Covered Savings Associations, 23991-24007 [2019-10902]
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23991
Rules and Regulations
Federal Register
Vol. 84, No. 101
Friday, May 24, 2019
This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 101
[Docket ID OCC–2018–0020]
RIN 1557–AE45
Covered Savings Associations
Office of the Comptroller of the
Currency (OCC), Treasury.
ACTION: Final rule.
AGENCY:
The OCC is issuing a final
rule to implement a new section of the
Home Owners’ Loan Act (HOLA). The
Economic Growth, Regulatory Relief,
and Consumer Protection Act
(EGRRCPA) amended HOLA to add a
new section that allows a Federal
savings association with total
consolidated assets equal to or less than
$20 billion, as reported by the
association to the Comptroller as of
December 31, 2017, to elect to operate
as a covered savings association. A
covered savings association has the
same rights and privileges as a national
bank and is subject to the same duties,
restrictions, penalties, liabilities,
conditions, and limitations as a national
bank. A covered savings association
retains its Federal savings association
charter and existing governance
framework. The new section of HOLA
requires the OCC to issue rules that,
among other things, establish
streamlined standards and procedures
for elections to operate as covered
savings associations and clarify
requirements for the treatment of
covered savings associations.
DATES: The final rule takes effect on July
1, 2019.
FOR FURTHER INFORMATION CONTACT: For
additional information, contact
Charlotte Bahin, Senior Advisor for
Thrift Supervision, 202–649–6281,
Lazaro Barreiro, Director for Governance
and Operational Risk Policy, 202–649–
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SUMMARY:
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6550, Alison MacDonald, Special
Counsel, 202–649–5490, Demetria H.
Springs, Special Counsel, 202–649–
5500, Chief Counsel’s Office, for persons
who are deaf or hearing impaired, TTY,
202–649–5597, Office of the
Comptroller of the Currency, 400 7th
Street SW, Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
branch or agency that the covered
savings association operates on the date
an election to operate as a covered
savings association takes effect. A
covered savings association will
continue to be treated as a covered
savings association even if its total
consolidated assets exceed $20 billion
after it makes an election.
I. Background
On September 18, 2018, the OCC
published a proposed rule 1 to
implement section 206 of the Economic
Growth, Regulatory Relief, and
Consumer Protection Act (EGRRCPA),
Public Law 115–174, 132 Stat. 1310.
Section 206 of EGRRCPA amended the
Home Owners’ Loan Act (HOLA) (12
U.S.C. 1461 et seq.) to add a new section
5A (12 U.S.C. 1464a). Section 5A allows
a Federal savings association with total
consolidated assets equal to or less than
$20 billion, as reported by the
association to the Comptroller as of
December 31, 2017, to elect to operate
as a covered savings association. A
covered savings association has the
same rights and privileges as a national
bank that has its main office situated in
the same location as the home office of
the covered savings association. A
covered savings association is subject to
the same duties, restrictions, penalties,
liabilities, conditions, and limitations
that would apply to such a national
bank. However, a covered savings
association retains its Federal savings
association charter and continues to be
treated as a Federal savings association
for purposes of governance, including
procedures and requirements for
incorporation, charters and bylaws (e.g.,
form, amendments), boards of directors
(e.g., elections, term of service),
shareholders (e.g., meetings, voting
requirements, requirements for
stakeholders such as mutual members),
and distribution of dividends (e.g.,
payment, prior approval, and other
restrictions). A covered savings
association also is treated as a Federal
savings association for purposes of
consolidation, merger, dissolution,
conversion (including conversion to a
stock bank or another charter),
conservatorship, and receivership, as
well as for other purposes determined
by OCC regulation. A covered savings
association may continue to operate any
II. Summary of General Comments
The OCC received 16 comments in
response to the notice of proposed
rulemaking. The commenters included
Federal savings associations, industry
trade associations, an unincorporated
association, a U.S. Senator, a law firm
(on behalf of a client), and a
grandfathered unitary savings and loan
holding company.
The comments generally supported
the proposed rule implementing section
5A of HOLA. One commenter urged the
OCC to focus on the underlying purpose
of section 5A, which the commenter
believes is to provide flexibility for
Federal savings associations without
imposing undue impediments. As
explained in the preamble to the
proposed rule, the OCC views section
5A of HOLA as a way to provide Federal
savings associations with additional
flexibility to adapt to new economic
conditions and business environments
without the cost and time involved in a
change of charter.2 The OCC has
considered various factors in
implementing section 5A, including the
importance of providing an effective
regulatory framework for Federal
savings associations seeking to make an
election and ensuring that the
institutions that make an election can
continue to operate safely and soundly.
The final rule balances these
considerations. To that end, consistent
with section 5A, the final rule provides
a regulatory framework that ensures that
covered savings associations that make
an election are treated in the same
manner as similarly located national
banks except where differences are
necessary or appropriate to permit
covered savings associations to retain
their existing charter and governance
framework.
Four commenters requested that the
OCC work closely with other federal
regulators to ensure consistency in the
interpretation of section 5A. Several
commenters specifically raised
1 Covered Savings Associations, 83 FR 47101
(September 18, 2018) (Proposed Rule).
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2 Proposed
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questions regarding the treatment of
savings and loan holding companies,
including grandfathered unitary savings
and loan holding companies. In
addition, a number of commenters
recommended that the OCC clarify that
covered savings associations would not
be required to be members of the
Federal Reserve System, with some
adding that membership should be
voluntary. The Board of Governors of
the Federal Reserve System (FRB) has
primary responsibility for supervising
savings and loan holding companies
and administering Federal Reserve
membership. The OCC will continue to
consult with the FRB on interpretive
issues regarding the application of
section 5A to savings and loan holding
companies and regarding issues related
to membership. The OCC recommends
that individuals or institutions with
specific questions about membership or
the treatment of holding companies of
Federal savings associations that elect to
operate as covered savings associations
contact the FRB.
Several other commenters were
concerned about how covered savings
associations would be treated within the
Federal Home Loan Bank (FHLBank)
system. Two commenters asserted that
the FHLBanks rate institutions that meet
the qualified thrift lender (QTL) test
under HOLA higher than institutions
that do not meet the QTL test. Another
commenter requested that the OCC work
with the FHLBanks to ensure that an
election does not negatively impact
membership privileges. The OCC
understands that the Gramm-LeachBliley Act amended the Federal Home
Loan Bank Act to eliminate certain
provisions applicable only to non-QTL
compliant members.3 The OCC
recommends that individuals or
institutions with specific questions
about the activities and authorities of
the FHLBanks contact either the Federal
Housing Finance Agency, which has
primary responsibility for supervising
the FHLBank system, or the appropriate
FHLBank.
As discussed more fully in
subsequent sections of this preamble,
the OCC has revised the final rule in
response to issues raised by
commenters. These revisions and
explanations that address other
comments received are described in the
section-by-section description of the
final rule.
III. Section-by-Section Description
101.1 Authority and purposes.
Section 101.1(a) of the proposed rule
3 Section 604 of the Gramm-Leach-Bliley Act,
Public Law 106–102, 113 Stat. 1338.
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provided that the rule would be issued
pursuant to sections 3, 4, 5, and 5A of
HOLA (12 U.S.C. 1462a, 1463, 1464, and
1464a), section 5239A of the Revised
Statutes (12 U.S.C. 93a), and section
312(b)(2)(B) of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act (12 U.S.C. 5412(b)(2)(B)).
Section 101.1(b) of the proposed rule
described the purposes of the proposed
rule. Those purposes were to establish
standards and procedures for a Federal
savings association’s election to operate
as a covered savings association, to
clarify the requirements that apply to
covered savings associations, and to
establish standards and procedures for
terminations of elections and for
reelections.
The OCC did not receive comment on
this section of the proposed rule. The
OCC adopts this section of the proposed
rule without change.
101.2 Definitions and computation
of time. Section 101.2(a) of the proposed
rule set out definitions for the final rule.
Section 101.2(b) of the proposed rule
provided that, for purposes of the rule,
the OCC would compute time in the
same manner as set forth in 12 CFR
5.12. Section 5.12 provides that, in
computing a period of days, the OCC
does not include the day of the act (in
this case, the date the OCC receives a
Federal savings association’s notice of
election or termination) from which the
period begins to run. If the last day of
the 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.
The OCC did not receive comment on
the definitions included in this section
or the manner of computation of time.
The OCC adopts this section as
proposed, with one change. As
discussed in more detail later in this
preamble, because the final rule refers
consistently to ‘‘the OCC’’ throughout,
the final rule does not include a
definition of the term ‘‘appropriate OCC
supervisory office.’’
101.3 Procedures. Section 101.3 of
the proposed rule set out streamlined
procedures and standards of review for
a Federal savings association’s election
to operate as a covered savings
association.
Section 101.3(a)(1) of the proposed
rule would have allowed a Federal
savings association that had total
consolidated assets of $20 billion or less
as of December 31, 2017, to make an
election to operate as a covered savings
association by submitting a notice to the
appropriate OCC supervisory office. The
OCC proposed to use the Consolidated
Reports of Condition and Income (Call
Reports) submitted for the quarter
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ending December 31, 2017, to determine
if a Federal savings association met this
threshold.
The proposal provided that
institutions that were not Federal
savings associations as of December 31,
2017, would not be eligible to make an
election to operate as covered savings
associations. Therefore, under the
proposed approach, an institution that
was a credit union, state savings
association, or state bank on December
31, 2017, but that later converted to a
Federal savings association charter,
would not be eligible to make an
election to operate as a covered savings
association. Similarly, a de novo Federal
savings association chartered after
December 31, 2017, would not be
eligible to make an election. The
proposal noted that a Federal savings
association in stock form could convert
directly to a national bank charter, but
for institutions in mutual form, a
national bank charter is not available
without first converting to stock form.
The OCC invited comment on whether
the option to elect to operate as a
covered savings association should be
limited to institutions that were Federal
savings associations on December 31,
2017.
One commenter supported the
proposed approach, but four
commenters expressed concern. Three
were concerned about limiting the
ability of state-chartered institutions
and credit unions to make elections
following a conversion to a Federal
savings association charter. Two urged
the OCC to allow state savings
associations, savings banks, or
cooperative banks that were in existence
prior to December 31, 2017, to make an
election following a conversion, and the
third urged the OCC to support
legislative efforts to eliminate the
eligibility date. Another commenter
argued that Congress did not intend to
exclude de novo savings associations
from eligibility.
