank, banks, and bank’s, respectively. For purposes of this section: (1) The term one borrower has the same meaning as the term person set forth at 12 CFR part 32. It also includes, in addition to the definition cited therein, a financial institution as defined at § 161.19 of this chapter. (2) The term company means a corporation, partnership, business trust, association, or similar organization and, unless specifically excluded, the term company includes a savings association and a bank. (3) Contractual commitment to advance funds has the meaning set forth in 12 CFR part 32. (4) Loans and extensions of credit has the meaning set forth in 12 CFR part 32, and includes investments in commercial paper and corporate debt securities. The appropriate Federal banking agency expressly reserves its authority to deem other arrangements that are, in substance, loans and extensions of credit to be encompassed by this term. (5) The term loans as used in the phrase Loans to one borrower to finance E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations the sale of real property acquired in satisfaction of debts previously contracted for in good faith does not include an association’s taking of a purchase money mortgage note from the purchaser provided that: (i) No new funds are advanced by the association to the borrower; and (ii) The association is not placed in a more detrimental position as a result of the sale. (6) [Reserved] (7) Readily marketable collateral has the meaning set forth in 12 CFR part 32. (8) Residential housing units has the same meaning as the term residential real estate set forth in § 141.23 of this chapter. The term to develop includes the various phases necessary to produce housing units as an end product, to include: Acquisition, development and construction; development and construction; construction; rehabilitation; or conversion. The term domestic includes units within the fifty states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam, and the Pacific Islands. (9) Single family dwelling unit has the meaning set forth in § 141.25 of this chapter. (10) A standby letter of credit has the meaning set forth in 12 CFR part 32. (11) Unimpaired capital and unimpaired surplus means— (i) A savings association’s core capital and supplementary capital included in its total capital under part 167 of this chapter; plus (ii) The balance of a savings association’s allowance for loan and lease losses not included in supplementary capital under part 167 of this chapter; plus (iii) The amount of a savings association’s loans to, investments in, and advances to subsidiaries not included in calculating core capital under part 167 of this chapter. (c) General limitation. Section 5200 of the Revised Statutes (12 U.S.C. 84) shall apply to savings associations in the same manner and to the same extent as it applies to national banks. This statutory provision and lending limit regulations and interpretations promulgated by the OCC pursuant to a rulemaking conducted in accordance with the provisions of the Administrative Procedure Act, 5 U.S.C. 553 et seq. (including the regulations appearing at 12 CFR part 32) shall apply to savings associations in the same manner and to the same extent as these provisions apply to national banks: (1) The total loans and extensions of credit by a savings association to one borrower outstanding at one time and not fully secured, as determined in the VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 same manner as determined under 12 U.S.C. 84(a)(2), by collateral having a market value at least equal to the amount of the loan or the extension of credit shall not exceed 15 percent of the unimpaired capital and unimpaired surplus of the association. (2) The total loans and extensions of credit by a savings association to one borrower outstanding at one time and fully secured by readily marketable collateral having a market value, as determined by reliable and continuously available price quotations, at least equal to the amount of the funds outstanding shall not exceed 10 per centum of the unimpaired capital and unimpaired surplus of the association. This limitation shall be separate from and in addition to the limitation contained in paragraph (c)(1) of this section. (d) Exceptions to the general limitation—(1) $500,000 exception. If a savings association’s aggregate lending limitation calculated under paragraphs (c)(1) and (c)(2) of this section is less than $500,000, notwithstanding this aggregate limitation in paragraphs (c)(1) and (c)(2) of this section, such savings association may have total loans and extensions of credit, for any purpose, to one borrower outstanding at one time not to exceed $500,000. (2) Statutory exceptions. The exceptions to the lending limits set forth in 12 U.S.C. 84 and 12 CFR part 32 are applicable to savings associations in the same manner and to the extent as they apply to national banks. (3) Loans to develop domestic residential housing units. Subject to paragraph (d)(4) of this section, a savings association may make loans to one borrower to develop domestic residential housing units, not to exceed the lesser of $30,000,000 or 30 percent of the savings association’s unimpaired capital and unimpaired surplus, including all amounts loaned under the authority of the General Limitation set forth under paragraphs (c)(1) and (c)(2) of this section, provided that: (i) The final purchase price of each single family dwelling unit the development of which is financed under this paragraph (d)(3) does not exceed $500,000; (ii) The savings association is, and continues to be, in compliance with its capital requirements under part 167 of this chapter. (iii) The appropriate Federal banking agency permits, subject to conditions it may impose, the savings association to use the higher limit set forth under this paragraph (d)(3). A savings association that meets the requirements of paragraphs (d)(3)(i), (ii), (iv) and (v) of PO 00000 Frm 00089 Fmt 4701 Sfmt 4700 49037 this section and that meets the requirements for ‘‘expedited treatment’’ under § 116.5 of this chapter may use the higher limit set forth under this paragraph (d)(3) if the savings association has filed a notice with the appropriate Federal banking agency that it intends to use the higher limit at least 30 days prior to the proposed use. A savings association that meets the requirements of paragraphs (d)(3)(i), (ii), (iv), and (v) of this section and that meets the requirements for ‘‘standard treatment’’ under § 116.5 of this chapter may use the higher limit set forth under this paragraph (d)(3) if the savings association has filed an application with the appropriate Federal banking agency and the agency has approved the use the higher limit; (iv) Loans made under this paragraph (d)(3) to all borrowers do not, in aggregate, exceed 150 percent of the savings association’s unimpaired capital and unimpaired surplus; and (v) Such loans comply with the applicable loan-to-value requirements that apply to Federal savings associations. (4) The authority of a savings association to make a loan or extension of credit under the exception in paragraph (d)(3) of this section ceases immediately upon the association’s failure to comply with any one of the requirements set forth in paragraph (d)(3) of this section or any condition(s) set forth in an order issued by the appropriate Federal banking agency under paragraph (d)(3)(iii) of this section. (5) Notwithstanding the limit set forth in paragraphs (c)(1) and (c)(2) of this section, a savings association may invest up to 10 percent of unimpaired capital and unimpaired surplus in the obligations of one issuer evidenced by: (i) Commercial paper rated, as of the date of purchase, as shown by the most recently published rating by at least two nationally recognized investment rating services in the highest category; or (ii) Corporate debt securities that may be sold with reasonable promptness at a price that corresponds reasonably to their fair value, and that are rated in one of the two highest categories by a nationally recognized investment rating service in its most recently published ratings before the date of purchase of the security. (e) Loans to finance the sale of REO. A savings association’s loans to one borrower to finance the sale of real property acquired in satisfaction of debts previously contracted for in good faith shall not, when aggregated with all other loans to such borrower, exceed the E:\FR\FM\09AUR2.SGM 09AUR2 49038 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations Example: Savings Associations A’s lending limitation as calculated under the 15 percent General Limitation is $800, 0. If Association A lends Y $800,000 for commercial purposes, Association A cannot lend Y an additional $1,600,000, or 30 percent of capital and surplus, to develop residential housing units under the paragraph (d)(3) exception. The (d)(3) exception operates as the uppermost limitation on all lending to one borrower (for associations that may employ this exception) and includes any amounts loaned to the same borrower under the General Limitation. Association A, therefore, may lend only an additional $800,000 to Y, provided the paragraph (d)(3) prerequisites have been met. The amount loaned under the authority of the General Limitation ($800,000), when added to the amount loaned under the exception ($800,000), yields a sum that does not exceed the 30 percent uppermost limitation ($1,600,000). 2. This result does not change even if the facts are altered to assume that some or all of the $800,000 amount of lending permissible under the General Limitation’s 15 percent basket is not used, or is devoted to the development of domestic residential housing units. In other words, using the above example, if Association A lends Y $400,000 for commercial purposes and $300,000 for residential purposes—both of which would be permitted under the Association’s $800,000 General Limitation—Association A’s remaining permissible lending to Y would be: First, an additional $100,000 under the General Limitation, and then another $800,000 to develop domestic residential housing units if the Association meets the paragraph (d)(3) prerequisites. (The latter is $800,000 because in no event may the total lending to Y exceed 30 percent of unimpaired capital and unimpaired surplus). If Association A did not lend Y the remaining $100,000 permissible under the General Limitation, its permissible loans to develop domestic residential housing units under paragraph (d)(3) would be $900,000 instead of $800,000 (the total loans to Y would still equal $1,600,000). 3. In short, under the paragraph (d)(3) exception, the 30 percent or $30,000,000 limit will always operate as the uppermost limitation, unless of course the association does not avail itself of the exception and merely relies upon its General Limitation. Appendix to § 160.93—Interpretations sroberts on DSK5SPTVN1PROD with RULES General Limitation in paragraph (c)(1) of this section. (f) Calculating compliance and recordkeeping. (1) The amount of an association’s unimpaired capital and unimpaired surplus pursuant to paragraph (b)(11) of this section shall be calculated as of the association’s most recent periodic report required to be filed with the appropriate Federal banking agency prior to the date of granting or purchasing the loan or otherwise creating the obligation to repay funds, unless the association knows, or has reason to know, based on transactions or events actually completed, that such level has changed significantly, upward or downward, subsequent to filing of such report. (2) If a savings association or subsidiary thereof makes a loan or extension of credit to any one borrower, as defined in paragraph (b)(1) of this section, in an amount that, when added to the total balances of all outstanding loans owed to such association and its subsidiary by such borrower, exceeds the greater of $500,000 or 5 percent of unimpaired capital and unimpaired surplus, the records of such association or its subsidiary with respect to such loan shall include documentation showing that such loan was made within the limitations of paragraphs (c) and (d) of this section; for the purpose of such documentation such association or subsidiary may require, and may accept in good faith, a certification by the borrower identifying the persons, entities, and interests described in the definition of one borrower in paragraph (b)(1) of this section. (g) [Reserved] (h) More stringent restrictions for Federal savings associations. The Comptroller may impose more stringent restrictions on a Federal savings association’s loans to one borrower if the Comptroller determines that such restrictions are necessary to protect the safety and soundness of the savings association. Section 160.93–101 Interrelationship Between the General Limitation and the 150 Percent Aggregate Limit on Loans to all Borrowers To Develop Domestic Residential Housing Units 1. Numerous questions have been received regarding the allocation of loans between the different lending limit ‘‘baskets,’’ i.e., the 15 percent General Limitation basket and the 30 percent Residential Development basket. In general, the inquiries concern the manner in which an association may ‘‘move’’ a loan from the General Limitation basket to the Residential Development basket. The following example is intended to provide guidance: Example: Association A’s General Limitation under section 5(u)(1) is $15 Section 160.93–100 Interrelation of General Limitation With Exception for Loans To Develop Domestic Residential Housing Units 1. The § 160.93(d)(3) exception for loans to one person to develop domestic residential housing units is characterized in the regulation as an ‘‘alternative’’ limit. This exceptional $30,000,000 or 30 percent limitation does not operate in addition to the 15 percent General Limitation or the 10 percent additional amount an association may loan to one borrower secured by readily marketable collateral, but serves as the uppermost limitation on a savings association’s lending to any one person once an association employs this exception. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 PO 00000 Frm 00090 Fmt 4701 Sfmt 4700 million. In January, Association A makes a $10 million loan to Borrower to develop domestic residential housing units. At the time the loan was made, Association A had not received approval under an order issued by the appropriate Federal banking agency to avail itself of the residential development exception to lending limits. Therefore, the $10 million loan is made under Association A’s General Limitation. 2. In June, Association A receives authorization to lend under the Residential Development exception. In July, Association A lends $3 million to Borrower to develop domestic residential housing units. In August, Borrower seeks an additional $12 million commercial loan from Association A. Association A cannot make the loan to Borrower, however, because it already has an outstanding $10 million loan to Borrower that counts against Association A’s General Limitation of $15 million. Thus, Association A may lend only up to an additional $5 million to Borrower under the General Limitation. 3. However, Association A may be able to reallocate the $10 million loan it made to Borrower in January to its Residential Development basket provided that: (1) Association A has obtained authority under an order issued by the appropriate Federal banking agency to avail itself of the additional lending authority for residential development and maintains compliance with all prerequisites to such lending authority; (2) the original $10 million loan made in January constitutes a loan to develop domestic residential housing units as defined; and (3) the housing unit(s) constructed with the funds from the January loan remain in a stage of ‘‘development’’ at the time Association A reallocates the loan to the domestic residential housing basket. The project must be in a stage of acquisition, development, construction, rehabilitation, or conversion in order for the loan to be reallocated. 4. If Association A is able to reallocate the $10 million loan made to Borrower in January to its Residential Development basket, it may make the $12 million commercial loan requested by Borrower in August. Once the January loan is reallocated to the Residential Development basket, however, the $10 million loan counts towards Association’s 150 percent aggregate limitation on loans to all borrowers under the residential development basket (section 5(u)(2)(A)(ii)(IV)). 5. If Association A reallocates the January loan to its domestic residential housing basket and makes an additional $12 million commercial loan to Borrower, Association A’s totals under the respective limitations would be: $12 million under the General Limitation; and $13 million under the Residential Development limitation. The full $13 million residential development loan counts toward Association A’s aggregate 150 percent limitation. § 160.100 Real estate lending standards; purpose and scope. This section, and § 160.101 of this subpart, issued pursuant to section 304 of the Federal Deposit Insurance E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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. 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 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 1 The agencies have adopted a uniform rule on real estate lending. See 12 CFR part 365 (FDIC); 12 CFR part 208, subpart C (Board); 12 CFR part 34, subpart D and 12 CFR 160.100–160.101 (OCC). Corporation Improvement Act of 1991, 12 U.S.C. 1828(o), prescribe standards for real estate lending to be used by Federal savings associations and all their includable subsidiaries, as defined in 12 CFR 167.1, over which the savings associations exercise control, in adopting internal real estate lending policies. § 160.101 Real estate lending standards. (a) Each Federal 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 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 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 savings association’s real estate portfolio; and (iv) Documentation, approval, and reporting requirements to monitor compliance with the savings association’s real estate lending policies. (c) Each Federal 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 bank and thrift supervisory agencies. sroberts on DSK5SPTVN1PROD with RULES Appendix to § 160.101—Interagency Guidelines for Real Estate Lending Policies VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 PO 00000 Frm 00091 Fmt 4701 Sfmt 4700 49039 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. 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. E:\FR\FM\09AUR2.SGM 09AUR2 49040 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations • 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). • 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-to-value limit (percent) Loan category Raw land .......................................................................................................................................................................................... Land development ........................................................................................................................................................................... Construction: Commercial, multifamily,1 and other nonresidential ................................................................................................................. 1- to 4-family residential ........................................................................................................................................................... Improved property ............................................................................................................................................................................ Owner-occupied 1- to 4-family and home equity ............................................................................................................................ 65 75 80 85 85 ( 2) 1 Multifamily construction includes condominiums and cooperatives. 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. sroberts on DSK5SPTVN1PROD with RULES 2A 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 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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.2 Moreover, within the aggregate limit, total loans for all commercial, agricultural, multifamily or other non-1-to-4 family 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 2 For the state member banks, the term ‘‘total capital’’ means ‘‘total risk-based capital’’ as defined in Appendix A to 12 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 savings associations, the term ‘‘total capital’’ as described in part 167 of this chapter. PO 00000 Frm 00092 Fmt 4701 Sfmt 4700 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: • 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 E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 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. 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. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 • 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 (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 PO 00000 Frm 00093 Fmt 4701 Sfmt 4700 49041 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. 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). § 160.110 Most favored lender usury preemption for all savings associations. (a) Definition. The term ‘‘interest’’ as used in 12 U.S.C. 1463(g) includes any payment compensating a creditor or prospective creditor for an extension of credit, making available of a line of credit, or any default or breach by a borrower of a condition upon which credit was extended. It includes, among other things, the following fees connected with credit extension or availability: numerical periodic rates, late fees, not sufficient funds (NSF) fees, overlimit fees, annual fees, cash advance fees, and membership fees. It does not ordinarily include appraisal fees, premiums and commissions attributable to insurance guaranteeing repayment of any extension of credit, finders’ fees, fees for document preparation or notarization, or fees incurred to obtain credit reports. (b) Authority. A savings association located in a state may charge interest at E:\FR\FM\09AUR2.SGM 09AUR2 49042 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations the maximum rate permitted to any state-chartered or licensed lending institution by the law of that state. If state law permits different interest charges on specified classes of loans, a Federal savings association making such loans is subject only to the provisions of state law relating to that class of loans that are material to the determination of the permitted interest. For example, a Federal savings association may lawfully charge the highest rate permitted to be charged by a statelicensed small loan company, without being so licensed, but subject to state law limitations on the size of loans made by small loan companies. State supervisors determine the degree to which state-chartered savings associations must comply with state laws other than those imposing restrictions on interest, as defined in paragraph (a) of this section. (c) Effect on state definitions of interest. The Federal definition of the term ‘‘interest’’ in paragraph (a) of this section does not change how interest is defined by the individual states (nor how the state definition of interest is used) solely for purposes of state law. For example, if late fees are not ‘‘interest’’ under state law where a savings association is located but state law permits its most favored lender to charge late fees, then a savings association located in that state may charge late fees to its intrastate customers. The savings association may also charge late fees to its interstate customers because the fees are interest under the Federal definition of interest and an allowable charge under state law where the savings association is located. However, the late fees would not be treated as interest for purposes of evaluating compliance with state usury limitations because state law excludes late fees when calculating the maximum interest that lending institutions may charge under those limitations. sroberts on DSK5SPTVN1PROD with RULES § 160.120 Letters of credit and other independent undertakings to pay against documents. (a) General authority. A Federal 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 OCC (approved undertaking).1 Under such letters of 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) VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 credit and approved undertakings, the 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 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, Federal savings associations that issue letters of credit or approved undertakings should not be exposed to undue risk. At a minimum, 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; (iii) The letter of credit or approved undertaking should: (A) Be limited in duration; or (B) Permit the savings association to terminate the letter of credit or approved undertaking, either on a periodic basis (consistent with the 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 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 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 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 or revised Article 5 of the UCC (as amended 1995) (available from West Publishing Co.); the Uniform Customs and Practice for Documentary Credits (International Chamber of Commerce (ICC) Publication No. 500) (available from ICC Publishing, Inc.; 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); and the Uniform Rules for Bank-to-Bank Reimbursements Under Documentary Credits (ICC Publication No. 525) (available from ICC Publishing, Inc.). PO 00000 Frm 00094 Fmt 4701 Sfmt 4700 the documents if the 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 savings association should ensure that market fluctuations that affect the value of the item will not cause the 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 savings association to make any necessary credit assessment prior to renewal; (iii) In the event that a savings association issues an undertaking for its own account, the underlying transaction for which it is issued must be within the savings association’s authority and comply with any safety and soundness requirements applicable to that transaction. (3) Operational expertise. The savings association should possess operational expertise that is commensurate with the sophistication of its letter of credit or independent undertaking activities. (4) Documentation. The savings association must accurately reflect its letters of credit or approved undertakings in its records, including any acceptance or deferred payment or other absolute obligation arising out of its contingent undertaking. § 160.121 Investment in state housing corporations. (a) Any Federal 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 Federal 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 savings association has its E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 OCC. The aggregate outstanding direct investment in obligations under paragraph (b) of this section shall not exceed the amount of the savings association’s total capital. (c) Each state housing corporation in which a 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 OCC such information as the OCC may consider to be necessary to ensure that investments are properly made under this section. § 160.130 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 Federal 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 savings association or a subsidiary of the savings association. § 160.160 Asset classification. sroberts on DSK5SPTVN1PROD with RULES (a)(1) Each 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 OCC. (2) In connection with the examination of a savings association or its affiliates, OCC examiners may identify problem assets and classify them, if appropriate. The association must recognize such examiner classifications in its subsequent reports to the OCC. (b) Based on the evaluation and classification of its assets, each 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. § 160.170 Records for lending transactions. In establishing and maintaining its records pursuant to § 163.170 of this chapter, each Federal savings association and service corporation should establish and maintain loan documentation practices that: VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (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. § 160.172 owned. Re-evaluation of real estate A Federal savings association shall appraise each parcel of real estate owned at the earlier of in-substance foreclosure or at the time of the 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 part 164 of this chapter. The Comptroller 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 part. A dated, signed copy of each report of appraisal made pursuant to any provisions of this part shall be retained in the savings association’s records. Subpart C—[Reserved] § 160.210 § 160.220 [Reserved] PART 161—DEFINITIONS FOR REGULATIONS AFFECTING ALL SAVINGS ASSOCIATIONS Sec. 161.1 When do the definitions in this part apply? 