The OCC is adopting § 101.3(a)(1) as
proposed, with one technical change to
ensure that the final rule consistently
refers to ‘‘the OCC’’ rather than to ‘‘the
appropriate OCC supervisory office.’’
Section 5A of HOLA provides that ‘‘a
Federal savings association’’ with total
consolidated assets of $20 billion or less
‘‘as reported by the association to the
Comptroller as of December 31, 2017,’’
may make an election to operate as a
covered savings association. Based on
this statutory language, the OCC
believes that section 5A precludes
institutions that were not Federal
savings associations as of December 31,
2017, from making an election.
Although commenters identified
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potentially undesirable policy
implications of this approach, no
commenter offered a legal argument that
would allow the OCC to disregard the
limits imposed by the statute.
The OCC notes that de novo
institutions, state savings associations,
and state savings banks that are not in
mutual form may apply for a national
bank charter if they are seeking a
Federal charter and want to exercise the
powers of a national bank. This option
would not be available to state savings
associations or state savings banks that
are in mutual form unless they first
convert to stock form.
The OCC also received comments on
other aspects of § 101.3(a)(1). One
commenter asked the OCC to clarify
whether institutions that are not eligible
to make an election can become eligible
by merging into an eligible Federal
savings association. Under section 5A of
HOLA and the final rule, an institution
that was a Federal savings association
with total consolidated assets of $20
billion or less as of December 31, 2017,
is eligible to make an election,
regardless of whether that institution
later grows in asset size as a result of a
merger with another institution or
otherwise. If an institution that is not
otherwise eligible to make an election
merges into a Federal savings
association that is eligible to make an
election, and the eligible Federal
savings association is the surviving
charter, then that Federal savings
association would not lose its eligibility
to operate as a covered savings
association because of the acquisition.
Another commenter requested the
OCC to clarify that a Federal savings
association that meets the asset
threshold as of December 31, 2017,
remains eligible to make an election or
reelection even if it subsequently grows
beyond the threshold. Neither section
5A of HOLA nor the final rule imposes
an expiration date on a Federal savings
association’s eligibility to make an
election, nor do they require that a
Federal savings association maintain
assets equal to or less than $20 billion
to retain its eligibility. This means that
a Federal savings association that was in
existence and met the asset threshold as
of December 31, 2017, may make an
election at any time after
implementation of the final rule. The
Federal savings association does not
lose its eligibility even if it has grown
beyond the $20 billion asset threshold at
the time of its election. The OCC does
not believe that it is necessary to
include language to this effect in the
rule. Instead, the OCC has added a
paragraph (c) to § 101.4 of the final rule
to highlight the express language of
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section 5A(g) of HOLA. Section 5A(g)
provides that a covered savings
association may continue to operate as
a covered savings association if, after
the date of the election, the covered
savings association has total
consolidated assets greater than $20
billion.
Section 101.3(a)(2) of the proposed
rule would have required that a Federal
savings association’s notice of an
election: Be signed by a duly authorized
officer of the Federal savings
association; identify each branch or
agency that the Federal savings
association will operate on the effective
date of the election that has not been the
subject of an application or notice under
12 CFR part 5; and identify and describe
each nonconforming subsidiary, asset,
or activity that the Federal savings
association operates, holds, or conducts
at the time it submits the notice, each
of which must be divested, conformed,
or discontinued pursuant to § 101.5. The
OCC received several comments
regarding the contents of the notice.
Four commenters requested that the
OCC make clear that no shareholder or
member vote would be required to make
an election, with several commenters
noting that boards of directors are
responsible for business plans. As
explained in the preamble of the
proposed rule, the statute does not
require that a Federal savings
association obtain shareholder or
member approval to make an election to
operate as a covered savings association.
For this reason, the OCC did not include
any requirements for a shareholder or
member vote in the proposed rule and
will not include any such requirement
in the final rule. Nevertheless, the
election to operate as a covered savings
association could have implications not
only for the electing association but also
for its savings and loan holding
company, shareholders, or members.
Therefore, each Federal savings
association that makes an election
should review its respective charter and
bylaws, as well as any other applicable
law, to determine whether an election to
operate as a covered savings association
will require shareholder or member
approval or additional changes to the
association’s charter and bylaws.
Two commenters asserted that the
requirement to provide information
relating to existing branches and
agencies under § 101.3(a)(2)(ii) is
unduly burdensome. One commenter
argued that the proposed regulatory text
could be read to require Federal savings
associations to submit information on a
significant number of branches and
agencies, not just newly established
ones. The commenter noted that many
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23993
branch applications or notices were
submitted prior to the integration of 12
CFR part 5. This commenter also noted
that applications or notices are generally
not required for a Federal savings
association to establish an agency. The
commenter believes such a requirement
would be unnecessary, would require
time and cost that do not serve a
compelling supervisory or regulatory
purpose, and would require a covered
savings association to disclose more
information than a Federal savings
association or national bank would be
required to disclose. This commenter
recommended that the OCC either
eliminate this requirement or further
clarify its scope. Another commenter
stated that the requirement to provide
information on existing branches and
agencies is unnecessary and
burdensome, noting that it may be
difficult to provide information on
branches that have been operational for
a number of years. This commenter
suggested that all branches that are open
or operational or that have received
regulatory approval or non-objection
should be presumed to be compliant
and documentation should not be
required. Neither commenter believes
that the OCC has clearly indicated why
it needs this information.
The final rule does not require
Federal savings associations to identify
branches or agencies in a notice of an
election. The OCC believes that it can
obtain sufficient information about the
branches and agencies of a prospective
covered savings association by
reviewing information the association
submits on its nonconforming
subsidiaries, assets, or activities.4 This
information will allow the OCC to
monitor covered savings associations for
compliance with the final rule without
imposing any additional burden that
could be associated with submitting
information identifying branches and
agencies. After an election, a covered
savings association seeking to establish
new branches will be subject to the
terms and conditions for the
establishment of branches applicable to
a similarly located national bank.5 A
covered savings association seeking to
establish new non-branch offices (e.g.,
loan or deposit production offices) will
also be subject to any terms and
conditions (including limitations) on
the operation of non-branch offices
4 This would include information identifying
activities conducted in an agency that would cause
the agency to be defined as a branch under national
bank law, as discussed later in this preamble.
5 See, e.g., 12 U.S.C. 36 and 12 CFR 5.30.
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applicable to a similarly located
national bank.6
Section 101.3(a)(2)(iii) of the
proposed rule would have required
Federal savings associations to identify
nonconforming subsidiaries, assets, and
activities because these are the
subsidiaries, assets, and activities the
Federal savings association would need
to divest, conform, or discontinue
pursuant to section 5A(f)(3) of HOLA
and § 101.5 of the rule after an election
takes effect. The OCC solicited feedback
on whether the final rule should specify
metrics for determining the size or
scope of a subsidiary, asset, or activity.
The OCC did not receive any comments
responding to this solicitation and is
adopting this provision (which is
designated as § 101.3(a)(2)(ii) in the
final rule) as proposed. The OCC did
receive comments on the proposed
treatment of nonconforming
subsidiaries, assets, and activities.
These comments are addressed in the
discussion of § 101.5 later in this
preamble.
Section 101.3(b) of the proposed rule
provided that a Federal savings
association’s election to operate as a
covered savings association would
automatically take effect 60 days after
the OCC receives a notice from the
Federal savings association, unless the
OCC notifies the Federal savings
association that it is not eligible in
accordance with paragraph (c). The
proposal also provided that the OCC
could notify a Federal savings
association that it is eligible to operate
as a covered savings association before
60 days have elapsed. The OCC did not
receive any comments on this provision
of the proposal. The OCC is adopting
§ 101.3(b) with one conforming change
to reflect the elimination of § 101.3(c) as
discussed later in this preamble.
Section 101.3(c) of the proposed rule
would have permitted the OCC to notify
a Federal savings association in writing
that it is not eligible to make an election
to operate as a covered savings
association if the Federal savings
association is not an ‘‘eligible savings
association’’ as that term is defined in
12 CFR 5.3(g). Under the definition in
12 CFR 5.3(g), an eligible savings
association is a Federal savings
association that (1) is well capitalized as
defined in 12 CFR 6.4; (2) has a
composite rating of 1 or 2 under the
Uniform Financial Institutions Rating
System (CAMELS); (3) has a Community
Reinvestment Act (CRA) rating of
‘‘outstanding’’ or ‘‘satisfactory,’’ if
applicable; (4) has a consumer
6 See, e.g., 12 CFR 7.1003, 7.1004, 7.1005, 7.4004
and 7.4005.
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compliance rating of 1 or 2 under the
Uniform Interagency Consumer
Compliance Rating System; and (5) is
not subject to a cease and desist order,
consent order, formal written
agreement, or Prompt Corrective Action
directive or, if subject to any such order,
agreement, or directive, is informed in
writing by the OCC that the savings
association may be treated as an
‘‘eligible savings association’’ for
purposes of 12 CFR part 5. Because the
purposes of 12 CFR part 5 and the
purposes of the proposed rule were
different, the proposed rule specified
that a Federal savings association that is
subject to a cease and desist order,
consent order, formal written
agreement, or Prompt Corrective Action
directive would not be eligible to elect
to operate as a covered savings
association unless the OCC informed it
in writing that it is eligible for purposes
of part 101 (that is, for purposes of the
proposed rule).
The preamble to the proposed rule
noted that the concept of an ‘‘eligible
savings association’’ as described in 12
CFR 5.3(g) is well understood and
relatively straightforward to apply. In
the licensing context, an ‘‘eligible
savings association’’ may receive
expedited review of filings because it is
generally the type of savings association
that can operate safely and soundly. The
preamble to the proposed rule explained
that a Federal savings association that
meets the definition of ‘‘eligible savings
association’’ typically would not raise
the types of concerns that would suggest
it should not operate as a covered
savings association.
The OCC invited comment on
whether there are standards other than
those in the definition of ‘‘eligible
savings association’’ in 12 CFR 5.3(g)
that would allow the OCC to determine,
without imposing undue burden,
whether a Federal savings association is
eligible to operate as covered savings
association. The OCC also invited
comment on whether there are
situations in which, or Federal savings
associations for which, it would not be
appropriate to use the definition of
‘‘eligible savings association’’ to make
determinations about the eligibility of a
Federal savings association to operate as
a covered savings association.
Additionally, the OCC invited comment
on whether the rule should identify
other factors for consideration when
determining a Federal savings
association’s eligibility to operate as a
covered savings association.