161.2 Account. 161.3 Accountholder. 161.4 Affiliate. 161.5 Affiliated person. 161.6 Audit period. 161.7 Appropriate Federal banking agency. 161.8 [Reserved] 161.9 Certificate account. 161.10 Comptroller 161.12 Consumer credit. 161.14 Controlling person. 161.15 Corporation. 161.16 Demand accounts. 161.18 Director. 161.19 Financial institution. 161.24 Immediate family. PO 00000 Frm 00095 Fmt 4701 161.26 Land loan. 161.27 Low-rent housing. 161.28 Money Market Deposit Accounts. 161.29 Negotiable Order of Withdrawal Accounts. 161.30 Nonresidential construction loan. 161.31 Nonwithdrawable account. 161.33 Note account. 161.34 OCC. 161.35 Officer. 161.37 Parent company; subsidiary. 161.38 Political subdivision. 161.39 Principal office. 161.40 Public unit. 161.41 [Reserved] 161.42 Savings account. 161.43 Savings association. 161.44 Security. 161.45 Service corporation. 161.50 State. 161.51 Subordinated debt security. 161.52 Tax and loan account. 161.53 United States Treasury General Account. 161.54 United States Treasury Time Deposit Open Account. 161.55 With recourse. Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 5412(b)(2)(B). § 161.1 apply? Sfmt 4700 When do the definitions in this part The definitions in this part and in 12 CFR part 141 apply throughout parts 100–199 of this chapter, unless another definition is specifically provided. § 161.2 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 savings association. § 161.3 [Reserved] 49043 Accountholder. The term accountholder means the holder of an account or accounts in a 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 savings association. § 161.4 Affiliate. The term affiliate of a savings association, unless otherwise defined, means any corporation, business trust, association, or other similar organization: (a) Of which a 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 E:\FR\FM\09AUR2.SGM 09AUR2 49044 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 savings association who own or control either a majority of the shares of such savings association or more than 50 per centum of the number of shares voted for the election of directors of such savings association at the preceding election, or by trustees for the benefit of the shareholders of any such savings association; or (c) Of which a majority of its directors, trustees, or other persons exercising similar functions are directors of any one savings association. sroberts on DSK5SPTVN1PROD with RULES § 161.5 Affiliated person. The term affiliated person of a 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 savings association or a corporation or organization through which the 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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. § 161.6 Audit period. The audit period of a savings association means the twelve month period (or other period in the case of a change in audit period) covered by the annual audit conducted to satisfy § 163.170 of this chapter. § 161.7 Appropriate Federal banking agency. The term appropriate Federal banking agency means appropriate Federal banking agency as that term is defined in 12 U.S.C. 1813(q). § 161.8 [Reserved] § 161.9 Certificate account. 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 savings association; or controls in any manner the election or appointment of a majority of the directors of such savings association. However, a director of a savings association will not be deemed to be a controlling person of such 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 entire board and if its authority is revocable by such a majority. The term certificate account means a savings account evidenced by a certificate that must be held for a fixed or minimum term. § 161.15 § 161.10 § 161.16 Comptroller. The term Comptroller means the Comptroller of the Currency. § 161.12 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 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 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. § 161.14 Controlling person. The term controlling person of a savings association means any person or entity which, either directly or PO 00000 Frm 00096 Fmt 4701 Sfmt 4700 Corporation. The terms Corporation and FDIC mean the Federal Deposit Insurance Corporation. 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 savings association and that are permitted to be issued by statute, regulation, or otherwise and are payable on demand. § 161.18 Director. (a) 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. (b) [Reserved] § 161.19 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). § 161.24 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; E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (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. § 161.26 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. § 161.27 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 contract for low-rent housing under the provisions of the United States Housing Act of 1937, as amended. sroberts on DSK5SPTVN1PROD with RULES § 161.28 Money Market Deposit Accounts. (a) Money Market Deposit Accounts (MMDAs) offered by Federal savings associations in accordance with 12 U.S.C. 1464(b)(1) and by state-chartered 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 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 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 savings association to the savings association itself, or to a third party. (ii) 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 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 savings association or to make unlimited payments directly to the depositor from the account when such transfers or payments are made by mail, messenger, VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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 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 savings association the depository 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 savings association at their option, may use on a consistent basis either the date on a check or the date it is paid in determining whether the transfer limitations within the specified interval are exceeded. (b) Federal savings associations may offer MMDAs to any depositor, and state-chartered savings associations may offer MMDAs to any depositor not inconsistent with applicable state law. § 161.29 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 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.’’ § 161.30 Nonresidential construction loan. The term nonresidential construction loan means a loan for construction of other than one or more dwelling units. § 161.31 Nonwithdrawable account. The term nonwithdrawable account means an account which by the terms of the contract of the accountholder with the savings association or by provisions of state law cannot be paid to the PO 00000 Frm 00097 Fmt 4701 Sfmt 4700 49045 accountholder until all liabilities, including other classes of share liability of the savings association have been fully liquidated and paid upon the winding up of the savings association is referred to as a nonwithdrawable account. § 161.33 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. § 161.34 OCC. The term OCC means Office of the Comptroller of the Currency. § 161.35 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 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. § 161.37 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 any service corporation owned in whole or in part by a savings association, or a subsidiary of such service corporation. § 161.38 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 E:\FR\FM\09AUR2.SGM 09AUR2 49046 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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. § 161.39 Principal office. The term principal office means the home office of a savings association established as such in conformity with the laws under which the savings association is organized. § 161.40 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. § 161.41 Savings account. The term savings account means any withdrawable account, except a demand account as defined in § 161.16 of this chapter, a tax and loan account, a note account, a United States Treasury general account, or a United States Treasury time deposit-open account. § 161.43 Savings association. The term savings association means a 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 Federal savings association or Federal savings bank, chartered under section 5 of the Act, or 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 and the Comptroller jointly determine to be operating substantially in the same manner as a savings association. sroberts on DSK5SPTVN1PROD with RULES § 161.44 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 § 161.45 Jkt 223001 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 under part 159 of this chapter. § 161.50 [Reserved] § 161.42 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. State. The term state means a state, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands of the United States. § 161.51 Subordinated debt security. The term subordinated debt security means any unsecured note, debenture, or other debt security issued by a savings association and subordinated on liquidation to all claims having the same priority as account holders or any higher priority. § 161.52 Tax and loan account. 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. § 161.53 United States Treasury General Account. 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. may require. Such accounts are not savings accounts or savings deposits. § 161.55 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 savings association. (b) The term with recourse does not include loans or interests therein where the agreement of sale provides for the 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 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 part 167 of this chapter. PART 162—REGULATORY REPORTING STANDARDS Sec. 162.1 162.2 162.4 Regulatory reporting requirements. Regulatory reports. Audit of Federal savings associations. Authority: 12 U.S.C. 1463, 5412(b)(2)(B). § 161.54 United States Treasury Time Deposit Open Account. § 162.1 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 (a) Authority and scope. This part is issued by the Office of the Comptroller of the Currency (OCC) pursuant to section 4(b) and 4(c) of the Home Owners’ Loan Act (HOLA) (12 U.S.C. 1463(b) and 1463(c)). It applies to all Federal savings associations regulated by the OCC. PO 00000 Frm 00098 Fmt 4701 Sfmt 4700 E:\FR\FM\09AUR2.SGM Regulatory reporting requirements. 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (b) Records and reports—general—(1) Records. Each 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 OCC 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 OCC, at a location acceptable to the OCC. (2) Reports. For purposes of examination by and regulatory reports to the OCC and compliance with this chapter, all savings associations shall use such forms and follow such regulatory reporting requirements as the OCC may require by regulation or otherwise. sroberts on DSK5SPTVN1PROD with RULES § 162.2 Regulatory reports. (a) Definition and scope. This section applies to all regulatory reports, as defined herein. A regulatory report is any report that the OCC prepares, or is submitted to, or is used by the OCC, to determine compliance with its rules and regulations, and to evaluate the safe and sound condition and operation of savings associations. The Report of Examination is an example of a regulatory report. 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.’’ Regulatory reporting requirements include, but are not limited to, guidance contained in OCC regulations, bulletins, and 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 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 OCC regulations, bulletins, examination handbooks and instructions to regulatory reports. Such VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 safety and soundness requirements shall be no less stringent than those applied by the Comptroller of the Currency for national banks; and (iii) Incorporate additional safety and soundness requirements more stringent than GAAP, as the Comptroller 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 OCC pursuant to the Securities and Exchange Act of 1934 or parts 192, 194, or 197 of this chapter. (3) Compliance. When the OCC determines that a 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 OCC. § 162.4 Audit of savings associations. (a) General. The OCC may require, at any time, an independent audit of the financial statements of, or the application of procedures agreed upon by the OCC to a savings association or affiliate (as defined by 12 CFR 563.41, or upon issuance of superseding regulations by the Board of Governors of the Federal Reserve System, such superseding regulations) by qualified independent public accountants when needed for any safety and soundness reason identified by the OCC. (b) Audits required for safety and soundness purposes. The OCC requires an independent audit for safety and soundness purposes if a savings association has received a composite rating of 3, 4 or 5, as defined at § 116.5(c) of this chapter. (c) Procedures. (1) When the OCC requires an independent audit because such an audit is needed for safety and soundness purposes, the Comptroller shall determine whether the audit was conducted and filed in a manner satisfactory to the OCC. (2) The Comptroller may waive the independent audit requirement described at paragraph (b)(1) of this section, if the Comptroller determines that an audit would not provide further information on safety and soundness issues relevant to the examination rating. (3) When the OCC requires the application of procedures agreed upon for safety and soundness purposes, the Comptroller shall identify the procedures to be performed. The Comptroller shall also determine whether the agreed upon procedures PO 00000 Frm 00099 Fmt 4701 Sfmt 4700 49047 were conducted and filed in a manner satisfactory to the OCC. (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 savings association’s or holding company’s principal office is located; (2) Agrees in the engagement letter to provide the OCC 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 OCC. (e) Voluntary audits. When a savings association or affiliate (as defined by 12 CFR 563.41, or upon issuance of superseding regulations by the Board of Governors of the Federal Reserve System, such superseding regulations) obtains an independent audit voluntarily, it must be performed by an independent public accountant who satisfies the requirements of paragraphs (d)(1), (d)(2), and (d)(3)(i) of this section. PART 163—SAVINGS ASSOCIATIONS—OPERATIONS Subpart A—Accounts Sec. 163.1 Chartering documents. 163.4 [Reserved] 163.5 Securities: Statement of noninsurance. Subpart B—Operation and Structure 163.22 Merger, consolidation, purchase or sale of assets, or assumption of liabilities. 163.27 Advertising. 163.33 Directors, officers, and employees. 163.36 Tying restriction exception. 163.39 Employment contracts. 163.41 Transactions with affiliates. 163.43 Loans by savings associations to their executive officers, directors and principal shareholders. 163.47 Pension plans. Subpart C—Securities and Borrowings 163.74 Mutual capital certificates. 163.76 Offers and sales of securities at an office of a Federal savings association. 163.80 Borrowing limitations. E:\FR\FM\09AUR2.SGM 09AUR2 49048 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 163.81 Inclusion of subordinated debt securities and mandatorily redeemable preferred stock as supplementary capital. Subpart D—[Reserved] Subpart E—Capital Distributions 163.140 What does this subpart cover? 163.141 What is a capital distribution? 163.142 What other definitions apply to this subpart? 163.143 Must I file with the OCC? 163.144 How do I file with the OCC? 163.145 May I combine my notice or application with other notices or applications? 163.146 Will the OCC permit my capital distribution? § 163.4 163.161 Management and financial policies. 163.170 Examinations and audits; appraisals; establishment and maintenance of records. 163.171 [Reserved] 163.172 Financial derivatives. 163.176 Interest-rate-risk-management procedures. 163.177 Procedures for monitoring Bank Secrecy Act (BSA) compliance. Subpart G—Reporting and Bonding 163.180 Suspicious Activity Reports and other reports and statements. 163.190 Bonds for directors, officers, employees, and agents; form of and amount of bonds. 163.191 Bonds for agents. 163.200 Conflicts of interest. 163.201 Corporate opportunity. Subpart H—Notice of Change of Director or Senior Executive Officer 163.550 What does this subpart do? 163.555 What definitions apply to this subpart? 163.560 Who must give prior notice? 163.565 What procedures govern the filing of my notice? 163.570 What information must I include in my notice? 163.575 What procedures govern OCC review of my notice for completeness? 163.580 What standards and procedures will govern OCC review of the substance of my notice? 163.585 When may a proposed director or senior executive officer begin service? 163.590 When will the OCC waive the prior notice requirement? Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1817, 1820, 1828, 1831o, 3806, 5101 et seq., 5412(b)(2)(B); 31 U.S.C. 5318; 42 U.S.C. 4106. sroberts on DSK5SPTVN1PROD with RULES Subpart A—Accounts Chartering documents. (a) Submission for approval. Any de novo Federal savings association prior to commencing operations shall file its charter and bylaws with the OCC for approval, together with a certification that such charter and bylaws are VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 [Reserved] § 163.5 Securities: Statement of noninsurance. Subpart F—Financial Management Policies § 163.1 permissible under all applicable laws, rules and regulations. (b) Availability of chartering documents. Each Federal 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 savings association, and shall upon request deliver to any accountholders a copy of such charter and bylaws or amendments thereto. Every security issued by a Federal savings association must include in its provisions a clear statement that the security is not insured by the Federal Deposit Insurance Corporation. Subpart B—Operation and Structure § 163.22 Merger, consolidation, purchase or sale of assets, or assumption of liabilities. (a) No Federal savings association may, without application to and approval by the OCC: (1) Combine with any insured depository institution, if the acquiring or resulting institution is to be a Federal savings association; or (2) Assume liability to pay any deposit made in, any insured depository institution. (b)(1) No Federal savings association may, without notifying the OCC, as provided in paragraph (h)(1) of this section: (i) Combine with another insured depository institution where a Federal savings association is not the resulting institution; or (ii) In the case of a savings association that meets the conditions for expedited treatment under § 116.5 of this chapter, convert, directly or indirectly, to a national or state bank. (2) A Federal savings association that does not meet the conditions for expedited treatment under § 116.5 of this chapter may not, directly or indirectly, convert to a national or state bank without prior application to and approval of the OCC, as provided in paragraph (h)(2)(ii) of this section. (c) No Federal savings association may make any transfer (excluding transfers subject to paragraphs (a) or (b) of this section) without notice or application to the OCC, 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 PO 00000 Frm 00100 Fmt 4701 Sfmt 4700 of assets or savings account liabilities, purchases of assets, and assumptions of deposit 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 OCC shall take into account the following: (i) The capital level of any resulting Federal 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 Federal 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 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 Federal 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 Federal 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 E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations paid by the disappearing savings association prior to the commencement 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 Federal savings association. The filing should describe and justify the duties and responsibilities and any compensation paid to any advisory board of the resulting Federal 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 savings association. Advisory board fees that are in excess of 115 percent of the director fees paid by the disappearing Federal 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 Federal savings associations with assets greater than $10,000,000 or $50 per meeting attended for disappearing Federal 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 OCC 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 the savings association business in any part of the United States; or (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 OCC 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 OCC. (4) Applications filed under paragraph (a) of this section must be processed in accordance with the time frames set forth in §§ 116.210 through 116.290 of this chapter, provided that the period for review may be extended only if the OCC 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 OCC 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 subpart B of part 116 of this chapter. 