Although one commenter supported
the OCC’s proposed approach, four
commenters disagreed with the use of
the ‘‘eligible savings association’’
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criteria as the basis for eligibility, noting
that the criteria are not expressly
required by the statute. Some
commenters also contended that these
criteria would be inconsistent with the
purpose of section 5A because they
would add hurdles to making an
election. The commenters also
suggested that the OCC has the expertise
to supervise a covered savings
association following an election.
The OCC agrees with the commenters
who expressed concern with the
proposed approach and is eliminating
the ‘‘eligible savings association’’
criteria in the final rule. The OCC
believes that elimination of these
criteria is consistent with section 5A,
which directs the OCC to establish
‘‘streamlined standards and procedures
. . . for an election.’’ Removal of these
criteria will increase the number of
institutions that can elect to operate as
covered savings associations. The OCC
believes that it can use its existing
supervisory and enforcement
mechanisms, as appropriate, to address
any concerns that may arise when an
institution elects to operate as a covered
savings association, regardless of the
condition of the institution at the time
of an election. In light of this change,
the OCC is also changing the heading of
§ 101.3 from ‘‘Procedures and Standards
of Review’’ to ‘‘Procedures.’’
The OCC also received several
comments asking about the impact of a
failure to meet the ‘‘eligible savings
association’’ criteria on an ongoing basis
after an election. Because the final rule
eliminates these criteria, this is no
longer an issue.
Although the final rule, like the
proposed rule, does not require the OCC
to send written notice to a Federal
savings association that becomes a
covered savings association by
operation of law 60 days after an
election, the OCC would expect to send
such notice as a matter of course. The
notice would include a reminder that
covered savings associations are subject
to the same laws, regulations, and safety
and soundness expectations as a
similarly located national bank,
including any appropriate enforcement
action for failure to comply with
applicable laws and regulations.
101.4 Treatment of covered savings
associations. Section 5A(c) of HOLA
provides that a covered savings
association has the same rights and
privileges as a similarly located national
bank and is subject to the same duties,
restrictions, penalties, liabilities,
conditions, and limitations that would
apply to such a national bank. Section
5A(d) further provides that a covered
savings association will be treated as a
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Federal savings association for purposes
of the governance of the savings
association, as well as for purposes of
consolidation, mergers, dissolution,
conversion, conservatorship, and
receivership. A covered savings
association also will be treated as a
Federal savings association for any other
purposes the Comptroller identifies by
regulation.
Section 101.4(a)(1) of the proposed
rule offered two alternative ways of
explaining what it means for a covered
savings association to have the rights
and privileges of a similarly located
national bank while being subject to the
same duties, restrictions, penalties,
liabilities, conditions, and limitations as
a similarly located national bank. The
first alternative (option A) would have
required a covered savings association
to comply with the same provisions of
law that would apply to a similarly
located national bank and would not
have required the covered savings
association to comply with the
provisions of law that apply to Federal
savings associations, except in specific
areas. The second alternative (option B)
focused on the activities that would be
permissible for a covered savings
association. It was modeled on the
language used in the OCC’s regulations
on national bank and Federal savings
association operating subsidiaries set
out in 12 CFR 5.34(e) and 5.38(e). This
alternative would have provided that a
covered savings association may engage
in any activity that is permissible for a
national bank to engage in as part of, or
incidental to, the business of banking, or
explicitly authorized by statute for a
national bank, subject to the same
authorization, terms, and conditions
that would apply to a similarly located
national bank, as determined by the
OCC. Both options would have been
subject to specific categories of Federal
savings association law that would
apply to covered savings associations.
The OCC invited comment on which
of these alternatives would best clarify
the requirements for the treatment of
covered savings associations, including
the provisions of law that would apply
to covered savings associations. Five
commenters supported option A, which
they considered to be a broader and less
definitive approach that would permit
timely creativity and innovation by
covered savings associations. They also
noted that updating a list of applicable
laws by regulatory action can take time
and that guidance is of limited
reliability.
Two commenters supported option B,
while two others appeared to support
option B but were less definitive. One
commenter believed option B would
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provide greater flexibility for the OCC,
which the commenter argued would be
preferable even if it would be less
certain and would require more
consultation with the OCC. Two
commenters that supported option B
would also support option A if it
included a reservation of authority to
allow the OCC to determine that a
provision of national bank law does not
apply to covered savings associations.
The OCC is adopting option B to
clarify the requirements for the
treatment of covered savings
associations. This option provides
general guidance about the types of
activities in which a covered savings
association would be permitted to
engage. Covered savings associations
would be able to refer to OCC
publications to find activities that are
permissible for national banks and
understand the authorization, terms,
and conditions that apply to those
activities.7 Option B is more narrowly
tailored than option A, and it preserves
the OCC’s authority to determine that a
particular provision of national bank
law does not apply to covered savings
associations.
Section 101.4(a)(2) of the proposed
rule set out specified areas in which a
covered savings association would have
continued to be treated as a Federal
savings association. These included the
categories specifically identified in the
statute (governance of the covered
savings association (including
incorporation, bylaws, boards of
directors, shareholders, and distribution
of dividends), consolidation, merger,
dissolution, conversion (including
conversion to a stock bank or to another
charter), conservatorship, and
receivership). The proposed rule also
identified three additional areas in
which it would be appropriate to treat
covered savings associations as Federal
savings associations. These areas were:
(1) Provisions that allow Federal mutual
savings associations to conduct business
as mutual institutions; (2) provisions
that set out procedural and operational
requirements for Federal savings
associations but that do not result in
substantively different outcomes for
Federal savings associations and
national banks; and (3) areas where
there is a specific Federal savings
association rule with no corresponding
specific national bank rule, but the
Federal savings association rule sets out
7 Many of these documents and resources are
available on OCC.gov. These documents do not
constitute an exhaustive list of all activities
permissible for national banks. Further, institutions
are responsible for determining whether any
changes to applicable laws or regulations impact
the permissibility of an activity.
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requirements that are consistent with
supervisory expectations for national
banks or is substantially similar to an
interagency rule. In the preamble to the
proposed rule, the OCC provided
several charts to illustrate the types of
provisions that the OCC would expect to
identify in guidance as provisions of
law that apply to Federal savings
associations.
The OCC invited comment on
whether particular provisions should be
considered provisions of law that relate
to governance (including incorporation,
bylaws, boards of directors,
shareholders, and distribution of
dividends), consolidation, merger,
dissolution, conversion (including
conversion to a stock bank or to another
charter), conservatorship, and
receivership and whether there are other
provisions of law that the OCC should
identify. The OCC also invited comment
on whether these provisions should be
specifically identified in the rule rather
than in guidance. The OCC received a
number of comments on this section of
the proposed rule.
Five commenters requested
clarification that covered savings
associations would not be required to
change their name to include the word
‘‘National.’’ National banks are required
by statute to include the word
‘‘National’’ in their name.8 Although
section 5A of HOLA provides flexibility
for certain Federal savings associations
to engage in activities permissible for
national banks, these covered savings
associations are not national banks and,
as such, retain their Federal savings
association charter. Because covered
savings associations retain their Federal
savings association charters, covered
savings associations will not be required
to change their names to include the
word ‘‘National.’’
One commenter requested that the
OCC clarify that the rules governing
directors remain the same for Federal
savings associations that elect to operate
as covered savings associations, noting
in particular that electing directors is a
governance requirement. As discussed
in the preamble to the proposed rule,
section 5A of HOLA sets out specific
categories of Federal savings association
laws that will continue to apply to
covered savings associations, including
those governance provisions relating to
boards of directors (e.g., elections, term
of service). Accordingly, covered
savings associations will continue to be
required to comply with Federal savings
association laws with respect to boards
of directors and will not be subject to
national bank laws with respect to
8 12
U.S.C. 22; 12 U.S.C. 30.
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boards of directors. For example,
covered savings associations will not be
subject to the statutory citizenship and
residence requirements that apply to
directors of national banks.9
Another commenter agreed that
provisions of Federal savings
association law that relate to members
of a Federal mutual savings association
should continue to apply to mutual
covered savings associations. However,
the commenter was concerned that the
preamble’s justification for this
treatment could suggest that the rights
of members of a Federal mutual savings
association are the same as the rights of
shareholders of a Federal stock savings
association. The OCC does not intend to
use this rule to change the rights of
members of a Federal mutual savings
association or equate those rights to the
rights of shareholders of a Federal stock
savings association. Rather, the OCC
believes that the term ‘‘shareholder,’’ as
it is used in the specific context of
section 5A(d)(1) of HOLA and this rule,
indicates that provisions of Federal
savings association law that relate to
governance by the Federal savings
association’s stakeholders—including
shareholders and members—should
continue to apply to stock and mutual
covered savings associations,
respectively. This includes provisions of
Federal savings association law that
describe the rights of members of
Federal mutual savings associations.
This interpretation of the term
‘‘shareholder’’ is specific to section 5A
of HOLA and is not intended to be
applied outside that context. To clarify
this interpretation, the OCC is adding
‘‘members’’ to the list of types of Federal
savings association governance
provisions that apply to covered savings
associations in § 101.4(a)(2)(i).
One commenter supported two of the
categories of Federal savings association
law that the OCC proposed to apply to
covered savings associations: (1)
Operational and procedural
requirements that do not create
substantively different outcomes; and
(2) certain requirements for which there
is no corresponding national bank
requirement. Another commenter
supported the proposal’s application of
laws with particular relevance for
Federal mutual savings associations,
such as those regarding mutual capital
certificates. These provisions of the
proposed rule remain unchanged in the
final rule. The OCC has updated
§ 101.4(a)(2)(xiii) of the final rule to
9 12 U.S.C. 72. The same principle would apply
to other requirements specific to the directors of
national banks. See, e.g., 12 U.S.C. 71 (election of
directors); 12 U.S.C. 76 (president as member of the
board).
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expressly include the accounting and
disclosure standards in 12 CFR part 162.
Another commenter suggested that
the OCC should preserve the differences
between national banks and Federal
savings associations unless section 5A
expressly provides otherwise. The OCC
does not believe this approach is
consistent with the language of section
5A of HOLA, which provides that
covered savings associations have the
same rights and privileges and are
subject to the same duties, restrictions,
penalties, liabilities, conditions, and
limitations as national banks except
where section 5A or the OCC’s rules
specifically provide otherwise.
Three commenters requested that the
OCC clarify that the preemption
standards for national banks and
Federal savings associations are the
same and would not change following
an election. Another commenter
requested that the OCC permit covered
savings associations to rely on
whichever law most supports the OCC’s
preemptive authority, expressing
concern that covered savings
associations would not benefit from any
preemption determinations applicable
only to Federal savings associations.