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 subpart C of part 116 of this chapter. The public comment period is 30 calendar days after the date of publication of the initial public notice. However, if the OCC 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 OCC may arrange a meeting in accordance with the procedures in subpart D of part 116 of this chapter. (iv) The OCC will request the Attorney General to provide reports on the competitive impacts involved in the transaction. (v) The OCC 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). PO 00000 Frm 00101 Fmt 4701 Sfmt 4700 49049 (2) For applications described in § 163.22, certain 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 Federal savings association. The notice must allow affected accountholders at least 30 days to consider whether to retain their accounts in the transferring Federal savings association. The following savings associations must provide the notices: (i) A Federal 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 Federal savings association transferring account liabilities to a stock form depository institution. (f) Automatic approvals by the OCC. Applications filed pursuant to paragraph (a) of this section shall be deemed to be approved automatically by the OCC 30 calendar days after the OCC sends written notice to the applicant that the application is complete, unless: (1) The acquiring Federal savings association does not meet the criteria for expedited treatment under § 116.5 of this chapter; (2) The OCC recommends the imposition of non-standard conditions prior to approving the application; (3) The OCC suspends the applicable processing time frames under § 116.190 of this chapter; (4) The OCC raises objections to the transaction; (5) The resulting Federal 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 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 Federal 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 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 Federal savings association would be one of the 2 largest E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 49050 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations depository institutions competing in the relevant geographic area where before the transaction there were 12 or more depository institutions, the resulting 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 caused by the transaction would be 50 or more; (9) In a transaction involving potential competition, the OCC determines that the acquiring Federal savings association is one of three or fewer potential entrants into the relevant geographic area; (10) The acquiring Federal savings association has assets of $1 billion or more and proposes to acquire assets of $1 billion or more; (11) The Federal savings association that will be the resulting savings association in the transaction has a composite Community Reinvestment Act rating of less than satisfactory and the deficiencies have not been resolved to the satisfaction of the OCC; (12) The transaction involves any supervisory or assistance agreement with the OCC, Office of Thrift Supervision, the Resolution Trust Corporation, or the Federal Deposit Insurance Corporation; (13) The transaction is part of a conversion under part 192 of this chapter; (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 section shall have the same meaning as set forth in § 152.13(b) of this chapter. (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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 addition, the OCC may consider commuting patterns, newspaper and other advertising activities, or other factors as the OCC deems relevant. (h) Special requirements and procedures for transactions under paragraphs (b) and (c) of this section— (1) Certain transactions with no surviving Federal savings association. (i) The OCC must be notified of any transaction under paragraph (b)(1) of this section. Such notification must be submitted to the OCC 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 OCC 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 Federal savings association submitting the notification maintains a liquidation account established pursuant to part 192 of this chapter, 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 OCC’s receipt of the notification, a new notification must be submitted to the OCC. (2) Other transfer transactions—(i) Expedited treatment. A notice in conformity with § 116.25(a) of this chapter may be submitted to the OCC under § 116.40 of this chapter for any transaction under paragraph (c) of this section, provided all constituent Federal savings associations meet the conditions for expedited treatment under § 116.5 of this chapter. Notices submitted under this paragraph must be deemed approved automatically by the OCC 30 days after receipt, unless the OCC advises the applicant in writing prior to the expiration of such period that the proposed transaction may not be consummated without the OCC’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 § 116.25(b) of this chapter and paragraph (d) of this section must be submitted to the OCC under § 116.40 by PO 00000 Frm 00102 Fmt 4701 Sfmt 4700 each Federal savings association participating in a transaction under paragraph (b)(2) or (c) of this section, where any constituent savings association does not meet the conditions for expedited treatment under § 116.5 of this chapter. Applications under this paragraph must be processed in accordance with the procedures in part 116, subparts A and E of this chapter. § 163.27 Advertising. No Federal 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. § 163.33 Directors, officers, and employees. (a) Directors—(1) Requirements. The composition of the board of directors of a Federal 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 savings association or of any subsidiary 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] § 163.36 Tying restriction exception. For applicable rules, see regulations of the Board of Governors of the Federal Reserve System. § 163.39 Employment contracts. (a) General. A Federal 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 an association’s board of directors. An 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 E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations an employment contract would be an unsafe or unsound practice if such contract could lead to material financial loss or damage to the 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 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 Federal savings association’s board of directors may terminate the officer or employee’s employment at any time, but any termination by the 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 association’s affairs by a notice served under section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)(1)), the 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 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 (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 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 association under the contract shall terminate as of the VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 effective date of the order, but vested rights of the contracting parties shall not be affected. (4) If the 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 Comptroller or his or her designee. (5) All obligations under the contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the association; (i) By the Comptroller, or his or her designee, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the association under the authority contained in 13(c) of the Federal Deposit Insurance Act; or (ii)(A) By the Comptroller or his or her designee, at the time the Comptroller, or his or her designee approves a supervisory merger to resolve problems related to operation of the association or when the association is determined by the Comptroller to be in an unsafe or unsound condition. (B) Any rights of the parties that have already vested, however, shall not be affected by such action. § 163.41 Transactions with affiliates. For applicable rules, see regulations of the Board of Governors of the Federal Reserve System. § 163.43 Loans by savings associations to their executive officers, directors and principal shareholders. For applicable rules, see Regulation O of the Board of Governors of the Federal Reserve System. § 163.47 Pension plans. (a) General. No Federal savings association or service corporation thereof shall sponsor an employee pension plan which, because of unreasonable costs or any other reason, could lead to material financial loss or 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. PO 00000 Frm 00103 Fmt 4701 Sfmt 4700 49051 (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 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 OCC at least 60 days prior to the proposed termination date. (e) Records. Each Federal savings association or service corporation 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 represent the actuary’s best estimate of the plan’s projected experiences. Subpart C—Securities and Borrowings § 163.74 Mutual capital certificates. (a) General. No savings association that is in the mutual form shall issue mutual capital certificates pursuant to this section or amend the terms of such certificates unless it has obtained written approval of the appropriate E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 49052 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations Federal banking agency. No approval shall be granted unless the proposed issuance of the mutual capital certificates and the form and manner of filing of the application are in accordance with the provisions of this section. (b) Eligibility Requirements. The appropriate Federal banking agency will consider and process an application for approval of the issuance of mutual capital certificates pursuant to this section only if the issuance is authorized by applicable law and regulation and is not inconsistent with any provision of the applicant’s charter, constitution or bylaws. (c) Application form; supporting information. An application for approval of the issuance of mutual capital certificates pursuant to this section shall be in the form prescribed by the appropriate Federal banking agency. Such application and instructions may be obtained from the appropriate Federal banking agency. Information and exhibits shall be furnished in support of the application in accordance with such instructions, setting forth all of the terms and provisions relating to the proposed issue and showing that all of the requirements of this section have been or will be met. (d) Charter amendment. No application for approval of the issuance of mutual capital certificates pursuant to this section may be filed unless the amendment to the mutual association’s charter, constitution or bylaws or other actions conferring such authority shall have been approved pursuant to the procedures and requirements set forth in the mutual association’s charter, constitution or bylaws, or as may otherwise be required by applicable law. (e) Filing requirements. The application for issuance of mutual capital certificates shall be publicly filed with the appropriate Federal banking agency. (f) Supervisory objection. No application or approval of the issuance of mutual capital certificates pursuant to this section shall be approved if, in the opinion of the appropriate Federal banking agency, the policies, condition, or operation of the applicant afford a basis for supervisory objection to the application. (g) Limitation on offering period. Following the date of the approval of the application by the appropriate Federal banking agency, the association shall have an offering period of not more than one year in which to complete the sale of the mutual capital certificates issued pursuant to this section. The appropriate Federal banking agency may in its discretion VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 extend such offering period if a written request showing good cause for such extension is filed with it not later than 30 days before the expiration of such offering period or any extension thereof. (h) Reports. Within 30 days after completion of the sale of mutual capital certificates issued pursuant to this section, the association shall transmit to the appropriate Federal banking agency a written report stating the total dollar amount of securities sold, and the amount of net proceeds received by the association, and within 90 days it shall transmit a written report stating the number of purchasers. (i) Requirements as to mutual capital certificates—(1) Form of certificate. Each mutual capital certificate and any governing agreement evidencing a mutual capital certificate issued by an association pursuant to this section: (i) Shall bear on its face, in bold-face type, the following legend: ‘‘This security is not a savings account or a deposit and it is not insured by the United States or any agency or fund of the United States’’; and (ii) Shall clearly state that the certificate is subject to the requirements of § 163.74(i)(2). (2) Legal requirements. Mutual capital certificates issued pursuant to this section shall: (i) Be subordinate to all claims against the association having the same priority as savings accounts, savings certificates, debt obligations or any higher priority; (ii) Not be eligible for use as collateral for any loan made by the issuing association; (iii) Constitute a claim in liquidation not exceeding the face value plus accrued dividends of the certificates, on the general reserves, surplus and undivided profits of the association remaining after the payment in full of all savings accounts, savings certificates and debt obligations; (iv) Be entitled to the payment of dividends, which may be fixed, variable, participating, or cumulative, or any combination thereof, only if, when and as declared by the association’s board of directors out of funds legally available for that purpose, provided that no dividend may be declared or paid without the approval of the appropriate Federal banking agency if such payment would cause the association to fail to meet its regulatory capital requirements under part 167 of this chapter if a Federal savings association or 12 CFR part 390, subpart Z if a state savings association, and provided further that no dividend may be paid if such payment would constitute a violation of 12 U.S.C. 1828(b); PO 00000 Frm 00104 Fmt 4701 Sfmt 4700 (v) Not be redeemable, except: where the dollar weighted average term of each issue of mutual capital certificates to be redeemed is seven years or more and redemption is to be made pursuant to a redemption schedule; in the event of a merger, consolidation or reorganization approved by the appropriate Federal banking agency; or where the funds for redemption are raised by the issuance of mutual capital certificates approved pursuant to this section, or in conjunction with the issuance of capital stock pursuant to part 192 of this chapter: Provided, that mandatory redemption shall not be required; that mutual capital certificates shall not be redeemable on the demand or at the option of the holder; and that mutual capital certificates shall not receive, benefit from, be credited with or otherwise be entitled to or due payments in or for redemption if such payments would cause the association to fail to meet its regulatory capital requirements under part 167 of this chapter if a Federal savings association or 12 CFR part 390, subpart Z if a state savings association; And Provided further, for the purposes of this paragraph (i)(2)(v), the ‘‘dollar weighted average term’’ of an issue of mutual capital certificates shall be the sum of the products calculated for each year that the mutual capital certificates in the issue have been redeemed or are scheduled to be redeemed. Each product shall be calculated by multiplying the number of years of each mutual capital certificate of a given term by a fraction, the numerator of which shall be the total dollar amount of each mutual capital certificate in the issue with the same term and the denominator of which shall be the total dollar amount of mutual capital certificates in the entire issue; (vi) Not have preemptive rights; (vii) Not have voting rights, except that an association may provide for voting rights if: (A) The savings association fails to pay dividends for a minimum of three consecutive dividend periods, and then the holders of the class or classes of mutual capital certificates granted such voting rights, and voting as a single class, with one vote for each outstanding certificate, may elect by a majority vote a maximum of one-third of the association’s board of directors, the directors so elected to serve until the next annual meeting of the association succeeding the payment of all current and past dividends; (B) Any merger, consolidation, or reorganization (except in a supervisory case) is sought to be authorized, where the issuing association is not the E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations survivor, provided that the regulatory capital of the resulting association available for payment of any class of mutual capital certificate on liquidation is less than the regulatory capital available for such class prior to the merger, consolidation, or reorganization; (C) Action is sought to be authorized which would create any class of mutual capital certificates having a preference or priority over an outstanding class or classes of mutual capital certificates; (D) Any action is sought to be authorized which would adversely change the specific terms of any class of mutual capital certificates; (E) Action is sought to be authorized which would increase the number of a class of mutual capital certificates, or the number of a class of mutual capital certificates ranking prior to or on parity with another class of mutual capital certificates; or (F) Action is sought which would authorize the issuance of an additional class or classes of mutual capital certificates without the association having met specific financial standards; (viii) Not constitute an obligation of the association and shall confer no rights which would give rise to any claim of or action for default; (ix) Not be convertible into any account, security, or interest, except that mutual capital certificates may be surrendered in exchange for preferred stock issued in connection with the conversion of the issuing savings association to the stock form pursuant to part 192 of this chapter, provided that the preferred stock shall have substantially the same voting rights, designations, preferences and relative, participating optional, or other special rights, and qualifications, limitations, and restrictions, as the mutual capital certificates exchanged for the preferred stock. (x) Provide for charging of losses after the exhaustion of all other items in the regulatory capital account. sroberts on DSK5SPTVN1PROD with RULES § 163.76 Offers and sales of securities at an office of a Federal savings association. (a) A Federal saving association may not offer or sell debt or equity securities issued by the association or an affiliate of the association at an office of the association; except that equity securities issued by the association or an affiliate in connection with the association’s conversion from the mutual to stock form of organization in a conversion approved pursuant to part 192 of this chapter may be offered and sold at the association’s offices: Provided, That: (1) The OCC does not object on supervisory grounds to the offer and VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 sale of the securities at the offices of the association; (2) No commissions, bonuses, or comparable payments are paid to any employee of the savings association or its affiliates or to any other person in connection with the sale of securities at an office of a 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 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 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 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 (8) The 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 Federal savings associations shall be subject to § 197.10 of this chapter. (c) Offers and sales of securities of a savings association or its affiliates in any office of the savings association must use a one-page, unambiguous, certification in substantially the following form: FORM OF CERTIFICATION I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY [insert name of savings association] OR BY THE FEDERAL GOVERNMENT. PO 00000 Frm 00105 Fmt 4701 Sfmt 4700 49053 If anyone asserts that this security is Federally insured or guaranteed, or is as safe as an insured deposit, I should call the Office of the Comptroller of the Currency]. I further certify that, before purchasing the [description of security being offered] of [name of issuer, name of savings association and affiliation to issuer (if different)], I received an offering circular. The offering circular that I received contains disclosure concerning the nature of the security being offered and describes the risks involved in the investment, including: [List briefly the principal risks involved and cross reference certain specified pages of the offering circular where a more complete description of the risks is made.] Signature: lllllllllllll Date: llllllllllllllll (d) For purposes of this section, an ‘‘office’’ of an association means any premises used by the association that are identified to the public through advertising or signage using the association’s name, trade name, or logo. § 163.80 Borrowing limitations. (a) General. Except as the appropriate Federal banking agency otherwise may permit by advice in writing, a savings association may borrow only in accordance with the provisions of this section. (b) Amount of borrowing. A savings association may borrow up to the amount authorized by the laws under which the savings association operates. (c) Security. An association may give security for borrowings subject to any requirements imposed by the appropriate Federal banking agency or the FDIC regarding notice of default on borrowings and any FDIC right of first refusal to purchase collateral. (d) Required statement for all securities evidencing outside borrowings. Each security shall bear on its face, in a prominent place, the following legend: This security is not a savings account or a deposit and it is not insured by the United States or any agency or fund of the United States. (e) Filing requirements for outside borrowings with maturities in excess of one year. (1) Unless the savings association meets its capital requirement under part 167 of this chapter if a Federal savings association or 12 CFR part 390, subpart Z if a state savings association, it shall, at least ten business days prior to issuance, file a notice of intent to issue securities evidencing such borrowings with the E:\FR\FM\09AUR2.SGM 09AUR2 49054 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations appropriate OCC licensing office if a Federal savings association, or with the appropriate regional director of the FDIC if a state savings association. Such notice shall contain a summary of the items of the security, including: (i) Principal amount of the securities; (ii) Anticipated interest rate range and price range at which the securities are to be sold; (iii) Minimum denomination; (iv) Stated and average effective maturity; (v) Mandatory and optional prepayment provisions; (vi) Description, amount, and maintenance of collateral if any; (vii) Trustee provisions if any; (viii) Events of default and remedies of default; (ix) Any provisions which restrict, conditionally or otherwise, the operations of the association. (2) The appropriate Federal banking agency shall have 10 business days after receipt of such filing to object to the issuance of such securities. The appropriate Federal banking agency shall object if the terms or covenants of the proposed issue place unreasonable burdens on, or control over, the operations of the association. If no objection is taken, the savings association shall have 120 calendar days within which to issue such securities. (f) Note accounts. For purposes of this section, note accounts are not borrowings. sroberts on DSK5SPTVN1PROD with RULES § 163.81 Inclusion of subordinated debt securities and mandatorily redeemable preferred stock as supplementary capital. (a) Scope. A Federal savings association must comply with this section in order to include subordinated debt securities or mandatorily redeemable preferred stock (‘‘covered securities’’) in supplementary capital (tier 2 capital) under part 167 of this chapter. If a savings 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 Federal savings association must file an application or notice under 12 CFR part 116, subpart A seeking the OCC’s approval of, or non-objection to, the inclusion of covered securities in supplementary capital. The 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 OCC approves the application or does not object to the notice. (2) A savings association must also comply with the securities offering rules VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 at 12 CFR part 197 by filing an offering circular for a proposed issuance of covered securities, unless the offering qualifies for an exemption under that part. (c) Securities requirements. To be included in supplementary capital, covered securities must meet the following requirements: (1) Form. (i) Each certificate evidencing a covered security must: (A) Bear the following legend on its face, in bold type: ‘‘This security is not a savings account or deposit and it is not insured by the United States or any agency or fund of the United States;’’ (B) State that the security is subordinated on liquidation, as to principal, interest, and premium, to all claims against the savings association that have the same priority as savings accounts or a higher priority; (C) State that the security is not secured by the savings association’s assets or the assets of any affiliate of the savings association. An affiliate means any person or company which controls, is controlled by, or is under common control with the savings association; (D) State that the security is not eligible collateral for a loan by the savings association; (E) State the prohibition on the payment of dividends or interest at 12 U.S.C. 1828(b) and, in the case of subordinated debt securities, state the prohibition on the payment of principal and interest at 12 U.S.C. 1831o(h); (F) For subordinated debt securities, state or refer to a document stating the terms under which the savings association may prepay the obligation; and (G) State or refer to a document stating that the savings association must obtain OCC’s approval before the voluntary prepayment of principal on 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 savings association is undercapitalized, significantly undercapitalized, or critically undercapitalized as described in § 165.4(b) of this chapter, fails to meet the regulatory capital requirements at 12 CFR part 167, or would fail to meet any of these standards following the payment. (ii) A Federal savings association must include such additional statements as the OCC may prescribe for certificates, purchase agreements, indentures, and other related documents. (2) Maturity requirements. Covered securities must have an original PO 00000 Frm 00106 Fmt 4701 Sfmt 4700 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 Federal 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 Federal 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 12 CFR 197.4) 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 savings association or an affiliate of the savings association (as defined in subsection (c)(1)(i)(C) of this section) and for collective enforcement of the security holders’ rights and remedies. (ii) A Federal 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 savings association must have an indenture that meets the requirements 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 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) Review by the OCC. (1) The OCC will review notices and applications under 12 CFR part 116, subpart E. (2) In reviewing notices and applications under this section, the OCC will consider whether: (i) The issuance of the covered securities is authorized under E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations applicable laws and regulations and is consistent with the savings association’s charter and bylaws. (ii) The savings association is at least adequately capitalized under § 165.4(b) of this chapter and meets the regulatory capital requirements at part 167 of this chapter. (iii) The 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 OCC has no objection to the issuance based on the savings association’s overall policies, condition, and operations. (3) The OCC’s approval or nonobjection is conditioned upon no material changes to the information disclosed in the application or notice submitted to the OCC. The OCC may impose such additional requirements or conditions as it may deem necessary to protect purchasers, the savings association, the OCC, or the Deposit Insurance Fund. (e) Amendments. If a Federal savings association amends the covered securities or related documents following the completion of the OCC’s review, it must obtain the OCC’s approval or non-objection under this section before it may include the amended securities in supplementary capital. (f) Sale of covered securities. The Federal savings association must complete the sale of covered securities within one year after the OCC’s approval or non-objection under this section. A savings association may request an extension of the offering period by filing a written request with the OCC. The 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 Federal savings association must file the following information with the OCC within 30 days after the savings association completes the sale of covered securities includable as supplementary capital. If the 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 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 savings association complied with all applicable laws and regulations in connection with the offering, issuance, and sale of the securities. Subpart D—[Reserved] Subpart E—Capital Distributions § 163.140 What does this subpart cover? This subpart applies to all capital distributions by a Federal savings association (‘‘you’’). § 163.141 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 Federal mutual 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 OCC 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 interests, any payment to repurchase, redeem, retire, or otherwise acquire debt instruments included in your total capital under part 167 of this chapter, 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 association or to shareholders of its holding company to acquire ownership in that 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 § 165.4(b)(1) of this chapter, following the distribution; and (e) Any transaction that the OCC determines, by order or regulation, to be in substance a distribution of capital. § 163.142 What other definitions apply to this subpart? The following definitions apply to this subpart: Affiliate means an affiliate, as defined under § 563.41(b) until superseded by regulations of the Board of Governors of the Federal Reserve System regarding transactions with affiliates. Capital means total capital, as computed under part 167 of this chapter. 