The commenter also argued that Federal
savings associations benefit from more
expansive preemption of state law
through established case law and
authority reserved to the OCC, even
following the changes to preemption
made in the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(Dodd-Frank Act).
The OCC agrees with commenters
who stated that the preemption
standards applicable to national banks
and Federal savings associations are the
same. Section 1046 of the Dodd-Frank
Act added a new section 6 to HOLA (12
U.S.C. 1465), which provides that
Federal savings associations are subject
to the same laws and legal standards as
national banks regarding the preemption
of state law. This amendment is codified
in the OCC’s regulations at 12 CFR
7.4010 and 34.6.
Two commenters recommended that
the OCC include a mechanism that
would allow the agency to identify
additional provisions of Federal savings
association law applicable to covered
savings associations. One of these
commenters believes that this approach
would provide the OCC with flexibility
to tailor the applicable regulations and
that publishing interpretive letters or
updating relevant publications, with
accompanying public notice, would
provide sufficient clarity. Although the
OCC agrees that this approach would
provide additional flexibility, section
5A(d) of HOLA requires that the
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additional purposes for which a covered
savings association is treated as a
Federal savings association be
‘‘determined by regulation of the
Comptroller.’’ If the OCC identifies
additional categories of Federal savings
association law that should be
applicable to covered savings
associations, the OCC will initiate a
rulemaking to amend part 101.
Several commenters requested that
the OCC clarify that covered savings
associations will not be subject to
Federal savings association regulations
on interest rate risk management
procedures and asset classification, with
two commenters asserting that these
regulations do not fall within the
governance category. In the preamble to
the proposed rule, the OCC
characterized the interest rate risk
management provisions in 12 CFR
163.176 as governance provisions that
apply to boards of directors because the
provisions set out board responsibilities
with respect to interest rate risk
management. On further consideration,
the OCC agrees that 12 CFR 163.176
should not be classified as a governance
provision for purposes of section 5A of
HOLA.10 Although 12 CFR 163.176 sets
out requirements for the board of
directors and management, it is more
appropriately viewed as a duty that
applies to a Federal savings
association’s activities. The interest rate
risk management provisions reflect the
unique risk profile of Federal savings
associations, which historically often
held balance sheet concentrations in
longer-term assets. Because of these
concentrations, Federal savings
associations had to more closely
monitor sensitivity to market risk. A
covered savings association may be able
to diversify its portfolio and therefore its
interest rate risk exposure. The riskbased examination approach taken by
the OCC includes supervision for
interest rate risk. Further, all insured
OCC-supervised institutions, including
covered savings associations, other
Federal savings associations, and
national banks, continue to be subject to
the operational and managerial
standards under 12 CFR part 30,
Appendix A, which specifically include
standards for managing interest rate risk
exposure. This approach will give the
OCC the flexibility to tailor its
supervision of a covered savings
10 This determination relates to the OCC’s
interpretation of the language of section 5A of
HOLA and is not intended to change the meaning
of the term ‘‘governance’’ for other purposes. For
example, OCC examiners will continue to supervise
Federal savings associations as set out in
Comptroller’s Handbook: Corporate and Risk
Governance, Version 1.0, July 2016 at 77.
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association to risks associated with the
business model of that covered savings
association.
The proposed rule did not specifically
address asset classification regulations.
The final rule does not subject covered
savings associations to the asset
classification regulations applicable
solely to Federal savings associations,
such as 12 CFR 160.160, as these
regulations do not fall within the
categories of Federal savings association
laws that the final rule makes applicable
to covered savings associations (e.g., it
is not a governance provision or a
merger provision, nor is it specifically
designated in the final rule as a
provision of Federal savings association
law that applies to covered savings
associations). In addition, covered
savings associations and OCC examiners
can use the standards under 12 CFR part
30, appendix A, and the real estate
lending standards under 12 CFR part 34
applicable to national banks to identify,
classify, and otherwise address problem
assets as needed, consistent with safety
and soundness.
One commenter recommended that a
November 1, 2000, Office of Thrift
Supervision memorandum with
supervisory and examiner guidance be
supplemented and not superseded by
national bank examination guidance.
The OCC rescinded CEO Memo 153,
‘‘Examinations of Mutual Savings
Associations’’ in 2012.11
Six commenters requested
clarification on how covered savings
associations would be treated for
purposes of the QTL requirements in
HOLA and requested that the OCC’s
final rule expressly state that covered
savings associations are not required to
comply with QTL. One commenter
added that compliance with QTL should
not be required absent a safety and
soundness concern.
As discussed in the preamble to the
proposed rule, unlike national banks,
Federal savings associations 12 are
required to comply with the QTL test set
forth in section 10(m) of HOLA, which
requires a Federal savings association to
qualify as a domestic building and loan
11 See OCC Bulletin 2012–15, OTS Integration:
Rescission of OTS Documents, Attachment A,
available at https://www.occ.gov/news-issuances/
bulletins/2012/2012-15a.pdf. See also OCC Bulletin
2014–35, Mutual Federal Savings Associations:
Characteristics and Supervisory Considerations,
July 22, 2014, available at https://www.occ.gov/
news-issuances/bulletins/2014/bulletin-201435.html.
12 The OCC acknowledges that some provisions of
section 10(m) of HOLA apply to savings
associations and other provisions apply to savings
and loan holding companies. The discussion in this
preamble focuses on the provisions of section 10(m)
that apply to savings associations.
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association as defined in 26 U.S.C.
7701(a)(19) or to maintain a certain
percentage of qualified thrift
investments in the Federal savings
association’s portfolio.13 The preamble
described the QTL test as a key
difference between the rights and
privileges of a savings association and a
national bank. The OCC continues to
believe that a covered savings
association will not be able to exercise
the rights and privileges conferred on it
under section 5A while simultaneously
being subject to the limitations of the
QTL test.14
Section 101.4(a) of the final rule
provides that a covered savings
association may engage in any activity
that is permissible for a similarly
located national bank to engage in,
subject to the same authorization, terms,
and conditions that would apply to a
similarly located national bank. Lending
and investment are activities that
national banks are permitted to engage
in as part of the business of banking.15
When making loans and investments,
covered savings associations are subject
to the same authorization, terms, and
conditions that would apply to similarly
located national banks. There are no
authorizations, terms, or conditions that
require national banks to maintain
status as qualified thrift lenders.
Furthermore, unlike governance,
conservatorship, and receivership,
lending and investment are not
purposes for which section 5A(d) of
HOLA or the final rule require that a
covered savings association be treated as
a Federal savings association.
Accordingly, a covered savings
association operating under section 5A
is not subject to, among other things, the
penalties in 12 U.S.C. 1467a(m)(3) for
failing to meet the QTL test. The OCC
believes this is consistent with both the
language of § 101.4(a) of the final rule
and the statutory mandate that covered
savings associations exercise the rights
and privileges of similarly located
national banks. Requiring compliance
with the QTL test would be inconsistent
with and frustrate the purpose of
allowing Federal savings associations to
make an election. The OCC does not
believe it is necessary to state explicitly
in the final rule that the QTL test does
13 12
U.S.C. 1467a(m).
discussed later in this preamble, a similar
analysis applies to the lending limitations imposed
on Federal savings associations by section 5(c) of
HOLA. Section 5(c) permits Federal savings
associations to make residential real property and
other housing related loans without limit, but
consumer and commercial loans are subject to
specific limitations established in the statute.
15 12 U.S.C. 24 (Seventh); see also 12 U.S.C. 371.
14 As
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23997
not apply to a covered savings
association.
The OCC applies a similar analysis to
section 5(c) of HOLA. Section 5(c) sets
out lending and investment restrictions
that apply to Federal savings
associations. These authorizations,
terms, and conditions do not apply to
the activities of national banks.
Consequently, they do not apply to
covered savings associations.
The OCC also applies a similar
analysis to public welfare and
community development investments.
One commenter argued that covered
savings associations should be treated as
Federal savings associations for
purposes of public welfare and
community development investments.
Four commenters also suggested that the
OCC consider grandfathering public
welfare or community development
projects existing at the time of an
election. National banks are permitted
to make public welfare investments,
subject to specific authorization, terms,
and conditions (namely, limits on the
total amount of such investments).
Covered savings associations also will
be permitted to make public welfare
investments, subject to the same
authorization, terms, and conditions
(including the limits on the total
amount of such investments) as a
national bank. Any public welfare or
community development projects
existing at the time of an election that
would not comply with the
authorizations, terms, and conditions
applicable to a national bank will be
subject to § 101.5 of this final rule,
which the OCC believes provides
adequate time and flexibility for
divestiture or conformance.
In the preamble to the proposed rule,
the OCC applied a similar analysis to
the affiliate transaction restrictions in
section 11(a) of HOLA. While two
commenters agreed that covered savings
associations should not be subject to the
affiliate transaction rules specific to
Federal savings associations, they
requested that the OCC clarify this in
the final rule. Affiliate transaction
restrictions for savings associations are
set out in section 11(a) of HOLA and 12
CFR 223.72. These provisions present
potential complications that the QTL
restrictions, community development
restrictions, and lending and investment
restrictions do not. The OCC will
continue to consult with the FRB on
interpretive issues regarding the
application of these provisions to
covered savings associations. The OCC
recommends that individuals or
institutions with specific questions
about the application of these
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provisions to covered savings
associations contact the FRB.
Several commenters requested that
the OCC clarify in the final rule which
merger provisions would apply when a
covered savings association merges with
another entity. One commenter asserted
that the proposed rule could limit a
covered savings association’s ability to
engage in certain interstate merger
transactions if covered savings
associations are treated as national
banks for purposes of interstate merger
laws. The commenter asked the OCC to
confirm that covered savings
associations are subject only to the
merger provisions that apply to Federal
savings associations and not to
interstate or other provisions applicable
to national banks. Several commenters
noted that the proposal does not clarify
how applicable branching laws and
merger requirements will work together.
National banks and Federal savings
associations are subject to different laws
regarding business combinations.16 For
instance, national banks are subject to a
specific statutory framework that sets
out the authorization, terms, and
conditions for merger and consolidation
activities.17 There are fewer statutory
requirements for the merger and
consolidation activities of Federal
savings associations.18 The OCC has
detailed regulations to address the
authority of national banks and Federal
savings associations to engage in
mergers and consolidations, including
procedural requirements. Where
consistent with underlying statutory
authorities, the OCC has harmonized the
regulations for business combination
activities of national banks and Federal
savings associations, respectively,
although some differences remain.19
The regulations for business
combination activities involving
national banks and Federal savings
associations are set forth in 12 CFR 5.33.
Section 5A of HOLA provides that a
covered savings association shall be
treated as a Federal savings association
for purposes of consolidation and
merger.20 In the preamble to the
16 The term ‘‘business combination’’ includes
mergers and consolidations. See 12 CFR 5.33(d)(2).
17 See, e.g., 12 U.S.C. 214a, 214b, 215, 215a,
215a–1, 215a–3, 215b, 215c, 1828(c), and 1831u.
Some of these provisions also apply to savings
associations (e.g., 12 U.S.C. 1828(c)).
18 See, e.g., 12 U.S.C. 1467a(s).
19 Integration of National Banks and Federal
Savings Association Regulations: Licensing Rules,
80 FR 28346, 28368 (May 18, 2015).
20 12 U.S.C. 1464a(d)(2). Furthermore, by
including a specific provision allowing branches in
operation on the date an election is approved to
continue to operate after an election, section 5A(e)
suggests that, after an election, national bank
branching requirements should apply.
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proposed rule, the OCC explained that
where the business combination
provisions in 12 CFR 5.33 set out
different requirements for Federal
savings associations and national banks,
the Federal savings association
requirements would apply to a covered
savings association.
However, the OCC understands that
merger provisions and branching
provisions can intersect in certain
situations, such as the interstate branch
acquisition provisions covered by 12
U.S.C. 1831u. This can lead to
additional complications because, under
the final rule, covered savings
associations may engage in any activity
that is permissible for a similarly
located national bank to engage in as
part of, or incidental to, the business of
banking, or explicitly authorized by
statute for a national bank, subject to the
same authorization, terms, and
conditions that would apply to a
similarly located national bank.21
Branching is such an activity. As a
result, under the final rule, a covered
savings association will be permitted to
establish or retain new branches, or to
close branches, subject to the
authorization, terms, and conditions
that apply to a similarly located national
bank. This is true whether or not the
branch is retained or closed as part of
a merger. The OCC has concluded that,
for purposes of section 5A of HOLA and
the final rule, the provisions of law
relating to retention of branches in
mergers and those that establish
interstate branching restrictions in the
merger context should be considered
branching requirements rather than
merger requirements. For a covered
savings association, this means that
while the authority to engage in a
proposed merger or consolidation
transaction will be governed under the
laws applicable to Federal savings
associations, the ability to establish or
retain branches will be subject to the
same authorization, terms, and
conditions that would apply to a
similarly located national bank
(including conditions on the
establishment of interstate branches).
21 Section 5A(c)(2) provides that covered savings
associations are subject to the duties, restrictions,
penalties, liabilities, conditions, and limitations
that would apply to a similarly located national
bank, except as provided in section 5A(d). Section
5A(d) does not include branching as a purpose for
which a covered savings association will be treated
as Federal savings association. Furthermore, by
including a specific provision allowing branches in
operation on the date an election is approved to
continue to operate after an election, section 5A(e)
suggests that, after an election, national bank
branching requirements should apply. If covered
savings associations were permitted to operate
branches that national banks are not, section 5A(e)
would be surplusage.
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Any other interpretation could permit
covered savings associations to acquire,
through a merger, new branches under
terms or conditions that would not be
permissible for a similarly located
national bank to acquire. Allowing
covered savings associations to engage
in branching activities under terms or
conditions that are not available for
similarly located national banks would
be counter to the language of section 5A
of HOLA.
Several commenters requested that
the OCC clarify in the final rule that
trust-only covered savings associations
would not be required to maintain
deposit insurance where similarly
located trust-only national banks would
not be subject to this requirement. The
proposed rule did not explicitly address
whether a trust-only covered savings
association must have deposit
insurance, although it did provide that
a covered savings association would be
required to comply with 12 CFR 5.20,
which requires deposit insurance as a
condition of obtaining a Federal savings
association charter. The commenters
argued that the requirement to have
deposit insurance is a ‘‘condition,’’
‘‘limitation,’’ and ‘‘restriction’’ on a
‘‘right’’ or ‘‘privilege’’ and, therefore,
should not apply to trust-only covered
savings associations. One commenter
noted that this disparity in the treatment
of non-depository Federal savings
associations and national banks should
be eliminated absent a safety and
soundness concern. One commenter
argued that deposit insurance is a
restriction, condition, and limitation
similar to the QTL requirements, which
the proposal makes inapplicable. The
commenter believes that providing
parity on deposit insurance
requirements would advance the goal of
uniform treatment. The commenter also
believes that the OCC’s authority to
determine the laws applicable to
covered savings associations is limited
by the requirement that trust-only
covered savings associations be treated
the same as comparable national banks.
Two commenters noted that the
proposal lists 12 CFR 5.20 as a
governance provision but argued that 12
CFR 5.20(e)(3), which addresses deposit
insurance, is not properly viewed as a
governance provision. These
commenters requested that the OCC
clarify that 12 CFR 5.20(e)(3) is not a
governance provision and does not
apply to trust-only covered savings
associations. One commenter made
several arguments in support of this
view: (1) Governance provisions are the
standards that govern incorporation and
the relationship between a Federal
savings association and its shareholders,
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members, and management, not the
laws implicating substantive areas of
banking or savings association powers,
authorities, and activities; (2) unlike
deposit insurance, the other governance
provisions identified in the proposal are
analogous to state corporate governance
laws; (3) unlike other identified
governance provisions, deposit
insurance is not included in the OCC’s
model charter or bylaws; (4) deposit
insurance is not analogous to the other
examples of governance provisions
identified in the statute or the proposal;
and (5) it would be simpler for a trustonly covered savings association to drop
its deposit insurance than to comply
with new governance requirements.
One commenter articulated the
burdens associated with being required
to maintain deposit insurance as a trustonly entity, including (1) the
requirement to have a minimum of
$500,000 in insured deposits to retain
deposit insurance; (2) the requirement
to have 99% of deposits be trust funds
to qualify for the trust-only savings and
loan holding company exclusion; 22 (3)
and the costs associated with seeking
trust-only carve outs from laws that
apply to ‘‘insured depository
institutions.’’ 23 One commenter
addressed the OCC’s enforcement,
receivership, and conservatorship
authority over an uninsured trust-only
covered savings association, arguing
that section 5A provides the OCC with
the full array of such authority. The
commenter argued that the OCC’s
enforcement authorities in section 8 of
the Federal Deposit Insurance Act
(FDIA) are clearly ‘‘restrictions,
penalties, liabilities, conditions, and
limitations’’ and, therefore, should
apply to uninsured covered savings
associations in the same way as they
apply to uninsured national banks. The
commenter also recommended that the
OCC rely on its authority to issue rules
that clarify the provisions of law
applicable to covered savings
associations and in the interest of safety
and soundness to provide that
uninsured covered savings associations
would be subject to section 8. The
commenter argued that the OCC’s
authority to issue rules ‘‘in the interest
of safety and soundness’’ provide the
agency with sufficient authority to issue
regulations for appointing conservators
and receivers of uninsured covered
22 The commenter noted that the FRB permitted
the company to exclude the $500,000 deposit from
its 99% calculation in the course of approving the
commenter’s application to deregister as a savings
and loan holding company.
23 The commenter believes that this phrase is
often used as a proxy to indicate that an institution
is engaged in all commercial banking activities.
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savings associations. The commenter
cited the OCC’s rule for receiverships of
uninsured national banks as a model.
For the reasons that follow, the OCC
concludes that HOLA requires all
savings associations, whether they elect
to operate as covered savings
associations or not, to have deposit
insurance. The OCC bases this
determination on the language of HOLA
rather than a determination that 12 CFR
5.20(e)(3) is a governance provision.
Under the HOLA definition of ‘‘savings
association,’’ all Federal savings
associations, including those that
engage only in trust activities and those
that elect to operate as covered savings
associations, are required to have
deposit insurance.24 Under section 5A
of HOLA and §§ 101.2(a)(2) and
101.3(a)(1) of the final rule, only Federal
savings associations are eligible to elect
to operate as covered savings
associations. An election to operate as a
covered savings association does not
change a Federal savings association’s
charter, its status as a savings
association, or its stock or mutual form.
Because only Federal savings
associations can elect to operate as
covered savings associations, and
because all Federal savings associations
are required to have deposit insurance,
a Federal savings association must have
deposit insurance in order to elect to
operate as a covered savings association.
The OCC does not believe that the
‘‘rights and privileges’’ or ‘‘duties,
restrictions, penalties, liabilities,
conditions, and limitations’’ language in
section 5A is sufficient to overcome the
requirement that a covered savings
association be a Federal savings
association. Therefore, because a trustonly covered savings association still
retains its Federal savings association
form and charter, HOLA’s definitional
deposit insurance requirement
continues to apply after an election and
a trust-only covered savings association
must continue to maintain deposit
insurance.
The language of section 5A of HOLA
supports the conclusion that covered
savings associations must continue to
24 Section 2(2) of HOLA (12 U.S.C. 1462(2))
defines a ‘‘savings association’’ as ‘‘a savings
association, as defined in section 3 of the Federal
Deposit Insurance Act [12 U.S.C. 1813], the deposits
of which are insured by the Corporation.’’
Furthermore, section 5(d) of HOLA, which gives the
OCC enforcement authority over Federal savings
associations, defines ‘‘savings association’’ for
purposes of that subsection as ‘‘any savings
association or former savings association that
retains deposits insured by the Corporation,
notwithstanding termination of its status as an
institution insured by the Corporation.’’ Because
Federal savings associations are a type of savings
association, these requirements also apply to
Federal savings associations.
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23999
maintain deposit insurance after making
an election. Section 5A states that a
covered savings association shall be
treated as a Federal savings association
for purposes of ‘‘conservatorship’’ and
‘‘receivership.’’ 25 The existing
conservatorship and receivership
framework for Federal savings
associations (including trust-only
institutions) only covers insured Federal
savings associations, and HOLA
contemplates ‘‘only the Federal Deposit
Insurance Corporation as receiver for a
savings association for the purpose of
liquidation or winding up the affairs of
such savings association.’’ 26 Moreover,
the plain language of section 5A
prevents the OCC from applying the
national bank conservatorship and
receivership rules (including those that
cover uninsured trust-only national
banks) to covered savings associations.
For these reasons, the final rule does not
include a new receivership and
conservatorship framework for trustonly covered savings associations.