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. § 163.143 Must I file with the OCC? Whether and what you must file with the OCC depends on whether you and your proposed capital distribution fall within certain criteria. (a) Application required. sroberts on DSK5SPTVN1PROD with RULES If: Then you: (1) You are not eligible for expedited treatment under § 116.5 of this chapter. (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 § 165.4(b)(2) of this chapter, following the distribution. Must file an application with the OCC. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 PO 00000 Frm 00107 Fmt 4701 Must file an application with the OCC. Must file an application with the OCC. Sfmt 4700 49055 E:\FR\FM\09AUR2.SGM 09AUR2 49056 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations If: Then you: (4) Your proposed capital distribution would violate a prohibition contained in any applicable statute, regulation, or agreement between you and the OCC or the OTS, or violate a condition imposed on you in an application or notice approved by the OCC or the OTS. Must file an application with the OCC. (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 § 165.4(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 part 167 of this chapter (other than regular payments required under a debt instrument approved under § 163.81). (3) You are a subsidiary of a savings and loan holding company, ......... Must file a notice with the OCC. Must file a notice with the OCC. Except as provided in (d), you must file a notice with the OCC. (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 OCC before making a capital distribution. (d) Informational copy of notice required. If you are a subsidiary of a stock savings and loan holding company that is filing a notice with the Board of Governors of the Federal Reserve System (Board) for a cash divided pursuant to 12 U.S.C. 1467a(f) and neither an application under (a), nor a notice under (b)(1) or (b)(2) is required, § 163.144 How do I file with the OCC? sroberts on DSK5SPTVN1PROD with RULES (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 § 163.146. (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. § 163.145 May I combine my notice or application with other notices or applications? You may combine the notice or application required under § 163.143 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 Then you do not file a notice under (b)(3) but you must provide an informational copy to the OCC of the notice filed with the Board, at the same time it is filed with the Board. application under this chapter. 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 this subpart; and (b) Submit the notice or application in a timely manner. § 163.146 Will the OCC permit my capital distribution? The OCC will review your notice or application under the review procedures in 12 CFR part 116, subpart E, except that the OCC will not act on informational copies of the notice submitted to the OCC pursuant to § 163.143(d). The OCC may disapprove your notice or deny your application filed under § 163.143, in whole or in part, if it makes any of the following determinations. (a) You will be undercapitalized, significantly undercapitalized, or critically undercapitalized as set forth in § 165.4(b) of this chapter, following the capital distribution. If so, the OCC will determine if your capital distribution is permitted under 12 U.S.C. 1831o(d)(1)(B). PO 00000 Frm 00108 Fmt 4701 Sfmt 4700 (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 OCC or the OTS, or a condition imposed on you in an application or notice approved by the OCC or the OTS. If so, the OCC will determine whether it may permit your capital distribution notwithstanding the prohibition or condition. Subpart F—Financial Management Policies § 163.161 policies. Management and financial (a)(1) For the protection of depositors and other savings associations, each Federal savings association and each service corporation must be well managed and operate safely and soundly. Each also must pursue financial policies that are safe and consistent with economical home financing and the purposes of savings associations. In implementing this section, the OCC will consider that service corporations may be authorized to engage in activities that involve a E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations higher degree of risk than activities permitted to savings associations. (2) As part of meeting its requirements under paragraph (a)(1) of this section, each Federal savings association and service corporation must maintain sufficient liquidity to ensure its safe and sound operation. (b) Compensation to officers, directors, and employees of each Federal savings association and its service corporations shall not be in excess of that which is reasonable and commensurate with their duties and responsibilities. Former officers, directors, and employees of savings association or its service corporation who regularly perform services therefore under consulting contracts are employees thereof for purposes of this paragraph (b). sroberts on DSK5SPTVN1PROD with RULES § 163.170 Examinations and audits; appraisals; establishment and maintenance of records. (a) Examinations and audits. Each Federal savings association and affiliate thereof shall be examined periodically, and may be examined at any time, by the OCC, with appraisals when deemed advisable, in accordance with general policies from time to time established by the OCC. The costs, as computed by the OCC, of any examinations made by it, including office analysis, overhead, per diem, travel expense, other supervision by the OCC, and other indirect costs, shall be paid by the savings associations examined, except that in the case of service corporations of Federal savings associations the cost of examinations, as determined by the OCC, shall be paid by the service corporations. Payments shall be made in accordance with a schedule of annual assessments based upon each savings association’s total assets and of rates for examiner time in amounts determined by the OCC. (b) Appraisals. (1) Unless otherwise ordered by the OCC, appraisal of real estate by the OCC in connection with any examination or audit of a savings association, affiliate, or service corporation shall be made by an appraiser, or by appraisers, selected by the OCC. The cost of such appraisal shall promptly be paid by such savings association, affiliate, or service corporation direct to such appraiser or appraisers upon receipt by the savings association, affiliate, or service corporation of a statement of such cost as approved by the OCC. A copy of the report of each appraisal made by the OCC pursuant to any of the foregoing provisions of this section shall be furnished to the savings association, affiliate, or service corporation, as VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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 OCC. (2) The OCC may obtain at any time, at its expense, such appraisals of any of the assets, including the security therefore, of a savings association, affiliate, or service corporation as the OCC deems appropriate. (c) Establishment and maintenance of records. To enable the OCC to examine Federal savings associations and affiliates and audit savings associations, affiliates, and service corporations pursuant to the provisions of paragraph (a) of this section, each savings association, affiliate, and service corporation 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 savings association, affiliate, or service corporation 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 Federal 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 OCC. (e) Use of data processing services for maintenance of records. A Federal savings association which determines to maintain any of its records by means of data processing services shall so notify the OCC 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 savings association pursuant to which data processing services are to be performed for such savings association shall be in writing and shall expressly provide that the records to be maintained by such services shall at all PO 00000 Frm 00109 Fmt 4701 Sfmt 4700 49057 times be available for examination and audit. § 163.171 [Reserved] § 163.172 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) If you are a Federal savings association, you may engage in a transaction involving a financial derivative if you are authorized to invest in the assets underlying the financial derivative, the transaction is safe and sound, and you otherwise meet the requirements in this section. (2) [Reserved] (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 applicable guidance issued by the OCC 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 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 E:\FR\FM\09AUR2.SGM 09AUR2 49058 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 applicable guidance issued by the OCC 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. § 163.176 Interest-rate-risk-management procedures. Federal savings associations shall take the following actions: (a) The board of directors or a committee thereof shall review the savings association’s interest-rate-risk exposure and devise a policy for the savings association’s management of that risk. (b) The board of directors shall formally adopt a policy for the management of interest-rate risk. The management of the savings association shall establish guidelines and procedures to ensure that the board’s policy is successfully implemented. (c) The management of the savings association shall periodically report to the board of directors regarding implementation of the savings association’s policy for interest-rate-risk management and shall make that information available upon request to the OCC. (d) The 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. sroberts on DSK5SPTVN1PROD with RULES § 163.177 Procedures for monitoring Bank Secrecy Act (BSA) compliance. (a) Purpose. The purpose of this regulation is to require savings associations (as defined by § 161.43 of this chapter) 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. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 Department of Treasury, 31 CFR Chapter X. (b) Establishment of a BSA compliance program—(1) Program requirement. Each 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 Chapter X. The compliance program must be written, approved by the savings association’s board of directors, and reflected in the minutes of the savings association. (2) Customer identification program. Each savings association is subject to the requirements of 31 U.S.C. 5318(l) and the implementing regulation jointly promulgated by the OCC and the Department of the Treasury at 31 CFR 1020.220, 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. Subpart G—Reporting and Bonding § 163.180 Suspicious Activity Reports and other reports and statements. (a) Periodic reports. Each savings association and service corporation thereof shall make such periodic or other reports of its affairs in such manner and on such forms as the appropriate Federal banking agency may prescribe. The appropriate Federal banking agency may provide that reports filed by savings associations or service corporations to meet the requirements of other regulations also satisfy requirements imposed under this section. (b) False or misleading statements or omissions. No savings association or director, officer, agent, employee, affiliated person, or other person participating in the conduct of the affairs of such association nor any person filing or seeking approval of any application shall knowingly: PO 00000 Frm 00110 Fmt 4701 Sfmt 4700 (1) Make any written or oral statement to the appropriate Federal banking agency or to an agent, representative or employee of the appropriate Federal banking agency 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 appropriate Federal banking agency or (2) Make any such statement or omission to a person or organization auditing a 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 association. (c) Notifications of loss and reports of increase in deductible amount of bond. A savings association maintaining bond coverage as required by § 163.190 of this part 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 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. (3) SARs required. A savings association or service corporation shall file a SAR with the appropriate Federal law enforcement agencies and the Department of the Treasury on the form prescribed by the appropriate Federal banking agency and 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 savings association or service corporation detects any known or suspected Federal criminal violation, or pattern of criminal violations, committed or attempted against the savings association or service corporation or involving a transaction or transactions conducted through the savings association or service corporation, where the savings E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations association or service corporation 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 savings association or service corporation detects any known or suspected Federal criminal violation, or pattern of criminal violations, committed or attempted against the savings association or service corporation or involving a transaction or transactions conducted through the savings association or service corporation and involving or aggregating $5,000 or more in funds or other assets, where the savings association or service corporation 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 savings association or service corporation detects any known or suspected Federal criminal violation, or pattern of criminal violations, committed or attempted against the savings association or service corporation or involving a transaction or transactions conducted through the savings association or service corporation and involving or aggregating $25,000 or more in funds or other assets, where the savings association or service corporation 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) VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 means a deposit, withdrawal, transfer between accounts, exchange of 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 savings association or service corporation and involving or aggregating $5,000 or more in funds or other assets, if the savings association or service corporation 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) Service corporations. When a service corporation is required to file a SAR under paragraph (d)(3) of this section, either the service corporation or a savings association that wholly or partially owns the service corporation may file the SAR. (5) Time for reporting. A savings association or service corporation 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 savings association or service corporation 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 savings association or service corporation shall immediately notify, by telephone, an appropriate law enforcement authority and the appropriate Federal banking PO 00000 Frm 00111 Fmt 4701 Sfmt 4700 49059 agency in addition to filing a timely SAR. (6) Reports to state and local authorities. A savings association or service corporation is encouraged to file a copy of the SAR with state and local law enforcement agencies where appropriate. (7) Exception. A savings association or service corporation need not file a SAR for a robbery or burglary committed or attempted that is reported to appropriate law enforcement authorities. (8) Retention of records. A savings association or service corporation 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 savings association or service corporation as such, and shall be deemed to have been filed with the SAR. A savings association or service corporation shall make all supporting documentation available to appropriate law enforcement agencies upon request. A savings association or service corporation shall make all supporting documentation available to the appropriate Federal banking agency, FinCEN, or any Federal, state, or local law enforcement agency, or any Federal regulatory authority that examines the savings association or service corporation for compliance with the Bank Secrecy Act, or any state regulatory authority administering a state law that requires the savings association or service corporation to comply with the Bank Secrecy Act or otherwise authorizes the state authority to ensure that the institution complies with the Bank Secrecy Act, upon request. (9) Notification to board of directors— (i) Generally. Whenever a savings association (or a service corporation in which the savings association has an ownership interest) files a SAR pursuant to this paragraph (d), the management of the savings association or service corporation 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 savings association or service corporation files a SAR pursuant to this paragraph (d) and the suspect is a director or executive officer, the savings association or service corporation may not notify the suspect, pursuant to 31 U.S.C. 5318(g)(2), but E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 49060 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 savings association or service corporation, its directors, officers, employees, agents, or other institution-affiliated parties to supervisory action. (11) Obtaining SARs. A savings association or service corporation may obtain SARs and the instructions from the appropriate Federal banking agency. (12) Confidentiality of SARs. A SAR, and any information that would reveal the existence of a SAR, are confidential, and shall not be disclosed except as authorized in this paragraph (d)(12). (i) Prohibition on disclosure by savings associations or service corporations. (A) General rule. No savings association or service corporation, and no director, officer, employee, or agent of a savings association or service corporation, shall disclose a SAR or any information that would reveal the existence of a SAR. Any savings association or service corporation, and any director, officer, employee, or agent of any savings association or service corporation that is subpoenaed or otherwise requested to disclose a SAR, or any information that would reveal the existence of a SAR, shall decline to produce the SAR or such information, citing this section and 31 U.S.C. 5318(g)(2)(A)(i), and shall notify the following of any such request and the response thereto: (A) Director, Litigation Division, Office of the Comptroller of the Currency or the appropriate FDIC region, as appropriate and (B) The Financial Crimes Enforcement Network (FinCEN). (ii) Rules of construction. Provided that no person involved in any reported suspicious transaction is notified that the transaction has been reported, paragraph (d)(1) of this section shall not be construed as prohibiting: (A) The disclosure by a savings association or service corporation, or any director, officer, employee or agent of a savings association or service corporation of: (1) A SAR, or any information that would reveal the existence of a SAR, to FinCEN or the appropriate Federal banking agency or any Federal, state, or local law enforcement agency; or any Federal regulatory authority that examines the savings association or service corporation for compliance with the Bank Secrecy Act, or any state regulatory authority administering a state law that requires compliance with the Bank Secrecy Act or otherwise authorizes the state authority to ensure VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 that the institution complies with the Bank Secrecy Act; or (2) The underlying facts, transactions, and documents upon which a SAR is based, including, but not limited to, disclosures: (i) To another financial institution, or any director, officer, employee or agent of a financial institution, for the preparation of a joint SAR; or (ii) In connection with certain employment references or termination notices, to the full extent authorized in 31 U.S.C. 5318(g)(2)(B); or (B) The sharing by a savings association or service corporation, or any director, officer, employee, or agent of a savings association or service corporation, of a SAR, or any information that would reveal the existence of a SAR, within the corporate organizational structure of the savings association or service corporation, for purposes consistent with Title II of the Bank Secrecy Act as determined by regulation or in guidance. (iii) Prohibition on disclosure by the appropriate Federal banking agency. The appropriate Federal banking agency will not, and no officer, employee or agent of appropriate Federal banking agency shall disclose a SAR, or any information that would reveal the existence of a SAR, except as necessary to fulfill official duties consistent with Title II of the Bank Secrecy Act. For purposes of this section, ‘‘official duties’’ shall not include the disclosure of a SAR, or any information that would reveal the existence of a SAR, in response to a request for use in a private legal proceeding or in response to a request for disclosure of non-public information under 12 CFR 4.33 or 12 CFR part 309, as appropriate. (iv) Limitation on liability. A savings association or service corporation and any director, officer, employee or agent of a savings association or service corporation that makes a voluntary disclosure of any possible violation of law or regulation to a government agency or makes a disclosure pursuant to this section or any other authority, including a disclosure made jointly with another institution, shall be protected from liability for any such disclosure, or for failure to provide notice of such disclosure to any person identified in the disclosure, or both, to the full extent provided by 31 U.S.C. 5318(g)(3). (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 PO 00000 Frm 00112 Fmt 4701 Sfmt 4700 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 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 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 and Income, as appropriate, 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. § 163.190 Bonds for directors, officers, employees, and agents; form of and amount of bonds. (a) Each Federal 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 savings association. (b) The amount of coverage to be required for each Federal 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 Federal 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 association’s board of directors, additional coverage is warranted. (d) The board of directors of each Federal savings association shall formally approve the association’s bond E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 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 association’s bond coverage at least annually to assess the continuing adequacy of coverage. § 163.191 Bonds for agents. In lieu of the bond provided in § 163.190 of this part in the case of agents appointed by a Federal 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 savings association at least monthly, and provided such bond is approved by the board of directors of the savings association. No bond need be obtained for any agent that is a financial institution insured by the Federal Deposit Insurance Corporation. § 163.200 Conflicts of interest. If you are a director, officer, or employee of a Federal savings association, or have the power to direct its management or policies, or otherwise owe a fiduciary duty to a Federal 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 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). sroberts on DSK5SPTVN1PROD with RULES § 163.201 Corporate opportunity. (a) If you are a director or officer of a Federal savings association, or have the power to direct its management or policies, or otherwise owe a fiduciary duty to a Federal savings association, you must not take advantage of corporate opportunities belonging to the savings association. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (b) A corporate opportunity belongs to a Federal savings association if: (1) The opportunity is within the corporate powers of the savings association or a subsidiary of the savings association; and (2) The opportunity is of present or potential practical advantage to the savings association, either directly or through its subsidiary. (c) The OCC will not deem you to have taken advantage of a corporate opportunity belonging to the Federal savings association if a disinterested and independent majority of the 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. Subpart H—Notice of Change of Director or Senior Executive Officer § 163.550 What does this subpart do? This subpart implements 12 U.S.C. 1831i, which requires certain Federal savings associations to notify the OCC before appointing or employing directors and senior executive officers. § 163.555 subpart? What definitions apply to this The following definitions apply to this subpart: Director means an individual who serves on the board of directors of a Federal 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 OCC or the OTS 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 OCC or the OTS in writing as an individual who exercises significant influence over, or participates in, major policymaking decisions, whether or not hired as an employee. PO 00000 Frm 00113 Fmt 4701 Sfmt 4700 49061 Troubled condition means: (1) A Federal savings association that has a composite rating of 4 or 5, as composite rating is defined in § 116.5(c) of this chapter; (2) A Federal 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 savings association, unless otherwise informed in writing by the OCC; or (3) A Federal savings association that is informed in writing by the OCC that it is in troubled condition based on information available to the OCC. § 163.560 Who must give prior notice? (a) Federal savings association. Except as provided under § 163.590, you must notify your OCC supervisory office 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 you are a Federal savings association and at least one of the following circumstances apply: (1) You do not comply with all minimum capital requirements under part 167 of this chapter; (2) Are in troubled condition; or (3) The OCC has notified you, in connection with its review of a capital restoration plan required under section 38 of the Federal Deposit Insurance Act or part 165 of this chapter or otherwise, that a notice is required under this subpart. (b) Notice by individual. If you are an individual seeking election to the board of directors of a Federal 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 § 163.590(b). § 163.565 What procedures govern the filing of my notice? The procedures found in part 116, subpart A of this chapter govern the filing of your notice under § 163.560. § 163.570 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 E:\FR\FM\09AUR2.SGM 09AUR2 49062 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations Interagency Biographical and Financial Report which are available from the OCC; (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 OCC or the Office of Thrift Supervision under 12 U.S.C. 1831i; and (3) Such other information required by the OCC. (b) Modification of content requirements. The OCC may require or accept other information in place of the content requirements in paragraph (a) of this section. (1) The OCC notifies you that it has disapproved the notice; or (2) The OCC extends the 30-day period for an additional period not to exceed 60 days. If the OCC 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 OCC notifies you that it has disapproved the notice during the extended period. (b) Notwithstanding paragraph (a) of this section, a proposed director or senior executive officer may begin service after the OCC notifies you, in writing, of its intention not to disapprove the notice. § 163.575 What procedures govern OCC review of my notice for completeness? § 163.590 When will the OCC waive the prior notice requirement? The OCC will first review your notice to determine whether it is complete. (a) If your notice is complete, the OCC will notify you in writing of the date that the OCC received the complete notice. (b) If your notice is not complete, the OCC 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 OCC suspend processing of the notice. If you fail to act within the specified time period, the OCC may treat the notice as abandoned or may review the application based on the information provided. (a) Waiver request. (1) An individual may serve as a director or senior executive officer before filing a notice under this subpart if the OCC issues a written finding that: (i) Delay would threaten the safety or soundness of the 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 OCC grants a waiver, you must file a notice under this subpart within the time period specified by the OCC. (b) Automatic waiver. An individual may serve as a director before filing a notice under this subpart, if the individual was not nominated by management and the individual submits a notice under this subpart within seven days after election as a director. (c) Subsequent OCC action. The OCC may disapprove a notice within 30 days after the OCC 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. sroberts on DSK5SPTVN1PROD with RULES § 163.580 What standards and procedures will govern OCC review of the substance of my notice? The OCC will disapprove a notice if, pursuant to the standard set forth in 12 U.S.C. 1831i(e), the OCC finds that the competence, experience, character, or integrity of the proposed director or senior executive officer indicates that it would not be in the best interests of the depositors of the Federal savings association or of the public to permit the individual to be employed by, or associated with, the savings association. If the OCC disapproves a notice, it will issue a written notice that explains why the OCC disapproved the notice. The OCC will send the notice to the savings association and the individual. § 163.585 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 OCC receives all required information, unless: VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 PART 164—APPRAISALS Sec. 164.1 Purpose, and scope. 164.2 Definitions. 164.3 Appraisals required; transactions requiring a state certified or licensed appraiser. 164.4 Minimum appraisal standards. 164.5 Appraiser independence. 164.6 Professional association membership; competency. 164.7 Enforcement. 164.8 Appraisal policies and practices of Federal savings associations and subsidiaries. PO 00000 Frm 00114 Fmt 4701 Sfmt 4700 Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1828(m), 3331 et seq, 5412(b)(2)(B). § 164.1 Purpose and scope. (a) [Reserved] (b) Purpose and scope. (1) 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. 3331 et seq. 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 part implements the requirements of title XI and applies to all Federally related transactions entered into by institutions regulated by the OCC (‘‘regulated institutions’’). (2) This part: (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 related transactions under the jurisdiction of the OCC. § 164.2 Definitions. (a) 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. (b) Appraisal Foundation means the Appraisal Foundation established on November 30, 1987, as a not-for-profit corporation under the laws of Illinois. (c) Appraisal Subcommittee means the Appraisal Subcommittee of the Federal Financial Institution Examination Council. (d) 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. (e) 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. (f) Federally related transaction means any real estate-related financial E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations transaction entered into on or after August 9, 1990, that: (1) Any regulated institution engages in or contracts for; and (2) Requires the services of an appraiser. (g) 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. (h) Real estate or real property means an identified parcel or tract of land, with improvements, and includes easements, 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. (i) 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. (j) 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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 OCC may, from time to time, impose additional qualification criteria for certified appraisers performing appraisals in connection with Federally related transactions within its jurisdiction. (k) 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 OCC may, from time to time, impose additional qualification criteria for licensed appraisers performing appraisals in connection with Federally related transactions within its jurisdiction. (l) Tract development means a project of five units or more that is constructed or is to be constructed as a single development. (m) Transaction value means: (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. § 164.3 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: PO 00000 Frm 00115 Fmt 4701 Sfmt 4700 49063 (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 OCC regulatory requirements for appraisals at the time of origination; (9) The transaction is wholly or partially insured or guaranteed by a 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 OCC 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), (a)(5) or (a)(7) of this section, the institution shall obtain an appropriate evaluation of real property collateral that is consistent with safe and sound banking practices. E:\FR\FM\09AUR2.SGM 09AUR2 49064 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (c) Appraisals to address safety and soundness concerns. The OCC reserves the right to require an appraisal under this part 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 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. sroberts on DSK5SPTVN1PROD with RULES § 164.4 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 unless principles of safe and sound banking require compliance with stricter standards; VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (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 part; and (e) Be performed by state licensed or certified appraisers in accordance with requirements set forth in this part. § 164.5 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 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 part and is otherwise acceptable. § 164.6 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 PO 00000 Frm 00116 Fmt 4701 Sfmt 4700 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. § 164.7 Enforcement. Institutions and institution-affiliated parties, including staff appraisers and fee appraisers, who violate this part 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. § 164.8 Appraisal policies and practices of Federal savings associations and subsidiaries. (a) Introduction. The soundness of a Federal savings association’s mortgage loans and real estate investments, and those of its service corporation(s), 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 § 163.170 of this chapter. (b) Definition. For purposes of this section, management means: the directors and officers of a Federal savings association, or service corporation of such savings association, as those terms are defined in §§ 161.18 and 161.35 of this chapter 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 Federal savings associations may rely to make E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations lending decisions. To achieve these results: (1) Management shall develop written appraisal policies, subject to formal adoption by the 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 part 164. (2) Management shall develop and adopt guidelines and institute procedures pertaining to the hiring of appraisers to perform appraisal services for the savings association consistent with the requirements of this part 164. 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 § 164.6 (3) Management shall review on an annual basis the performance of all approved appraisers used within the preceding 12-month period for compliance with (i) the savings association’s appraisal policies and procedures; and (ii) the reasonableness of the value estimates reported. (d) Exemptions. The requirements of § 164.4(b) through (d) shall not apply with respect to appraisals on nonresidential properties prepared on form reports approved by the OCC and completed in accordance with the applicable instructional booklet. sroberts on DSK5SPTVN1PROD with RULES PART 165—PROMPT CORRECTIVE ACTION Sec. 165.1 Authority, purpose, scope, other supervisory authority, and disclosure of capital categories. 165.2 Definitions. 165.3 Notice of capital category. 165.4 Capital measures and capital category definitions. 165.5 Capital restoration plans. 165.6 Mandatory and discretionary supervisory actions under section 38. 165.7 Directives to take prompt corrective action. 165.8 Procedures for reclassifying a Federal savings association based on criteria other than capital. 165.9 Order to dismiss a director or senior executive officer. 165.10 Enforcement of directives. Authority: 12 U.S.C. 1831o, 5412(b)(2)(B). VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 § 165.1 Authority, purpose, scope, other supervisory authority, and disclosure of capital categories. (a) Authority. This part is issued by the OCC pursuant to section 38 (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 part is to define, for Federal 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 part 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 part implements the provisions of section 38 of the FDI Act as they apply to Federal savings associations. Certain of these provisions also apply to officers, directors and employees of Federal savings associations. Other provisions apply to any company that controls a Federal savings association and to the affiliates of a Federal savings association. (d) Other supervisory authority. Neither section 38 nor this part in any way limits the authority of the OCC 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 part may be taken independently of, in conjunction with, or in addition to any other enforcement action available to the OCC, 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 Federal savings association under this part within a particular capital category is for purposes of implementing and applying the provisions of section 38. Unless permitted by the OCC or otherwise required by law, no Federal savings association may state in any advertisement or promotional material its capital category under this subpart or that the OCC or any other Federal banking agency has assigned the Federal savings association to a particular category. PO 00000 Frm 00117 Fmt 4701 Sfmt 4700 § 165.2 49065 Definitions. For purposes of this part, except as modified in this section or unless the context otherwise requires, the terms used in this part 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 part 167 of this chapter. (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 Federal savings association or related overhead expenses, including payments related to supervisory, executive, managerial or policymaking functions, other than compensation to an individual in the individual’s capacity as an officer or employee of the Federal savings association. (e) Risk-weighted assets means total risk-weighted assets, as calculated in accordance with part 167 of this chapter. (f) Tangible equity means the amount of a Federal savings association’s core capital as computed in part 167 of this chapter plus the amount of its outstanding cumulative perpetual preferred stock (including related surplus), minus intangible assets as E:\FR\FM\09AUR2.SGM 09AUR2 49066 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations defined in § 167.1 of this chapter, except mortgage servicing assets to the extent they are includable under § 167.12. 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 part 167 of this chapter. (h) Tier 1 risk-based capital ratio means the ratio of Tier 1 capital to riskweighted assets, as calculated in accordance with part 167 of this chapter. (i) Total assets, for purposes of § 165.4(b)(5), means adjusted total assets as calculated in accordance with part 167 of this chapter, 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 part 167 of this chapter. sroberts on DSK5SPTVN1PROD with RULES § 165.3 Notice of capital category. (a) Effective date of determination of capital category. A Federal savings association shall be deemed to be within a given capital category for purposes of section 38 of the FDI Act and this part as of the date the 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 Federal 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 Consolidated Report of Condition (Call Report) or Thrift Financial Report (TFR), as appropriate, is required to be filed with the OCC; (2) A final report of examination is delivered to the savings association; or (3) Written notice is provided by the OCC to the savings association of its capital category for purposes of section 38 of the FDI Act and this part or that the savings association’s capital category has changed as provided in paragraph (c) of this section or § 165.4(c). (c) Adjustments to reported capital levels and category—(1) Notice of adjustment by Federal savings association. A Federal savings association shall provide the OCC with written notice that an adjustment to the 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 savings association to be placed in a lower capital category from the category assigned to the savings association for purposes of VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 section 38 and this part on the basis of the savings association’s most recent Call Report or TFR, as appropriate, or report of examination. (2) Determination by the OCC to change capital category. After receiving notice pursuant to paragraph (c)(1) of this section, the OCC shall determine whether to change the capital category of the Federal savings association and shall notify the savings association of the OCC determination. § 165.4 Capital measures and capital category definitions. (a) Capital measures. For purposes of section 38 and this part, 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 part, a Federal savings association shall be deemed to be: (1) Well capitalized if the 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 the OCC or OTS 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)(A)(ii)), 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 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 savings association is assigned a composite rating of 1, as composite rating is defined in § 116.5(c) of this chapter; and (iv) Does not meet the definition of a well capitalized savings association. (3) Undercapitalized if the 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, PO 00000 Frm 00118 Fmt 4701 Sfmt 4700 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 savings association is assigned a composite rating of 1, as composite rating is defined in § 116.5(c) of this chapter. (4) Significantly undercapitalized if the 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 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 OCC may reclassify a well capitalized Federal savings association as adequately capitalized and may require an adequately capitalized or undercapitalized Federal savings association to comply with certain mandatory or discretionary supervisory actions as if the savings association were in the next lower capital category (except that the OCC may not reclassify a significantly undercapitalized 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 OCC has determined, after notice and opportunity for hearing pursuant to § 165.8(a) of this part, that the savings association is in an unsafe or unsound condition; or (2) Unsafe or unsound practice. The OCC has determined, after notice and an opportunity for hearing pursuant to § 165.8(a) of this part, that the 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, or an equivalent rating under a comparable rating system adopted by the OCC; 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 savings association has been notified in writing. § 165.5 Capital restoration plans. (a) Schedule for filing plan—(1) In general. A Federal savings association shall file a written capital restoration plan with the OCC within 45 days of the E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations date that the savings association receives notice or is deemed to have notice that the savings association is undercapitalized, significantly undercapitalized, or critically undercapitalized, unless the OCC notifies the savings association in writing that the plan is to be filed within a different period. An adequately capitalized savings association that has been required pursuant to § 165.4(c) to comply with supervisory actions as if the 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 Federal savings association that has already submitted and is operating under a capital restoration plan approved under section 38 and this part 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 § 165.4(c) unless the OCC notifies the savings association that it must submit a new or revised capital plan. A savings association that is notified that it must submit a new or revised capital restoration plan shall file the plan in writing with the OCC within 45 days of receiving such notice, unless the OCC notifies the 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 Call Report or TFR, as appropriate, unless the OCC 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 Federal savings association that is required to submit a capital restoration plan as the result of a reclassification of the savings association pursuant to § 165.4(c) of this part shall include a description of the steps the 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 savings association. (c) Review of capital restoration plans. Within 60 days after receiving a capital restoration plan under this part, the OCC shall provide written notice to the Federal savings association of whether the plan has been approved. The OCC may extend the time within which notice regarding approval of a plan shall be provided. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (d) Disapproval of capital plan. If a capital restoration plan is not approved by the OCC, the Federal savings association shall submit a revised capital restoration plan, when directed to do so, within the time specified by the OCC. Upon receiving notice that its capital restoration plan has not been approved, any undercapitalized savings association (as defined in § 165.4(b)(3) of this part) shall be subject to all of the provisions of section 38 and this part applicable to significantly undercapitalized institutions. These provisions shall be applicable until such time as a new or revised capital restoration plan submitted by the savings association has been approved by the OCC. (e) Failure to submit a capital restoration plan. A Federal savings association that is undercapitalized (as defined in § 165.4(b)(3) of this part) 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 part applicable to significantly undercapitalized institutions. (f) Failure to implement a capital restoration plan. Any undercapitalized Federal 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 part applicable to significantly undercapitalized institutions. (g) Amendment of capital plan. A Federal savings association that has filed an approved capital restoration plan may, after prior written notice to and approval by the OCC, amend the plan to reflect a change in circumstance. Until such time as a proposed amendment has been approved, the savings association shall implement the capital restoration plan as approved prior to the proposed amendment. (h) Notice to FDIC. Within 45 days of the effective date of OCC approval of a capital restoration plan, or any amendment to a capital restoration plan, the OCC shall provide a copy of the plan or amendment to the FDIC. (i) Performance guarantee by companies that control a savings association—(1) Limitation on liability—(i) Amount limitation. The aggregate liability under the guarantee provided under section 38 and this part for all companies that control a specific Federal savings association that is required to submit a capital restoration plan under this part shall be limited to the lesser of: (A) An amount equal to 5.0 percent of the savings association’s total assets at the time the savings association was PO 00000 Frm 00119 Fmt 4701 Sfmt 4700 49067 notified or deemed to have notice that the savings association was undercapitalized; or (B) The amount necessary to restore the relevant capital measures of the savings association to the levels required for the savings association to be classified as adequately capitalized, as those capital measures and levels are defined at the time that the savings association initially fails to comply with a capital restoration plan under this part. (ii) Limit on duration. The guarantee and limit of liability under section 38 and this part shall expire after the OCC notifies the Federal 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 savings association after expiration of the first guarantee. (iii) Collection on guarantee. Each company that controls a given Federal savings association shall be jointly and severally liable for the guarantee for such savings association as required under section 38 and this part, and the OCC 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 Federal 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 savings association shall, upon submission of the plan, be subject to the provisions of section 38 and this part that are applicable to savings associations that have not submitted an acceptable capital restoration plan. (3) Failure to perform guarantee. Failure by any company that controls a Federal 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 savings association shall be subject to the provisions of section 38 and this part that are applicable to savings associations that have failed in a material respect to implement a capital restoration plan. § 165.6 Mandatory and discretionary supervisory actions under section 38. (a) Mandatory supervisory actions— (1) Provisions applicable to all Federal savings associations. All Federal savings E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 49068 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 Federal savings associations. Immediately upon receiving notice or being deemed to have notice, as provided in § 165.3 or § 165.5 of this part, that the Federal savings association is undercapitalized, significantly undercapitalized, or critically undercapitalized, the 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 OCC monitor the condition of the savings association (section 38(e)(1)); (iii) Requiring submission of a capital restoration plan within the schedule established in this part (section 38(e)(2)); (iv) Restricting the growth of the 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 Federal 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 § 165.3 or § 165.5 of this part, that the Federal savings association is significantly undercapitalized, or critically undercapitalized, or that the savings association is subject to the provisions applicable to institutions that are significantly undercapitalized because the savings association failed to submit or implement in any material respect an acceptable capital restoration plan, the savings 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 Federal 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 § 165.3 of this part, that the Federal savings association is critically undercapitalized, the savings association shall become subject to the provisions of section 38 of the FDI Act: VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (i) Restricting the activities of the savings association (section 38(h)(1)); and (ii) Restricting payments on subordinated debt of the savings association (section 38(h)(2)). (b) Discretionary supervisory actions. In taking any action