Six commenters requested that the
OCC allow covered savings associations
to continue to engage in any activities
and retain any investments
grandfathered under section 5(i)(4) of
HOLA. That provision of HOLA (1)
allows any Federal savings bank
chartered as such prior to October 15,
1982, to continue to make any
investment or engage in any activity not
otherwise authorized under section 5 of
HOLA, to the degree it was permitted to
do so as a Federal savings bank prior to
October 15, 1982; and (2) allows any
Federal savings bank in existence on
August 9, 1989, and formerly organized
as a mutual savings bank under State
law to continue to make any investment
or engage in any activity not otherwise
authorized under section 5 of HOLA, to
the degree it was authorized to do so as
a mutual savings bank under State law.
Four commenters stated that eliminating
this authority would disproportionately
impact institutions with grandfathered
equity powers, with three adding that
forcing divestiture may have
unintended consequences. One
commenter requested that the OCC
consider a more flexible approach by
reviewing long-term investment
portfolios on a case-by-case basis. The
commenter noted that these activities
were reaffirmed as safe and sound in
1991 in section 24 of the FDIA and that
many associations use the authority for
long-term investing, not active trading.
One commenter asserted that there is no
indication that Congress intended to
repeal section 5(i)(4) and that OCC
25 12
26 12
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U.S.C. 1464a(d)(2).
U.S.C. 1464(d)(2)(E)(ii).
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should not interpret section 5A to
eliminate this authority.
The OCC agrees that a Federal savings
association engaged in activities or
retaining investments grandfathered
under section 5(i)(4) of HOLA should
continue to be permitted to engage in
those activities and retain those
investments if the association elects to
be treated as a covered savings
association. The volume of these
activities and the amount of these
investments are capped by the language
of section 5(i)(4) of HOLA, and those
limits would continue to apply after an
election. The OCC has, on at least one
prior occasion, permitted a state bank
with activities and investments
permitted by the state to continue to
engage in those activities and retain
those investments after converting to a
national bank. Section 101.4(a)(2) of the
final rule provides that covered savings
associations can continue to engage in
the specific, limited types of
grandfathered nonconforming activities
and investments permitted under
section 5(i)(4) of HOLA.
Several commenters argued that
covered savings associations should not
be precluded from operating or
investing in service corporations that
engage only in activities permissible for
national banks. One commenter argued
that allowing covered savings
associations to operate new and existing
service corporations that engage only in
national bank permissible activities is
critical to achieving the full exercise of
the election. Another commenter argued
that if a service corporation’s activities
are permissible for both FSAs and
national banks, CSAs should not be
required to re-characterize the
investment to rely on national bank
authority or to change documentation to
reflect that authority. The commenter
believes that this would be inconsistent
with a streamlined process and would
result in material burden. A third
commenter recommends that the OCC
not require a change in legal form for
any subsidiary, asset, or activity that is
permissible for a national bank, unless
the OCC can demonstrate that a material
adverse financial effect would be
imminent following the election.
Other commenters asked whether a
service corporation would automatically
become an operating subsidiary or
whether this would be an unnecessary
governance change. One commenter
believes that service corporations
should be allowed to continue their
operations following an election.
Under the final rule, covered savings
associations are not permitted to retain
nonconforming subsidiaries, assets, or
activities. A nonconforming subsidiary,
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asset, or activity includes an investment
in a subsidiary or other entity that is not
permissible for a covered savings
association. Federal savings associations
have authority to invest in service
corporations under section 5 of
HOLA.27 National banks do not have
express statutory authority to invest in
service corporations. Consequently, a
covered savings association may not
retain an existing service corporation or
establish and invest in a new service
corporation.
A Federal savings association that
elects to operate as a covered savings
association would be required to
comply with § 101.5 of the final rule by
divesting or conforming any investment
in a service corporation within the
timeframe set out in § 101.5. The
covered savings association could do so
simply by divesting any investment in
a service corporation. The covered
savings association could also choose to
conform the investment by
redesignating the service corporation as
an operating subsidiary, because
national banks are permitted to have
operating subsidiaries.
An operating subsidiary of a covered
savings association is only permitted to
engage in the activities permissible for
the covered savings association to
engage in directly (i.e., those
permissible for a national bank). A
covered savings association that chooses
to redesignate a service corporation as
an operating subsidiary must ensure
that the operating subsidiary is only
engaged in such permissible activities—
in other words, it must discontinue any
nonconforming activities.
The OCC did not receive comment on
§ 101.4(b) of the proposed rule, which
would have implemented section 5A(e)
of HOLA by providing that a covered
savings association may continue to
operate any branch or agency that the
covered savings association operated on
the effective date of the election. The
OCC adopts this provision of the
proposed rule without change.
As discussed in the preamble to the
proposed rule, a covered savings
association seeking to establish a de
novo branch or to relocate or close an
existing branch would be subject to the
authorization, terms, and conditions
that govern the establishment or closing
of a national bank branch. Furthermore,
if a branch of a covered savings
association engages in activities that are
included in the definition of a branch
under the national bank branching
regulation, 12 CFR 5.30, that branch
may continue to operate subject to the
same authorization, terms, and
27 12
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U.S.C. 1464(c)(4)(B).
Frm 00010
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conditions as a similarly located branch
of a similarly located national bank. If
an agency of a covered savings
association engages in activities that
would qualify the agency as a branch
under the national bank branching
regulation, 12 CFR 5.30, those activities
would be considered nonconforming
activities, and the covered savings
association would be required to
discontinue or conform the activities or
submit an application and obtain OCC
approval under 12 CFR 5.30 to establish
the agency as a branch.28 If a covered
savings association wishes to establish a
new branch, it would be required to do
so under the rules for national bank
branches in 12 CFR 5.30. The OCC
believes this approach best allows
covered savings associations to continue
to operate the branches and agencies
they operated on the date on which an
election was approved but subject to the
same authorization, terms, and
conditions that would apply to a
similarly located national bank.
As noted earlier in this preamble, the
final rule adds a new § 101.4(c) to reflect
the language of section 5A(g) of HOLA.
The proposed rule provided that the
Federal savings associations regulations
applicable to the issuance of
subordinated debt and mandatorily
redeemable preferred stock for inclusion
in tier 2 capital would apply to covered
savings associations. Title 12 CFR
5.56(a) provides that Federal savings
associations must comply with the
requirements of 12 CFR 163.80
(Borrowing limitations) when issuing
subordinated debt or mandatorily
redeemable preferred stock that is not
included in tier 2 capital. The OCC has
revised the final rule to clarify that
§ 163.80 applies to covered savings
associations when the covered savings
association’s issuance of subordinated
debt or mandatorily redeemable
preferred stock is not included in tier 2
capital.
For the convenience of readers, the
following chart summarizes the
provisions of law discussed in this
preamble and the preamble to the
proposed rule and their applicability to
covered savings associations. It includes
provisions in the categories specifically
listed in the statute (governance
(including incorporation, bylaws,
boards of directors, shareholders and
members, and distribution of
dividends), consolidation, merger,
dissolution, conversion (including
conversion to a stock bank or to another
28 There is overlap between the activities that a
Federal savings association may undertake in an
agency and the activities that a national bank may
undertake in an entity that is not a branch. See 12
CFR 5.30, 5.31, and part 7.
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charter), conservatorship, and
receivership). It also includes: (1)
Provisions that allow Federal mutual
savings associations to conduct business
as mutual institutions; (2) provisions
that set out procedural and operational
requirements for Federal savings
associations but that do not result in
substantively different outcomes for
Federal savings associations and
national banks; and (3) areas where
there is a specific Federal savings
association rule with no corresponding
specific national bank rule, but the
Federal savings association rule sets out
requirements that are consistent with
supervisory expectations for national
banks or is substantially similar to an
interagency rule. This chart is not an
exhaustive list of the statutes and
regulations that apply to covered
savings associations. In addition, the
provisions of law included in the chart
may change, whether as a result of
amendments to a statute or future OCC
rulemaking. For example, if the OCC
later issues a rule integrating the
national bank and Federal savings
association rules for adjudicative
procedures, the references in this chart
to parts 19, 108, and 109 may no longer
be accurate.
Applicability to
covered savings
associations
Provision of law
Selected Statutory Provisions Applicable to National Banks
12 U.S.C. 24 (Eleventh) and 12 CFR part 24. These sections permit national banks to make public welfare investments,
subject to certain limitations.
12 U.S.C. 22 and 30. These sections require national banks to have the word ‘‘National’’ in their names ..........................
12 U.S.C. 71. This section sets out standards for the election of directors of national banks ..............................................
12 U.S.C. 72. This section sets out citizenship and residency requirements for directors of national banks .......................
12 U.S.C. 76. This section requires the president of a national bank to be a member of the board of directors of the national bank.
Applies.
Does
Does
Does
Does
not
not
not
not
apply.
apply.
apply.
apply.
Selected Statutory Provisions Applicable to Federal Savings Associations
12 U.S.C. 1462(2). This paragraph defines a ‘‘savings association.’’ The OCC interprets this definition to require deposit
insurance.
12 U.S.C. 1464(c). This subsection establishes limitations on the lending and investment authority of Federal savings
associations, including the authority to make community development investments.
12 U.S.C. 1464(d) and 1821(c). These statutes set forth the authorities for the appointment of a conservator or receiver
for Federal savings associations.
12 U.S.C. 1464(i)(4) and 12 CFR part 143. These provide: (1) That Federal savings banks chartered prior to October
15, 1982, may continue to make any investment or engage in any activity not otherwise authorized under section 5 of
HOLA to the degree they were permitted to do so as a Federal savings bank prior to October 15, 1982; and (2) that
any Federal savings bank in existence on August 9, 1989, and formerly organized as a mutual savings bank under
State law to continue to make any investment or engage in any activity not otherwise authorized under section 5 of
HOLA, to the degree it was authorized to do so as a mutual savings bank under State law.
12 U.S.C. 1467a(m). This subsection sets out the qualified thrift lender test ........................................................................
Applies.
Does not apply.
Applies.
Applies.
Does not apply.
Selected Governance Regulations Applicable to Federal Savings Associations
12 CFR 5.21. This section sets out the requirements for Federal mutual savings associations when adopting or amending the charters or bylaws.
12 CFR 5.22. This section sets out the requirements for Federal stock savings associations when adopting or amending
the charters or bylaws.
12 CFR 145.121. This section requires Federal savings associations to indemnify directors, officers, and employees ......
12 CFR 160.130. This section prohibits directors and officers from receiving loan procurement fees .................................
12 CFR 163.33. This section sets out requirements for the composition of the board of directors of a Federal savings
association.
12 CFR 163.47. This section sets out requirements for employee pension plans of Federal savings associations, which
may be amended or terminated by the board of directors.
12 CFR 163.172(c), (d), and (e). These provisions establish requirements for directors and management of Federal savings associations to oversee and keep records pertaining to derivatives transactions.
12 CFR 163.200. This section sets expectations for the directors, officers, and employees of Federal savings associations, particularly as it relates to conflicts of interest.
12 CFR 163.201. This section sets expectations for the directors and officers of Federal savings associations, particularly as it relates to corporate opportunity.
Applies.
Applies.
Applies.
Applies.
Applies.
Applies.
Applies.
Applies.
Applies.
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Selected Merger, Consolidation, Conversation, Reorganization, and Subsidiary Regulations Applicable to Federal Savings Associations
12 CFR 5.25. This section sets out requirements for conversion from a national bank or Federal savings association to a
state bank or state savings association. Although many aspects of this section are identical for national banks and
Federal savings associations, where there are differences, the Federal savings association requirements would apply
to a covered savings association.
12 CFR 5.33. This section sets out requirements for business combinations involving a national bank or Federal savings
association, including mergers. Although many aspects of this section are identical for national banks and Federal
savings associations, where there are differences, the Federal savings association requirements would apply to a covered savings association.
12 CFR 5.34, 5.35, and 5.39. These sections set out requirements for the formation of operating subsidiaries, bank
service companies, and financial subsidiaries, respectively, by national banks.
12 CFR 5.36. This section addresses other equity investments by national banks ...............................................................
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Applies.
Applies.
Applies.
Applies.
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Applicability to
covered savings
associations
Provision of law
12 CFR 5.48. This section sets out requirements for voluntary liquidation of a national bank or Federal savings association. Although many aspects of this section are identical for national banks and Federal savings associations, where
there are differences, the Federal savings association requirements would apply to a covered savings association.
12 CFR 5.59. This section addresses Federal savings association service corporations .....................................................
12 CFR part 192. This part sets out requirements for savings associations converting from mutual to stock form .............
Applies.
Does not apply.
Applies.
Selected Capital Distributions and Subordinated Debt Regulations
12 CFR 5.45. This section establishes requirements for increases in permanent capital for Federal stock savings associations.
12 CFR 5.46. This section establishes requirements for changes in permanent capital of national banks ..........................
12 CFR 5.47. This section establishes requirements for subordinated debt issued by national banks ................................
12 CFR 5.55. This section sets out requirements for capital distributions by Federal savings associations, including distributions of dividends. The entire section would apply to a covered savings association.
12 CFR 5.56. This section establishes requirements for inclusion of subordinated debt securities and mandatorily redeemable preferred stock of Federal savings associations as supplementary capital 29.
12 CFR 163.76. This section addresses offers and sales of securities at an office of a Federal savings association .........
Applies.
Does not apply.
Does not apply.
Applies.
Applies.
Applies.
Selected Regulations Applicable to the Operations of National Banks and Federal Savings Associations
12 CFR part 12. This part establishes requirements relating to recordkeeping and confirmation for securities transactions
by national banks.
12 CFR part 19. This part establishes requirements for adjudicative and investigative proceedings that involve national
banks.
12 CFR part 21, subpart A. This subpart establishes security procedures for national banks ..............................................
12 CFR parts 108 and 109. These parts establish requirements for adjudicative proceedings that involve Federal savings associations.
12 CFR part 112. This part establishes requirements for investigative proceedings involving Federal savings associations.
12 CFR part 128. This part sets out nondiscrimination requirements for Federal savings associations ...............................
12 CFR part 151. This part establishes recordkeeping and confirmation requirements for securities transactions involving
Federal savings associations.
12 CFR 160.30. This section implements the statutory lending and investment limits applicable to the operations of a
Federal savings association, including community development investments.
12 CFR 160.36. This section permits de minimis community development investments for Federal savings associations
12 CFR 160.160. This section sets out asset classification requirements applicable to Federal savings associations ........
12 CFR part 162. This part implements a provision of HOLA that requires Federal savings associations to use generally
accepted accounting principles.
12 CFR 163.27. This section prohibits inaccurate or misrepresentative advertising .............................................................
12 CFR 163.76. This section addresses offers and sales of securities at an office of a Federal savings association .........
12 CFR 163.170(c). This provision sets out expectations for maintenance of records .........................................................
12 CFR part 168. This part establishes security procedures for Federal savings associations ............................................
12 CFR 163.176. This section establishes requirements for Federal savings associations related to interest rate risk
management.
Does not apply.
Does not apply.
Does not apply.
Applies.
Applies.
Applies.
Applies.
Does not apply.
Does not apply.
Does not apply.
Applies.
Applies.
Applies.
Applies.
Applies.
Does not apply.
Selected Regulations Applicable to Federal Mutual Savings Associations
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12 CFR 5.21. This section sets out the requirements for Federal mutual savings associations when adopting or amending the charters or bylaws.
12 CFR part 144. This part sets out rules for communications between members of Federal mutual savings associations. The national bank laws relating to shareholder communications do not adequately address the unique needs
and rights of Federal mutual savings association members.
12 CFR 163.74. This section establishes requirements for mutual capital certificates ..........................................................
12 CFR part 169. This part sets out rules for proxies in the mutual context. The national bank laws relating to proxies do
not adequately address the unique needs and rights of Federal mutual savings association members.
101.5 Nonconforming subsidiaries,
assets, and activities. Section 101.5 of
the proposed rule established a
transition process for bringing
nonconforming subsidiaries, assets, and
activities into conformance with the
requirements for national banks.
29 12 CFR 5.56(a) provides that Federal savings
associations must comply with the requirements of
12 CFR 163.80 (Borrowing limitations) when
issuing subordinated debt or mandatorily
redeemable preferred stock that is not included in
tier 2 capital. Section 163.80 applies to covered
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Section 101.5(a) of the proposed rule
would have required a covered savings
association to divest, conform, or
discontinue nonconforming
subsidiaries, assets, and activities at the
earliest time that prudent judgment
dictates but not later than two years
after the effective date of an election.
Paragraph (a) also would have provided
savings associations for purposes of § 5.56 (i.e.,
when the covered savings association’s issuance of
subordinated debt or mandatorily redeemable
preferred stock is not included in tier 2 capital).
PO 00000
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Applies.
Applies.
Applies.
Applies.
that the OCC may require a covered
savings association to submit a plan to
divest, conform, or discontinue a
nonconforming subsidiary, asset, or
activity, to assist OCC supervisory staff
in assessing compliance with the
proposed rule. Section 101.5(b) of the
proposed rule would have allowed the
OCC to grant a covered savings
association extensions of not more than
two years each up to a maximum of
eight years if the OCC determined that:
(1) The covered savings association has
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made a good faith effort to divest,
conform, or discontinue the
nonconforming subsidiaries, assets, or
activities; (2) divestiture, conformance,
or discontinuance would have a
material adverse financial effect on the
covered savings association; and (3)
retention or continuation of the
nonconforming subsidiaries, assets, or
activities is consistent with the safe and
sound operation of the covered savings
association. This paragraph was
intended to provide the OCC with
flexibility when a covered savings
association, despite its best efforts, is
unable to divest or conform assets or
subsidiaries or discontinue activities
within the two-year period.
Several commenters generally
addressed the timeframes for
divestiture, conformance, and
discontinuance. One commenter
believed that the initial two-year period
is reasonable and the ability to seek
extensions provides sufficient flexibility
for complex investments or depressed
market conditions. Another commenter
recommended a ‘‘reasonable time’’
standard for divesture to account for
extraordinary circumstances. This
commenter noted that service
corporation investments in real estate
may require longer divestiture periods
and that these are not always
comparable to other real estate owned
(OREO). A third commenter suggested
that a timeframe committed to
supervisory discretion would be
preferable to a specific regulatory
deadline.
One commenter asserted that there
may be situations where a covered
savings association should be allowed to
continue a long-standing
nonconforming activity. One commenter
believes that the statute requires the
OCC to establish conditions under
which a covered savings association can
retain nonconforming subsidiaries,
assets, and activities in perpetuity. The
commenter believes that retention
should be subject to review at election
and periodically thereafter but that
retention should be presumed
permissible.
The OCC adopts the proposed
§ 101.5(a) and (b) without change. The
OCC believes that the standard in the
final rule provides sufficient flexibility
to address extraordinary circumstances
while emphasizing the OCC’s
expectation that, in the normal course of
events, nonconforming subsidiaries,
assets, or activities will be divested,
conformed, or discontinued as soon as
prudent judgment dictates. The OCC is
not persuaded that a responsibly
managed service corporation investment
in real estate is materially different from
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real estate held by a national bank, a
Federal savings association, or an
operating subsidiary, such that more
than 10 years would be required to fully
divest. Commenters did not clarify what
standard the OCC should use to
determine when a service corporation
investment in real estate would need to
be divested. Furthermore, for the
reasons explained earlier in this
preamble, the final rule requires that
covered savings associations either
divest their service corporations or
conform their service corporations by
redesignating them as operating
subsidiaries. Any real estate activities in
the operating subsidiaries would need
to be activities permissible for a covered
savings association operating
subsidiary. Without additional detail
about the specific types of situations in
which additional time might be needed,
the OCC declines to extend the 10-year
limitation in the final rule.
The OCC does not agree that section
5A of HOLA creates a presumption that
nonconforming subsidiaries, assets, and
activities are permissible. On the
contrary, the statute requires covered
savings associations to bring
nonconforming assets and subsidiaries
into conformance with the requirements
for national banks and provides only a
mechanism for covered savings
associations to apply to the OCC to hold
nonconforming assets or subsidiaries
after an election. The statute does not
require the OCC to grant permission to
hold or continue nonconforming assets
or subsidiaries indefinitely.
Consequently, the final rule permits
covered savings associations to request
permission to hold or continue
nonconforming subsidiaries, assets, and
activities for additional two-year
periods, up to a total of 8 years, if they
are unable to divest, conform, or
discontinue within two years as
otherwise required.
The timeframes in the rule should, in
most cases, provide a covered savings
association with sufficient lead-time to
minimize potential undue financial
harm from divesting, conforming, or
discontinuing nonconforming
subsidiaries, assets, and activities. This
period also is short enough to ensure
that covered savings associations are not
allowed to gain an advantage by holding
or operating assets or subsidiaries or
conducting activities that would not be
permissible for a national bank.
Additionally, the timeframe is generally
consistent with the timeframe that the
OCC provides for Federal savings
associations to divest nonconforming
subsidiaries and assets and discontinue
nonconforming activities when they
convert to national banks.