under section 38 that is within the OCC discretion to take in connection with: A Federal 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 savings association; or a company that controls such savings association, the OCC shall follow the procedures for issuing directives under §§ 165.7 and 165.9 of this part unless otherwise provided in section 38 or this part. § 165.7 Directives to take prompt corrective action. (a) Notice of intent to issue a directive—(1) In general. The OCC shall provide an undercapitalized, significantly undercapitalized, or critically undercapitalized Federal savings association or, where appropriate, any company that controls the savings association, prior written notice of the OCC’s intention to issue a directive requiring such savings association or company to take actions or to follow proscriptions described in section 38 that are within the OCC’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 savings association shall have such time to respond to a proposed directive as provided by the OCC under paragraph (c) of this section. (2) Immediate issuance of final directive. If the OCC finds it necessary in order to carry out the purposes of section 38 of the FDI Act, the OCC may, without providing the notice prescribed in paragraph (a)(1) of this section, issue a directive requiring a Federal savings association or any company that controls a Federal savings association immediately to take actions or to follow proscriptions described in section 38 that are within the OCC’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 savings association or company that is subject to such an immediately effective directive may submit a written appeal of the directive to the OCC. Such an appeal must be received by the OCC within 14 calendar days of the issuance of the directive, unless the OCC permits a longer period. The OCC shall consider PO 00000 Frm 00120 Fmt 4701 Sfmt 4700 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 OCC, 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 Federal savings association’s capital measures and capital levels; (2) A description of the restrictions, prohibitions or affirmative actions that the OCC 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 Federal savings association or company subject to the directive may file with the OCC a written response to the notice. (c) Response to notice—(1) Time for response. A Federal 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 OCC. The date shall be at least 14 calendar days from the date of the notice unless the OCC determines that a shorter period is appropriate in light of the financial condition of the savings association or other relevant circumstances. (2) Content of response. The response should include: (i) An explanation why the action proposed by the OCC 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 savings association or company regarding the proposed directive. (d) OCC consideration of response. After considering the response, the OCC may: (1) Issue the directive as proposed or in modified form; (2) Determine not to issue the directive and so notify the savings association or company; or (3) Seek additional information or clarification of the response from the savings association or company, or any other relevant source. (e) Failure to file response. Failure by a Federal savings association or company to file with the OCC, within the specified time period, a written response to a proposed directive shall constitute a waiver of the opportunity to E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations respond and shall constitute consent to the issuance of the directive. (f) Request for modification or rescission of directive. Any Federal savings association or company that is subject to a directive under this part may, upon a change in circumstances, request in writing that the OCC reconsider the terms of the directive, and may propose that the directive be rescinded or modified. Unless otherwise ordered by the OCC, the directive shall continue in place while such request is pending before the OCC. sroberts on DSK5SPTVN1PROD with RULES § 165.8 Procedures for reclassifying a Federal 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 § 165.4(c) of this part, the OCC may reclassify a well capitalized Federal 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 OCC determines that the savings association is in an unsafe or unsound condition; or (2) The OCC deems the 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 § 165.4(c)(1), the OCC shall issue and serve on the Federal savings association a written notice of the OCC’s intention to reclassify the savings association. (2) Contents of notice. A notice of intention to reclassify a Federal savings association based on unsafe or unsound condition shall include: (i) A statement of the savings association’s capital measures and capital levels and the category to which the savings association would be reclassified; (ii) The reasons for reclassification of the savings association; (iii) The date by which the savings association subject to the notice of reclassification may file with the OCC 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 OCC determines that a shorter period is appropriate in light of the financial condition of the VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 savings association or other relevant circumstances. (3) Response to notice of proposed reclassification. A Federal savings association may file a written response to a notice of proposed reclassification within the time period set by the OCC. The response should include: (i) An explanation of why the 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 savings association or company regarding the reclassification. (4) Failure to file response. Failure by a Federal savings association to file, within the specified time period, a written response with the OCC 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 OCC or its designee under this section. If the Federal savings association desires to present oral testimony or witnesses at the hearing, the 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 OCC shall issue an order directing an informal hearing to commence no later than 30 days after receipt of the request, unless the OCC allows further time at the request of the Federal savings association. The hearing shall be held in Washington, DC or at such other place as may be designated by the OCC, before a presiding officer(s) designated by the OCC to conduct the hearing. (7) Hearing procedures. (i) The Federal savings association shall have the right to introduce relevant written materials and to present oral argument at the hearing. The savings association may introduce oral testimony and present witnesses only if expressly authorized by the OCC or the presiding officer(s). Neither the provisions of the PO 00000 Frm 00121 Fmt 4701 Sfmt 4700 49069 Administrative Procedure Act (5 U.S.C. 554–557) governing adjudications required by statute to be determined on the record nor parts 19 or 109 of this chapter apply to an informal hearing under this section unless the OCC orders that such procedures shall apply. (ii) The informal hearing shall be recorded and a transcript furnished to the 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 OCC 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 OCC will decide whether to reclassify the Federal savings association and notify the savings association of the OCC’s decision. (b) Request for rescission of reclassification. Any Federal savings association that has been reclassified under this section, may, upon a change in circumstances, request in writing that the OCC 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 OCC, the savings association shall remain subject to the reclassification and to any directives issued in connection with that reclassification while such request is pending before the OCC. § 165.9 Order to dismiss a director or senior executive officer. (a) Service of notice. When the OCC issues and serves a directive on a Federal savings association pursuant to section 165.7 requiring the savings association to dismiss any director or senior executive officer under section 38(f)(2)(F)(ii) of the FDI Act, the OCC shall also serve a copy of the directive, or the relevant portions of the directive where appropriate, upon the person to be dismissed. E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 49070 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (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 OCC 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 OCC 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 OCC, 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 Federal savings association to dismiss from office any director or senior executive officer, the OCC 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 OCC, before a presiding officer(s) designated by the OCC to conduct the hearing. (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 OCC 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 parts 19 or 109 of this chapter apply to an informal hearing under this section VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 unless the OCC 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 Federal savings association would materially strengthen the savings association’s ability: (1) To become adequately capitalized, to the extent that the directive was issued as a result of the 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 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 OCC concerning the Respondent’s request for reinstatement with the Federal 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 OCC shall grant or deny the request for reinstatement and notify the Respondent of the OCC’s decision. If the OCC denies the request for reinstatement, the OCC shall set forth in the notification the reasons for the OCC’s action. § 165.10 Enforcement of directives. (a) Judicial remedies. Whenever a Federal savings association or company that controls a Federal savings association fails to comply with a directive issued under section 38, the OCC 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. PO 00000 Frm 00122 Fmt 4701 Sfmt 4700 Pursuant to section 8(i)(2)(A) of the FDI Act, the OCC may assess a civil money penalty against any Federal savings association or company that controls a Federal 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 Federal savings association to implement a capital restoration plan required under section 38, or this part, or the failure of a company having control of a Federal 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 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 OCC may seek enforcement of the provisions of section 38 or this part through any other judicial or administrative proceeding authorized by law. PART 167—CAPITAL Sec. Subpart A—Scope 167.0 Scope. Subpart B—Regulatory Capital Requirements 167.1 Definitions. 167.2 Minimum regulatory capital requirement. 167.3 Individual minimum capital requirements. 167.4 Capital directives. 167.5 Components of capital. 167.6 Risk-based capital credit risk-weight categories. 167.8 Leverage ratio. 167.9 Tangible capital requirement. 167.10 Consequences of failure to meet capital requirements. 167.11 Reservation of authority. 167.12 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. 167.14–167.19 [Reserved] Appendixes A–B to Part 167 [Reserved] Appendix C to Part 167—Risk-Based Capital Requirements—Internal-Ratings-Based and Advanced Measurement Approaches Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828 (note), 5412(b)(2)(B). E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (ii) Investments in any includable subsidiary in which a savings § 167.0 Scope. association has a minority interest; and (iii) Investments in any subsidiary (a) This part prescribes the minimum subject to consolidation under regulatory capital requirements for paragraph (2)(ii) of this definition. Federal savings associations. Subpart B Asset-backed commercial paper of this part applies to all Federal savings program. The term asset-backed associations, except as described in commercial paper program (ABCP paragraph (b) of this section. program) means a program that (b)(1) A Federal savings association primarily issues commercial paper that that uses Appendix C of this part must has received a credit rating from an comply with the minimum qualifying NRSRO and that is backed by assets or criteria for internal risk measurement other exposures held in a bankruptcyand management processes for remote special purpose entity. The term calculating risk-based capital requirements, utilize the methodologies sponsor of an ABCP program means a Federal savings association that: for calculating risk-based capital (1) Establishes an ABCP program; requirements, and make the required (2) Approves the sellers permitted to disclosures described in that appendix. participate in an ABCP program; (2) Subpart B of this part does not (3) Approves the asset pools to be apply to the computation of risk-based purchased by an ABCP program; or capital requirements by a Federal (4) Administers the ABCP program by savings association that uses Appendix monitoring the assets, arranging for debt C of this part. However, these savings placement, compiling monthly reports, associations: or ensuring compliance with the (i) Must compute the components of program documents and with the capital under § 167.5, subject to the program’s credit and investment policy. modifications in sections 11 and 12 of Cash items in the process of Appendix C of this part. collection. The term cash items in the (ii) Must meet the leverage ratio process of collection means checks or requirement at §§ 167.2(a)(2) and 167.8 drafts in the process of collection that with tier 1 capital, as computed under are drawn on another depository sections 11 and 12 of Appendix C of this institution, including a central bank, part. and that are payable immediately upon (iii) Must meet the tangible capital presentation; U.S. Government checks requirement described at §§ 167.2(a)(3) that are drawn on the United States and 167.9. Treasury or any other U.S. Government (iv) Are subject to §§ 167.3 (individual or Government-sponsored agency and minimum capital requirement), 167.4 that are payable immediately upon (capital directives); and 167.10 presentation; broker’s security drafts (consequences of failure to meet capital and commodity or bill-of-lading drafts requirements). payable immediately upon presentation; (v) Are subject to the reservations of and unposted debits. authority at § 167.11, which supplement Commitment. The term commitment the reservations of authority at section means any arrangement that obligates a 1 of Appendix C of this part. Federal savings association to: (c) [Reserved] (1) Purchase loans or securities; (2) Extend credit in the form of loans Subpart B—Regulatory Capital or leases, participations in loans or Requirements leases, overdraft facilities, revolving credit facilities, home equity lines of § 167.1 Definitions. credit, eligible ABCP liquidity facilities, For the purposes of this subpart: or similar transactions. Adjusted total assets. The term Common stockholders’ equity. The adjusted total assets means: term common stockholders’ equity (1) A Federal savings association’s means common stock, common stock total assets as that term is defined in this surplus, retained earnings, and section; adjustments for the cumulative effect of (2) Plus the prorated assets of any foreign currency translation, less net includable subsidiary in which the unrealized losses on available-for-sale savings association has a minority equity securities with readily ownership interest that is not determinable fair values. consolidated under GAAP; Conditional guarantee. The term (3) Minus: conditional guarantee means a contingent obligation of the United (i) Assets not included in the States Government or its agencies, the applicable capital standard except for validity of which to the beneficiary is those subject to paragraphs (3)(ii) and dependent upon some affirmative (3)(iii) of this definition; sroberts on DSK5SPTVN1PROD with RULES Subpart A—Scope VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 PO 00000 Frm 00123 Fmt 4701 Sfmt 4700 49071 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 interestonly 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 Federal savings association to credit risk directly or indirectly associated with the transferred assets that exceeds its pro rata share of the savings association’s claim on the assets whether through subordination provisions or other credit enhancement techniques. (2) The OCC 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 OCC 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 Federal 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 E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 49072 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 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 Federal 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 savings association (third-party asset) and the risk assumed by the savings association exceeds the pro rata share of the savings association’s interest in the third-party asset. If a savings association has no claim on the third-party asset, then the 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 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 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; VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (4) Credit derivative contracts under which the 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 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 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 of 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 Federal savings association. (1) The term eligible Federal savings association means a Federal savings association with respect to which the Comptroller of the Currency has determined, on the basis of information available at the time, that: (i) The savings association’s management appears to be competent; (ii) The 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 PO 00000 Frm 00124 Fmt 4701 Sfmt 4700 (iii) The 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) Federal savings associations, for purposes of this paragraph, will be deemed to be eligible unless the Comptroller makes a determination otherwise or notifies the savings association of its intent to conduct either an informal or formal examination to determine eligibility and provides written notification thereof to the 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 GAAP. (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 GAAP 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 Federal savings association holds an interest in real property under GAAP. (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 § 167.6(a)(1)(vi) of this part, or the stock of Federal Home Loan Banks or Federal Reserve Banks. (3) For purposes of this part, the term equity investments in real property does not include interests in real property that are primarily used or intended to be E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations used by the 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 sales under judgments, decrees, or mortgages held by the 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 OCC. 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 OCC, 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 Federal 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 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (ii) Was acquired by the parent savings association prior to May 1, 1989; or (5) A subsidiary of any savings association existing as a 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 (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 GAAP. 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 forward deposits accepted; and any other instrument that, in the opinion of the OCC, 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 PO 00000 Frm 00125 Fmt 4701 Sfmt 4700 49073 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 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: (1) The commitment is not subject to extension or renewal and will actually expire on its stated expiration date; or (2) 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 E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 49074 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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. Problem institution. The term problem institution means a Federal savings association that, at the time of its acquisition, merger, purchase of assets or other business combination with or by another 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 savings association has a minority interest) multiplied by the Federal 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 160.101. 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 Federal 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 § 167.6(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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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. 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 Federal 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 PO 00000 Frm 00126 Fmt 4701 Sfmt 4700 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 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 Federal 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 thrift must retain sufficient undisbursed loan funds throughout the construction period to ensure project completion; E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (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; (ix) If at any time during the life of the construction loan any of the criteria of this rule are no longer satisfied, the association must immediately recategorize the loan at a 100 percent risk-weight and must accurately report the loan in the association’s next quarterly Consolidated Reports of Condition and Income (Call Report) or Thrift Financial Report (TFR), as appropriate; (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 OCC retains the discretion to determine that any loans not meeting sound lending principles must be placed in a higher risk-weight category. The OCC 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 Federal 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 cross- VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 holdings 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 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 Federal savings association has not held such instruments for more than five years or a longer period approved by the OCC. Recourse. The term recourse means a Federal 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 GAAP) that exceeds a pro rata share of that savings association’s claim on the asset. If a 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 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 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 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 savings association’s pro rata share of losses from the transferred assets; (7) Clean-up calls on assets the savings association has sold. However, clean-up calls that are 10 percent or less of the original pool balance and that are PO 00000 Frm 00127 Fmt 4701 Sfmt 4700 49075 exercisable at the option of the savings association are not recourse arrangements; and (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 GAAP) of financial assets, whether through a securitization or otherwise; and (ii) Exposes a Federal savings association to credit risk directly or indirectly associated with the transferred asset that exceeds a pro rata share of that 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 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 E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 49076 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations party. However, a credit-enhancing 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 § 167.6 of this part. 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 Federal savings association directly or VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 indirectly holds an ownership interest and the assets of which are consolidated with those of the Federal savings association for purposes of reporting under GAAP. Generally, these are majority-owned subsidiaries.1 This definition does not include ownership interests that were taken in satisfaction of debts previously contracted, provided that the reporting association has not held the interest for more than five years or a longer period approved by the OCC. Tier 1 capital. The term Tier 1 capital means core capital as computed in accordance with § 167.5(a) of this part. Tier 2 capital. The term Tier 2 capital means supplementary capital as computed in accordance with § 167.5 of this part. 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 OCC in accordance with GAAP. 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 Federal 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 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 OCC reserves the right to review a Federal savings association’s investment in a subsidiary on a case-by-case basis. If the OCC 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 savings association. PO 00000 Frm 00128 Fmt 4701 Sfmt 4700 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. § 167.2 Minimum regulatory capital requirement. (a) To meet its regulatory capital requirement a Federal savings association must satisfy each of the following capital standards: (1) Risk-based capital requirement. (i) A Federal savings association’s minimum risk-based capital requirement shall be an amount equal to 8% of its risk-weighted assets as measured under § 167.6 of this part. (ii) A Federal savings association may not use supplementary capital to satisfy this requirement in an amount greater than 100% of its core capital as defined in § 167.5 of this part. (2) Leverage ratio requirement. (i) A Federal savings association’s minimum leverage ratio requirement shall be the amount set forth in § 167.8 of this part. (ii) A Federal savings association must satisfy this requirement with core capital as defined in § 167.5(a) of this part. (3) Tangible capital requirement. (i) A Federal savings association’s minimum tangible capital requirement shall be the amount set forth in § 167.9 of this part. (ii) A Federal savings association must satisfy this requirement with tangible capital as defined in § 167.9 of this part in an amount not less than 1.5% of its adjusted total assets. (b) [Reserved] (c) Federal savings associations are expected to maintain compliance with all of these standards at all times. § 167.3 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 Federal savings association that varies from the riskbased capital requirement, the leverage ratio requirement or the tangible capital requirement that would otherwise apply to the savings association under this part. (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 E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations requirement required under this part may be appropriate for individual savings associations. Increased individual minimum capital requirements may be established upon a determination that the 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 Federal savings association receiving special supervisory attention; (2) A Federal savings association that has or is expected to have losses resulting in capital inadequacy; (3) A Federal 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 Federal savings association that has poor liquidity or cash flow; (5) A Federal 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 OCC regulations or other guidance; (6) A Federal savings association that may be adversely affected by the activities or condition of its holding company, affiliate(s), subsidiaries, or other persons or savings associations with which it has significant business relationships, including concentrations of credit; (7) A Federal 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 Federal savings association that has inadequate underwriting policies, standards, or procedures for its loans and investments; or (9) A Federal savings association that has a record of operational losses that exceeds the average of other, similarly situated 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 Federal 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 subjective judgment grounded in agency 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 savings association; (2) The exigency of those circumstances or potential problems; (3) The overall condition, management strength, and future prospects of the savings association and, if applicable, its holding company, subsidiaries, and affiliates; (4) The savings association’s liquidity, capital and other indicators of financial stability, particularly as compared with those of similarly situated savings associations; and (5) The policies and practices of the 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 OCC determines that a minimum capital requirement is necessary or appropriate for a particular Federal savings association, it shall notify the 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 savings association. (2) Response. (i) The response shall include any information that the Federal savings association wants the OCC to consider in deciding whether to establish or to amend an individual minimum capital requirement for the savings association, what the individual capital requirement should be, and, if applicable, what compliance schedule is appropriate for achieving the required capital level. The response of the savings association must be in writing and must be delivered to the OCC within 30 days after the date on which the notification was received. The OCC may extend the time period for good cause. The time period for response by the insured savings association may be shortened for good cause: (A) When, in the opinion of the OCC, the condition of the savings association so requires, and the OCC informs the savings association of the shortened response period in the notice; (B) With the consent of the savings association; or (C) When the savings association already has advised the OCC that it PO 00000 Frm 00129 Fmt 4701 Sfmt 4700 49077 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 OCC, may constitute a waiver of any objections to the proposed individual minimum capital requirement or to the schedule for complying with it, unless the OCC has provided an extension of the response period for good cause. (3) Decision. After expiration of the response period, the OCC shall decide whether or not the OCC believes the proposed individual minimum capital requirement should be established for the Federal savings association, or whether that proposed requirement should be adopted in modified form, based on a review of the savings association’s response and other relevant information. The OCC’s decision shall address comments received within the response period from the savings association and shall state the level of capital required, the schedule for compliance with this requirement, and any specific remedial action the savings association could take to eliminate the need for continued applicability of the individual minimum capital requirement. The OCC shall provide the savings association with a written decision on the individual minimum capital requirement, addressing the substantive comments made by the savings association and setting forth the decision and the basis for that decision. Upon receipt of this decision by the savings association, the individual minimum capital requirement becomes effective and binding upon the 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 § 167.4 of this part. (5) Change in circumstances. If, after a decision is made under paragraph (d)(3) of this section, there is a change in the circumstances affecting the savings association’s capital adequacy or its ability to reach its required minimum capital level by the specified date, the OCC may amend the individual minimum capital requirement or the savings association’s schedule for such compliance. The OCC may decline to consider a savings association’s request for such changes that are not based on a significant change in circumstances or that are E:\FR\FM\09AUR2.SGM 09AUR2 49078 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations repetitive or frivolous. Pending the OCC’s reexamination of the original decision, that original decision and any compliance schedule established thereunder shall continue in full force and effect. sroberts on DSK5SPTVN1PROD with RULES § 167.4 Capital directives. (a) Issuance of a Capital Directive—(1) Purpose. (i) In addition to any other action authorized by law, the OCC may issue a capital directive to a Federal 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 Federal 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 part, 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 Federal savings association to: (A) Achieve its minimum capital requirement by a specified date; (B) Adhere to the compliance schedule for achieving its individual minimum capital requirement; (C) Submit and adhere to a capital plan acceptable to the OCC describing the means and a time schedule by which the savings association shall reach its required capital level; (D) Take other action, including but not limited to, reducing the savings association’s assets or its rate of liability growth, or imposing restrictions on the savings association’s payment of dividends, in order to cause the savings association to reach its required capital level; (E) Take any action authorized under § 167.10(e); or (F) Take a combination of any of these actions. (ii) 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 desist order which has become final under 12 U.S.C. 1818. (2) Notice of intent to issue capital directive. The OCC will determine whether to initiate the process of issuing a capital directive. The OCC will notify a Federal savings association in writing by registered mail of its intention to issue a capital directive. The notice will state: (i) The reasons for issuance of the capital directive and (ii) The proposed contents of the capital directive. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (3) Response to notice of intent. (i) A Federal 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 savings association wishes the OCC to consider in deciding whether to issue a capital directive. The response must be in writing and be delivered within 30 days after the receipt of the notices. Such response must be filed in accordance with §§ 116.30 and 116.40 of this chapter. In its discretion, the OCC may extend the time period for the response for good cause. The OCC may, for good cause, shorten the 30-day time period for response by the insured savings association: (A) When, in the opinion of the OCC, the condition of the savings association so requires, and the OCC informs the savings association of the shortened response period in the notice; (B) With the consent of the savings association; or (C) When the savings association already has advised the OCC 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 OCC, may constitute a waiver of any objections to the capital directive unless the OCC grants an extension of the time period for good cause. (4) Decision. After the closing date of the Federal savings association’s response period, or upon receipt of the savings association’s response, if earlier, the OCC shall consider the savings association’s response and may seek additional information or clarification of the response. Thereafter, the OCC 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. (5) Service and effectiveness. (i) Upon issuance, a capital directive will be served upon the Federal 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 savings association, unless the OCC 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 savings association has consented to issuance of the capital directive, it may become effective immediately. A capital PO 00000 Frm 00130 Fmt 4701 Sfmt 4700 directive shall remain in effect and enforceable unless, and then only to the extent that, it is stayed, modified, or terminated by the OCC. (6) Change in circumstances. Upon a change in circumstances, a Federal savings association may submit a request to the OCC to reconsider the terms of the capital directive or consider changes in the savings association’s capital plan issued under a directive for the savings association to achieve its minimum capital requirement. If the OCC believes such a change is warranted, the OCC may modify the 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 OCC — (1) May consider a Federal savings association’s progress in adhering to any capital plan required under this section whenever such savings association or any affiliate of such savings association (including any company which controls such savings association) seeks approval for any proposal that would have the effect of diverting earnings, diminishing capital, or otherwise impeding such 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 OCC determines that the proposal would adversely affect the ability of the savings association on a current or pro forma basis to satisfy its capital requirement. § 167.5 Components of capital. (a) Core Capital. (1) The following elements,2 less the amount of any deductions pursuant to paragraph (a)(2) of this section, comprise a Federal savings association’s core capital: (i) Common stockholders’ equity (including retained earnings); (ii) Noncumulative perpetual preferred stock and related surplus; 3 2 Stock issues where the dividend is reset periodically based on current market conditions and the 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. 3 Stock issued by subsidiaries that may not be counted by the parent savings association on the Call Report or TFR, as appropriate, likewise shall not be considered in calculating capital. For example, preferred stock issued by a Federal savings association or a subsidiary that is, in effect, collateralized by assets of the savings association or E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (iii) Minority interests in the equity accounts of the subsidiaries that are fully consolidated. (iv) Nonwithdrawable accounts and pledged deposits of mutual savings associations (excluding any treasury shares held by the savings association) meeting the criteria of regulations and memoranda of the OCC 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; (v) [Reserved] (2) Deductions from core capital. (i) Intangible assets, as defined in § 167.1 of this part, are deducted from assets and capital in computing core capital, except as otherwise provided by § 167.12 of this part. (ii) Servicing assets that are not includable in core capital pursuant to § 167.12 of this part are deducted from assets and capital in computing core capital. (iii) Credit-enhancing interest-only strips that are not includable in core capital under § 167.12 of this part 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 savings association has a minority ownership interest) are deducted from assets and, thus core capital except as provided in paragraphs (a)(2)(v) and (a)(2)(vi) of this section. (v) If a Federal savings association has any investments (both debt and equity) in one or more subsidiaries engaged in 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 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 savings association as of April 12, 1989. Next the savings association must deduct from assets and, thus, core capital, the savings association’s investments in and extensions of credit to the subsidiary on the date as of which the savings association’s capital is being determined. (vi) If a Federal savings association holds a subsidiary (either directly or one of its subsidiaries shall not be included in capital. Similarly, common stock with mandatorily redeemable provisions is not includable in core capital. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 through a subsidiary) that is itself a domestic depository institution, the OCC 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 savings association than the amount that would be required if the parent savings association’s investment were deducted pursuant to paragraphs (a)(2)(iv) and (a)(2)(v) of this section, consolidate the assets and liabilities of that subsidiary with those of the parent savings association in calculating the capital adequacy of the parent savings association, regardless of whether the subsidiary would otherwise be an includable subsidiary as defined in § 167.1 of this part. (vii) Deferred tax assets that are not includable in core capital pursuant to § 167.12 of this part are deducted from assets and capital in computing core capital. (b) Supplementary Capital. Supplementary capital counts towards a Federal savings association’s total capital up to a maximum of 100% of the savings association’s core capital. The following elements comprise a Federal savings association’s supplementary capital: (1) Permanent Capital Instruments. (i) Cumulative perpetual preferred stock and other perpetual preferred stock 4 issued pursuant to regulations and memoranda of the OCC; (ii) Mutual capital certificates issued pursuant to regulations and memoranda of the OCC; (iii) Nonwithdrawable accounts and pledged deposits (excluding any treasury shares held by the savings association) meeting the criteria of 12 CFR 161.42 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 OCC; and (v) Mandatory convertible subordinated debt (capital notes) issued pursuant to regulations and memoranda of the OCC. (2) Maturing Capital Instruments. (i) Subordinated debt issued pursuant to regulations and memoranda of the OCC; (ii) Intermediate-term preferred stock issued pursuant to regulations and memoranda of the OCC and any related surplus: (iii) Mandatory convertible subordinated debt (commitment notes) 4 Other public disclosure requirements continue to apply—for example, Federal securities law and regulatory reporting requirements. PO 00000 Frm 00131 Fmt 4701 Sfmt 4700 49079 issued pursuant to regulations and memoranda of the OCC; 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—(i) [Reserved] (ii) A Federal savings association issuing maturing capital instruments after November 7, 1989, may choose, subject to paragraph (b)(3)(ii)(C) of this section, to include such instruments pursuant to either paragraph (b)(3)(ii)(A) or (b)(3)(ii)(B) 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).5 (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 Federal savings association selects either paragraph (b)(3)(ii)(A) or (b)(3)(ii)(B) of this section for the issuance of a maturing capital instrument, it must continue to elect that option for all subsequent issuances of maturing capital instruments for as long as there is a balance outstanding of such issuances. Only when such issuances have all been repaid and the savings association has no balance of such issuances outstanding may the savings association elect the other option. (4) Allowance for loan and lease losses. Allowance for loan and lease losses established under regulations and memoranda of the OCC to a maximum of 1.25 percent of risk-weighted assets.6 (5) Unrealized gains on equity securities. Up to 45 percent of unrealized gains on available-for-sale equity securities with readily 5 Capital instruments may be redeemed prior to maturity and without the prior approval of the OCC, 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 OCC must be notified in writing at least 30 days in advance of such redemption. 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. E:\FR\FM\09AUR2.SGM 09AUR2 49080 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 OCC may disallow such inclusion in the calculation of supplementary capital if the OCC determines that the equity securities are not prudently valued. (c) Total capital. (1) A Federal 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. sroberts on DSK5SPTVN1PROD with RULES § 167.6 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 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 § 167.5 are not included in calculating risk-weighted 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 Federal savings association or in transit. Any foreign currency held by a Federal 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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 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 savings association must maintain a positive margin of collateral on the claim on a daily basis, taking into account any change in a 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. (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 PO 00000 Frm 00132 Fmt 4701 Sfmt 4700 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 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 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) [Reserved] (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, E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations Federal funds sold, loans to other depository institutions, including overdrafts and term Federal funds, holdings of the 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 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; 7 (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 7 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. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 countries, to the extent the 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 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 § 167.1 of this part. (iv) 100 percent Risk Weight (Category 4). All assets not specified above or deducted from calculations of capital pursuant to § 167.5 of this part, 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 § 167.12 of this part; (M) Interest-only strips receivable, other than credit-enhancing interestonly strips; (N)–(O) [Reserved] (P) That portion of equity investments not deducted pursuant to § 167.5 of this part; PO 00000 Frm 00133 Fmt 4701 Sfmt 4700 49081 (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 OCC determines have the same risk characteristics as foreclosed real estate by the 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 prospectus. The savings association may, at its option, assign the investment on a pro rata basis to different riskweight 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 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 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 short-term 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 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 E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 49082 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 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 savings association has lent as agent. If the customer is not indemnified against loss by the savings association, the transaction is excluded from the risk-based capital calculation. When a savings association lends its own securities, the transaction is treated as a loan. When a 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. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (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 savings association’s customer can issue short-term debt obligations in its own name, but for which the savings association has a legally binding commitment to either: (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 savings association and the 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 PO 00000 Frm 00134 Fmt 4701 Sfmt 4700 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 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 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 Federal savings association may net positive and negative mark-to-market values of offbalance 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 8 by a credit conversion factor. Federal 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: 9 8 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. 9 No potential future credit exposure is calculated for single currency interest rate swaps in which payments are made based upon two floating rate E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations Interest rate contracts (percents) Remaining maturity sroberts on DSK5SPTVN1PROD with RULES One year or less .............................................................................................................................................. Over one year .................................................................................................................................................. 0.0 0.5 49083 Foreign exchange rate contracts (percents) 1.0 5.0 (B) Off-balance sheet rate contracts subject to bilateral netting contracts. In determining its current credit exposure for multiple off-balance sheet rate contracts executed with a single counterparty, a Federal savings association may net off-balance sheet rate contracts subject to a bilateral netting contract by offsetting positive and negative mark-to-market values, provided that: (1) The bilateral netting contract is in writing; (2) The bilateral netting contract creates a single legal obligation for all individual off-balance sheet rate contracts covered by the bilateral netting contract. In effect, the bilateral netting contract provides that the 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 Federal 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 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 individual off-balance sheet rate contracts covered by the bilateral netting contract; and (iii) The law that governs the bilateral netting contract; (4) The savings association establishes and maintains procedures to monitor possible changes in relevant law and to ensure that the bilateral netting contract continues to satisfy the requirements of this section; and (5) The savings association maintains in its files documentation adequate to support the netting of an off-balance sheet rate contract.10 (C) Walkaway clause. A bilateral netting contract that contains a walkaway clause is not eligible for netting for purposes of calculating the current credit exposure amount. The term ‘‘walkaway clause’’ means a provision in a bilateral netting contract 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 savings association determines the credit equivalent amount for an off-balance 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 Federal 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 Federal 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 savings association is not required to hold duplicative riskbased capital under this part against the overlapping position. Instead, the 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 savings association directly or indirectly retains or assumes credit risk by a 100 percent conversion factor. (For a direct credit substitute that is an on-balance sheet asset (e.g., a purchased subordinated security), a Federal savings association must use the amount of the direct credit substitute and the full 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 Federal savings association must maintain risk-based capital for residual interests as follows: (i) Credit-enhancing interest-only strips. After applying the concentration limit under § 167.12(e)(2) of this part, a indices, so-called floating/floating or basis swaps; the credit equivalent amount is measured solely on the basis of the current credit exposure. 10 By netting individual off-balance sheet rate contracts for the purpose of calculating its credit equivalent amount, a Federal savings association represents that documentation adequate to support the netting of an off-balance sheet rate contract is in the savings association’s files and available for inspection by the OCC. Upon determination by the OCC that a Federal 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. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 PO 00000 Frm 00135 Fmt 4701 Sfmt 4700 E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 49084 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 savings association and was not transferred. (ii) Other residual interests. A saving association must maintain risk-based capital for a residual interest (excluding a credit-enhancing interest-only 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 riskbased 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 savings association and was not transferred. (iii) Residual interests and other recourse obligations. Where a Federal 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 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) through (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 Federal savings association may calculate the riskweighted 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. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 TABLE A Long term rating category Highest or second highest investment grade ................. Third highest investment grade ................................. Lowest investment grade ..... One category below investment grade ........................ Risk weight (In percent) 20 50 100 200 TABLE B 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 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 grade below investment grade or better or a short term position as investment grade. If the NRSROs assign different ratings to the position, the 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 PO 00000 Frm 00136 Fmt 4701 Sfmt 4700 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 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 savings association must satisfy the OCC 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 Federal savings association may calculate the risk-weighted asset amount for eligible position described in paragraph (b)(4)(ii) of this section based on the savings association’s determination of the credit rating of the position. To risk-weight the asset, the savings association must multiply the face amount of the position by the appropriate risk weight determined in accordance with Table C of this section. TABLE C Rating category Investment grade .................. One category below investment grade ........................ Risk weight (In percent) 100 200 (ii) Eligibility. A position extended in connection with a securitization is eligible for the treatment described in paragraph (b)(4)(i) of this section if it is not rated by an NRSRO, is not a residual interest, and meets the one of the three alternative standards described in paragraph (b)(4)(ii)(A), (B), or (C) below of this section: (A) Position rated internally. A direct credit substitute, but not a purchased credit-enhancing interest-only strip, is eligible for the treatment described under paragraph (b)(4)(i) of this section, if the position is assumed in connection with an asset-backed commercial paper program sponsored by the savings association. Before it may rely on an internal credit risk rating system, the saving association must demonstrate to the OCC’s satisfaction that the system is adequate. Adequate internal credit risk rating systems typically: (1) Are an integral part of the savings association’s risk management system that explicitly incorporates the full range of risks arising from the savings association’s participation in securitization activities; E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (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 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 or the overall internal credit risk rating system, as needed; and (9) Make credit risk rating assumptions that are consistent with, or more conservative than, the credit risk rating assumptions and methodologies of NRSROs. (B) Program ratings. (1) 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 retained or assumed in connection with a structured finance program and an NRSRO has reviewed the terms of the program and stated a rating for positions associated with the program. If the program has options for different combinations of assets, standards, internal or external credit enhancements and other relevant factors, and the NRSRO specifies ranges of rating categories to them, the savings association may apply the rating category applicable to the option that corresponds to the savings association’s position. (2) To rely on a program rating, the savings association must demonstrate to the OCC’s satisfaction that the credit risk rating assigned to the program meets the same standards generally used by NRSROs for rating traded positions. The savings association must also demonstrate to the OCC’s satisfaction that the criteria underlying the assignments for the program are satisfied by the particular position. VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (3) If a Federal savings association participates in a securitization sponsored by another party, the OCC may authorize the 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 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 savings association must demonstrate to the OCC’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 Federal savings association means a savings association that: (1) Is well capitalized as defined in § 165.4 of this chapter without applying the capital treatment described in this paragraph (b)(5); or (2) Is adequately capitalized as defined in § 165.4 of this chapter without applying the capital treatment described in this paragraph (b)(5) and has received written permission from the OCC 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 GAAP, a qualified Federal savings association may elect to include only the amount of its recourse in its risk-weighted assets. To qualify for this election, the savings association must establish and maintain a reserve under GAAP sufficient to meet the reasonable estimated liability of the savings association under the recourse obligation. (iii) Aggregate amount of recourse. The total outstanding amount of recourse retained by a qualified Federal savings association with respect to transfers of small business loans and leases of personal property and included in the risk-weighted assets of the savings association as described in PO 00000 Frm 00137 Fmt 4701 Sfmt 4700 49085 paragraph (b)(5)(ii) of this section, may not exceed 15 percent of the association’s total capital computed under § 167.5(c). (iv) Federal savings association that ceases to be a qualified Federal savings association or that exceeds aggregate limits. If a Federal savings association ceases to be a qualified savings association or exceeds the aggregate limit described in paragraph (b)(5)(iii) of this section, the 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 savings association and did not exceed the limit. (v) Prompt corrective action not affected. (A) A Federal 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 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 Federal 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 Federal 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 Federal savings association conveys a risk participation in a direct credit substitute, the 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 savings association must assign the pro rata share of the credit equivalent amount that was conveyed through the risk participation to the lower of: The risk-weight category appropriate to the obligor in the underlying transaction, after considering any associated guarantees or collateral; or the risk-weight category appropriate to the party acquiring the participation. The 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 Federal savings association acquires a risk participation in a direct E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES 49086 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations credit substitute, the 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 savings association must assign the resulting credit equivalent amount to the riskweight category appropriate to the obligor in the underlying transaction, after considering any associated guarantees or collateral. (iii) If the Federal savings association holds a direct credit substitute in the form of a syndication where each 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 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 savings association must assign the resulting credit equivalent amount to the riskweight 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 Federal 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 savings association’s position, the risk-based capital requirement is limited to the savings association’s contractual exposure less any recourse liability account established in accordance with GAAP. This limitation does not apply when a Federal savings association provides credit enhancement beyond any contractual obligation to support assets it has sold. (ii) Mortgage-related securities or participation certificates retained in a mortgage loan swap. If a Federal 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 savings VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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 savings association’s balance sheet, the 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 savings association must separately risk-weight 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 Federal 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 GAAP, the face amount of the recourse obligation or direct credit substitute is deducted for capital under §§ 167.5(a)(2) and 167.9(c). All other recourse obligations and direct credit substitutes retained or assumed by a Federal savings association on the obligations of an entity in which the savings association has an equity investment are risk-weighted in accordance with this paragraph (b). § 167.8 Leverage ratio. (a) The minimum leverage capital requirement for a Federal savings association assigned a composite rating of 1, as defined in § 116.3 of this chapter, shall consist of a ratio of core capital to adjusted total assets of 3 percent. These generally are strong 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 Federal 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 Federal savings association. In all cases, Federal savings associations should hold capital commensurate with the level and nature of all risks, including the volume and severity of PO 00000 Frm 00138 Fmt 4701 Sfmt 4700 problem loans, to which they are exposed. § 167.9 Tangible capital requirement. (a) Federal 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 Federal 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 § 167.5 of this part; and (4) Minority interests in the equity accounts of fully consolidated subsidiaries. (c) Deductions from tangible capital. In calculating tangible capital, a Federal savings association must deduct from assets, and, thus, from capital: (1) Intangible assets (as defined in § 167.1) except for mortgage servicing assets to the extent they are includable in tangible capital under § 167.12, and credit enhancing interest-only strips and deferred tax assets not includable in tangible capital under § 167.12. (2) Investments, both equity and debt, in subsidiaries that are not includable subsidiaries (including those subsidiaries where the savings association has a minority ownership interest), except as provided in paragraphs (c)(3) and (c)(4) of this section. (3) If a Federal savings association has any investments (both debt and equity) in one or more subsidiary(ies) engaged in 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, tangible capital in accordance with this paragraph (c)(3). The 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 savings association. Next, the savings association must deduct from assets and, thus, tangible capital the savings association’s investments in and extensions of credit to the subsidiary on the date as of which the savings association’s capital is being determined. (4) If a savings association holds a subsidiary (either directly or through a subsidiary) that is itself a domestic depository institution the OCC may, in E:\FR\FM\09AUR2.SGM 09AUR2 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 savings association than the amount that would be required if the parent savings association’s investment were deducted pursuant to paragraphs (c)(2) and (c)(3) of this section, consolidate the assets and liabilities of that subsidiary with those of the parent savings association in calculating the capital adequacy of the parent savings association, regardless of whether the subsidiary would otherwise be an includable subsidiary as defined in § 167.1 of this part. sroberts on DSK5SPTVN1PROD with RULES § 167.10 Consequences of failure to meet capital requirements. (a) Capital plans. (1) [Reserved] (2) The OCC shall require any Federal savings association not in compliance with capital standards to submit a capital plan that: (i) Addresses the savings association’s need for increased capital; (ii) Describes the manner in which the savings association will increase capital so as to achieve compliance with capital standards; (iii) Specifies types and levels of activities in which the 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 Comptroller. (3) To be acceptable to the Comptroller under this section, a plan must, in addition to satisfying all of the requirements set forth in paragraphs (a)(2)(i) through (a)(2)(v) of this section, contain a certification that while the plan is under review by the OCC, the savings association will not, without the prior written approval of the OCC: (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 OCC in supervisory guidance for Federal savings associations not meeting capital standards. (4) If the plan submitted to the Comptroller under paragraph (a)(2) of this section is not approved by the Comptroller, the savings association shall immediately and without any further action, be subject to the following restrictions: VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (i) It may not increase its assets beyond the amount held on the day it receives written notice of the Comptroller’s disapproval of the plan; and (ii) It must comply with any other restrictions or limitations set forth in the written notice of the Comptroller’s disapproval of the plan. (b) The Comptroller shall: (1) Prohibit any asset growth by any Federal savings association not in compliance with capital standards, except as provided in paragraph (d) of this section; and (2) Require any Federal savings association not in compliance with capital standards to comply with a capital directive issued by the Comptroller which may include the restrictions contained in paragraph (e) of this section and any other restrictions the Comptroller determines appropriate. (c) A Federal 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 OCC. Such request must include a capital plan that satisfies the requirements of paragraph (a)(2) of this section. (d) The Comptroller may permit any Federal 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 savings association’s deposit liabilities, if: (1) The savings association obtains the Comptroller’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; (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 savings association’s ratio of core capital to total assets is not less than the ratio existing on January 1, 1991. (e) If a Federal savings association fails to meet the risk-based capital requirement, the leverage ratio requirement, or the tangible capital requirement established under this part, the Comptroller may, through enforcement proceedings or otherwise, require such 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; PO 00000 Frm 00139 Fmt 4701 Sfmt 4700 49087 (2) Convene a meeting or meetings with the supervision staff of the OCC 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 Comptroller may deem necessary or appropriate for the safety and soundness of the savings association, or depositors or investors in the savings association. (f) The Comptroller shall treat as an unsafe and unsound practice any material failure by a Federal 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 part. § 167.11 Reservation of authority. (a) Transactions for purposes of evasion. The Comptroller 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 part. (b) Average versus period-end figures. The OCC reserves the right to require a Federal savings association to compute its capital ratios on the basis of average, rather than period-end, assets when the OCC determines appropriate to carry out the purposes of this part. (c)(1) Reservation of authority. Notwithstanding the definitions of core and supplementary capital in § 167.5 of this part, the OCC 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 Federal 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 part or for any other purposes. Similarly, the OCC may find that a E:\FR\FM\09AUR2.SGM 09AUR2 49088 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations sroberts on DSK5SPTVN1PROD with RULES particular asset or core or supplementary capital component has characteristics or terms that diminish its contribution to a Federal savings association’s ability to absorb losses, and the OCC may require the discounting or deduction of such asset or component from the computation of core, supplementary, or total capital. (2) Notwithstanding § 167.6 of this part, the OCC 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 savings association. The OCC may require the savings association to apply another risk-weight, credit equivalent amount, or credit conversion factor that the OCC deems appropriate. (3) The OCC may find that the capital treatment for an exposure to a transaction not subject to consolidation on the savings association’s balance sheet does not appropriately reflect the risks imposed on the savings association. Accordingly, the OCC may require the savings association to treat the transaction as if it were consolidated on the savings association’s balance sheet. The OCC 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 OCC deems appropriate. (4) If this part does not specifically assign a risk weight, credit equivalent amount, or credit conversion factor, the OCC may assign any risk weight, credit equivalent amount, or credit conversion factor that it deems appropriate. In making this determination, the OCC 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 OCC will notify the savings association of the determination and solicit a response from the savings association. After review of the response by the savings association, the OCC shall issue a final supervisory decision regarding the determination made under paragraph (c) of this section. § 167.12 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, VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 intangible assets (other than purchased credit card relationships and servicing assets), credit-enhancing interest-only strips, and deferred tax assets that Federal 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 § 167.1 of this part, 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 OCC reserves the authority to require any Federal savings association to perform an independent market valuation of assets subject to this section on a caseby-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 OCC. 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 association in conducting its internal analysis. The association shall calculate an estimated fair value for assets subject to this section at least PO 00000 Frm 00140 Fmt 4701 Sfmt 4700 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 part (but not for financial statement purposes), purchased credit card relationships and servicing assets must be valued at the lesser of: (1) 90 percent of their fair value determined in accordance with paragraph (c) of this section; or (2) 100 percent of their remaining unamortized book value determined in accordance with the instructions for the Call Report or TFR, as appropriate. (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 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 Federal 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. E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (ii) A Federal 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. An association holding purchased mortgage servicing rights in separately capitalized, nonincludable subsidiaries may submit an application for approval by the OCC for an exemption from the deductions and limitations set forth in this section. The deductions and limitations will apply to such purchased mortgage servicing rights, however, if the OCC determines that: (i) The thrift and subsidiary are not conducting activities on an arm’s length basis; or (ii) The exemption is not consistent with the association’s safe and sound operation. (2) Applicable requirements. If the OCC determines to grant or to permit the continuation of an exemption under paragraph (h)(1) of this section, the association receiving the exemption must ensure the following: (i) The association’s investments in, and extensions of credit to, the subsidiary are deducted from capital when calculating capital under this part; (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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 Federal Reserve Act, as applied to thrifts; and (iii) Any contracts entered into by the subsidiary include a written disclosure indicating that the subsidiary is not a bank or Federal savings association; the subsidiary is an organization separate and apart from any bank or Federal savings association; and the obligations of the subsidiary are not backed or guaranteed by any bank or Federal savings association and are not insured by the FDIC. (h) Treatment of deferred tax assets. For purposes of calculating Tier 1 capital under this part (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 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 part. 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 Federal 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. PO 00000 Frm 00141 Fmt 4701 Sfmt 4700 49089 (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. § 167.14–167.19 [Reserved] Appendixes A–B to Part 167 [Reserved] Appendix C to Part 167—Risk-Based Capital Requirements—InternalRatings-Based and Advanced Measurement Approaches Part I General Provisions Section 1 Purpose, Applicability, Reservation of Authority, and Principle of Conservatism Section 2 Definitions 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 RiskWeighted 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 E:\FR\FM\09AUR2.SGM 09AUR2 49090 Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations 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 sroberts on DSK5SPTVN1PROD with RULES 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 Federal savings associations using Federal savings association-specific internal risk measurement and management processes for calculating risk-based capital requirements; (2) Methodologies for such Federal savings associations to calculate their risk-based capital requirements; and (3) Public disclosure requirements for such Federal savings associations. (b) Applicability. (1) This appendix applies to a Federal savings association that: (i) Has consolidated assets, as reported on the most recent year-end Consolidated Reports of Condition and Income (Call Report) or Thrift Financial Report (TFR), as appropriate, 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 VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 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 part 167, appendix C, 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 Federal savings association may elect to use this appendix to calculate its risk-based capital requirements. (3) A Federal savings association that is subject to this appendix must use this appendix unless the OCC determines in writing that application of this appendix is not appropriate in light of the savings association’s asset size, level of complexity, risk profile, or scope of operations. In making a determination under this paragraph, the OCC will apply notice and response procedures in the same manner and to the same extent as the notice and response procedures in § 167.3(d). (c) Reservation of authority—(1) Additional capital in the aggregate. The OCC may require a Federal savings association to hold an amount of capital greater than otherwise required under this appendix if the OCC determines that the savings association’s riskbased capital requirement under this appendix is not commensurate with the savings association’s credit, market, operational, or other risks. In making a determination under this paragraph, the OCC will apply notice and response procedures in the same manner and to the same extent as the notice and response procedures in § 167.3(d). (2) Specific risk-weighted asset amounts. (i) If the OCC determines that the risk-weighted asset amount calculated under this appendix by the savings association for one or more exposures is not commensurate with the risks associated with those exposures, the OCC may require the savings association to assign a different risk-weighted 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 OCC. (ii) If the OCC determines that the riskweighted asset amount for operational risk produced by the savings association under this appendix is not commensurate with the operational risks of the savings association, the OCC may require the savings association to assign a different risk-weighted 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 savings association’s operational risk management processes, data and assessment systems, or quantification systems, all as specified by the OCC. PO 00000 Frm 00142 Fmt 4701 Sfmt 4700 (3) Regulatory capital treatment of unconsolidated entities. The OCC may find that the capital treatment for an exposure to a transaction not subject to consolidation on the savings association’s balance sheet does not appropriately reflect the risks imposed on the savings association. Accordingly, the OCC may require the savings association to treat the transaction as if it were consolidated on the savings association’s balance sheet. The OCC 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 OCC deems appropriate. (4) Other supervisory authority. Nothing in this appendix limits the authority of the OCC 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 Federal savings association may choose not to apply a provision of this appendix to one or more exposures, provided that: (1) The savings association can demonstrate on an ongoing basis to the satisfaction of the OCC 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 savings association appropriately manages the risk of each such exposure; (3) The savings association notifies the OCC in writing prior to applying this principle to each such exposure; and (4) The exposures to which the savings association applies this principle are not, in the aggregate, material to the savings association. Section 2. Definitions Advanced internal ratings-based (IRB) systems means a Federal savings association’s internal risk rating and segmentation system; risk parameter quantification system; data management and maintenance system; and control, oversight, and validation system for credit risk of wholesale and retail exposures. Advanced systems means a Federal 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 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 E:\FR\FM\09AUR2.SGM 09AUR2 sroberts on DSK5SPTVN1PROD with RULES Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Rules and Regulations (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 Federal 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 Federal 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-of-sample 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 Federal 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 Federal savings association’s operational risk profile that reflect a current and forward-looking assessment of the savings association’s underlying business risk factors and internal control environment. Carrying value means, with respect to an asset, the value of the asset on the balance sheet of the Federal savings association, determined in accordance with GAAP. Clean-up call means a contractual provision that permits an originating Federal 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: VerDate Mar<15>2010 20:33 Aug 08, 2011 Jkt 223001 (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 Federal 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 Federal 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