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24003
Proposed § 101.5(c) provided that
Federal savings association law would
continue to apply to nonconforming
subsidiaries, assets, and activities
during the period before the covered
savings association divests, conforms, or
discontinues the subsidiary, asset, or
activity. The OCC did not receive any
comments on this provision and adopts
it with one clarifying change. The final
rule specifies that the provisions of
Federal savings association law that
continue to apply before divesting,
conforming, or discontinuing a
subsidiary, asset, or activity include any
amendments to those provisions of law.
This change is intended to ensure that
covered savings associations are not
subject to outdated Federal savings
association requirements if Federal
savings association laws change
between the time the covered savings
association makes an election and the
time it divests, conforms, or
discontinues a nonconforming
subsidiary, asset, or activity.
101.6 Termination. This section of
the proposed rule would have
established standards and procedures to
allow a covered savings association to
terminate an election after an
appropriate period. The OCC would
generally view an appropriate period to
be relatively soon after an election takes
effect (for example, 60 or 90 days).
However, the OCC might determine that
a longer period is appropriate where
there is evidence that a covered savings
association is attempting to use a
termination to evade the requirements
or purposes of section 5A of HOLA,
such as the requirement to divest,
conform, or discontinue nonconforming
subsidiaries, assets, and activities.
The OCC did not receive any
comments on this section and is
adopting § 101.6 of the proposed rule
with one technical change to ensure that
the final rule refers consistently to ‘‘the
OCC’’ rather than to ‘‘the appropriate
OCC supervisory office.’’
101.7 Reelection. This section of the
proposed rule would have allowed a
covered savings association to make a
subsequent election after terminating an
election. Under the proposed rule, a
Federal savings association that wishes
to make a subsequent election after
terminating a previous election would
have been subject to the same
requirements as a Federal savings
association making an election for the
first time. However, a Federal savings
association that previously made and
terminated an election to operate as a
covered savings association would have
been required to wait five years after the
termination before making a subsequent
election.
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Federal Register / Vol. 84, No. 101 / Friday, May 24, 2019 / Rules and Regulations
The OCC did not receive any
comments on this section and is
adopting § 101.7 of the proposed rule
without change.
101.8 Evasion. This section of the
proposed rule would have provided that
the OCC may disapprove a notice of
election, termination, or reelection if the
OCC has reasonable cause to believe the
notice is made for the purpose of
evading § 101.5 of the proposed rule,
including as that section applies to a
termination. For example, the OCC
might disapprove a covered savings
association’s notice of termination if it
determined the covered savings
association was attempting to terminate
to take unfair advantage of an overlap
between the period to divest, conform,
or discontinue nonconforming
subsidiaries, assets, and activities
provided for an election and the period
to divest, conform, or discontinue
nonconforming subsidiaries, assets, and
activities provided for a termination.
The final rule provides that the OCC
may disapprove a notice of election,
termination, or reelection if the OCC
determines that notice is made for the
purpose of evading § 101.5. This change
clarifies that the OCC’s determination
that a notice is made for purposes of
evasion is subject to review under the
standards set out in 5 U.S.C. 706(2).
IV. Regulatory Analysis
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Regulatory Flexibility Act
The Regulatory Flexibility Act, 5
U.S.C. 601 et seq., (RFA), requires an
agency, in connection with a final rule,
to prepare a Final Regulatory Flexibility
Analysis describing the impact of the
rule on small entities (defined by the
Small Business Administration (SBA)
for purposes of the RFA to include
commercial banks and savings
institutions with total assets of $550
million or less and trust companies with
total revenue of $38.5 million or less) or
to certify that the rule would not have
a significant economic impact on a
substantial number of small entities.
The OCC supervises approximately 886
small entities, of which 258 are Federal
savings associations.30 Because the rule
30 We base our estimate of the number of small
entities on the SBA’s size thresholds for commercial
banks and savings institutions, and trust
companies, which are $550 million and $38.5
million, respectively. Consistent with the General
Principles of Affiliation 13 CFR 121.103(a), we
count the assets of affiliated financial institutions
when determining if we should classify an OCCsupervised institution a small entity. We use
December 31, 2017, to determine size because a
‘‘financial institution’s assets are determined by
averaging the assets reported on its four quarterly
financial statements for the preceding year.’’ See
footnote 8 of the U.S. Small Business
Administration’s Table of Size Standards.
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Jkt 247001
does not contain any new
recordkeeping, reporting, or compliance
requirements, we anticipate that it will
not impose costs on OCC-supervised
institutions unless they elect to operate
as a covered savings association.31
Therefore, the OCC certifies that the
final rule would not have a significant
economic impact on a substantial
number of OCC-supervised small
entities.
Unfunded Mandates Reform Act of 1995
The OCC has analyzed the final rule
under the factors set forth in the
Unfunded Mandates Reform Act of
1995, 2 U.S.C. 1532. Under this
analysis, the OCC considers whether the
Federal mandates imposed by the rule
may result in an expenditure of $100
million or more by state, local, and
tribal governments, or by the private
sector, in any one year (adjusted
annually for inflation). The rule does
not impose new mandates. Therefore,
the OCC concludes that the rule will not
result in an expenditure of $100 million
or more annually by state, local, and
tribal governments, or by the private
sector. Accordingly, the OCC has not
prepared a written statement to
accompany this rule.
Paperwork Reduction Act
Under the Paperwork Reduction Act
of 1995, 44 U.S.C. 3501 et seq., the OCC
may not conduct or sponsor, and a
person is not required to respond to, an
information collection unless the
information collection displays a valid
OMB control number. The OCC has
submitted the information collection
requirements imposed by this final rule
to OMB for review, as requested by
OMB in its notice of action regarding
the OCC’s submission at the proposed
rule stage. The OCC received two
comments regarding the information
collection.
Two commenters stated that
submitting information relating to
existing branches and agencies is
unduly burdensome. One commenter
argued that the rule could be interpreted
to require Federal savings associations
to submit information on a significant
number of branches and agencies, not
just newly established ones. The
commenter noted that many branch
applications or notices were submitted
prior to the integration of 12 CFR part
5. The commenter also stated that
applications or notices are generally not
required for a Federal savings
31 We believe that costs associated with electing
to be treated as a covered savings association will
be minimal and that Federal savings associations
will only choose to be treated as a covered savings
associations if the benefits outweigh the costs.
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Fmt 4700
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association to establish an agency. The
commenter believes the requirement
would be unnecessary, would require
time and cost that do not serve a
compelling supervisory or regulatory
purpose, and would require a covered
savings association to disclose more
information than a Federal savings
association or national bank would be
required to provide. The commenter
recommended that this requirement be
eliminated or that its scope be clarified.
The second commenter stated that the
requirement to provide information on
existing branches and agencies is
unnecessary and burdensome, noting
that it may be difficult to provide
information on branches that have been
operational for a number of years. The
commenter suggested that all branches
that are open or operational or that have
received regulatory approval or nonobjection should be presumed to be
compliant and documentation should
not be required. Neither commenter
believes that the OCC has clearly
indicated why it needs this information.
As noted earlier in this preamble, the
final rule does not require Federal
savings associations to identify branches
or agencies in a notice of an election.
The OCC believes that it can obtain
sufficient information about the
branches and agencies of a prospective
covered savings association by
reviewing information the association
submits on its nonconforming
subsidiaries, assets, or activities. This
information will allow the OCC to
monitor covered savings associations for
compliance with the final rule without
imposing any additional burden that
could be associated with submitting
information identifying branches and
agencies. The OCC has changed the
information collection so that it no
longer includes a requirement to submit
information identifying branches and
agencies.
Under the information collection, a
Federal savings association seeking to
operate as a covered savings association
would be required under § 101.3(a) to
submit a notice making an election to
the OCC that: (1) Is signed by a duly
authorized officer of the Federal savings
association; and (2) identifies and
describes any nonconforming
subsidiaries, assets, or activities that the
Federal savings association operates,
holds, or conducts at the time its
submits its notice.
Under § 101.5(a), the OCC may
require a covered savings association to
submit a plan to divest, conform, or
discontinue a nonconforming
subsidiary, asset, or activity.
A covered savings association may
submit a notice to terminate its election
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Federal Register / Vol. 84, No. 101 / Friday, May 24, 2019 / Rules and Regulations
to operate as a covered savings
association under § 101.6 using similar
procedures to those for an election. In
addition, after a period of five years, a
Federal savings association that has
terminated its election to operate as a
covered savings association may submit
a notice under § 101.7 to reelect using
the same procedures used for its original
election.
Title: Covered Savings Association
Notice.
OMB Control No.: 1557–0341.
Frequency of Response: On occasion.
Affected Public: Businesses or other
for-profit organizations.
Election, Termination, Reelection:
Estimated Number of Respondents: 295
Estimated Burden per Respondent: 1
hour
Estimated Total Annual Burden: 295
hours
Plan to Divest:
Estimated Number of Respondents: 25
Estimated Burden per Respondent: 2
hours
Estimated Total Annual Burden: 50
hours.
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Total Annual Burden: 345 hours
In addition, the OCC will file a
nonmaterial change to amend its
Licensing Manual Collection (OMB
Control No. 1557–0014) to increase the
respondent count to reflect additional
filings from Federal savings
associations.
Comments continue to be invited on:
(a) Whether the collections of
information are necessary for the proper
performance of the functions of the
OCC, including whether the information
has practical utility;
(b) The accuracy of the OCC’s
estimates of the burden of the
collections of information;
(c) Ways to enhance the quality,
utility, and clarity of the information to
be collected;
(d) Ways to minimize the burden of
the collections on respondents,
including through the use of automated
collection techniques or other forms of
information technology; and
(e) Estimates of capital or start-up
costs and costs of operation,
maintenance, and purchase of services
to provide information.
Riegle Community Development and
Regulatory Improvement Act of 1994
Section 302(a) of the Riegle
Community Development and
Regulatory Improvement Act of 1994, 12
U.S.C. 4802(a), (RCDRIA) requires that
the OCC, in determining the effective
date and administrative compliance
requirements for new regulations that
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16:08 May 23, 2019
Jkt 247001
impose additional reporting, disclosure,
or other requirements on insured
depository institutions, consider,
consistent with principles of safety and
soundness and the public interest, any
administrative burdens that such
regulations would place on depository
institutions, including small depository
institutions, and customers of
depository institutions, as well as the
benefits of such regulations. In addition,
section 302(b) of RCDRIA, 12 U.S.C.
4802(b), requires new regulations and
amendments to regulations that impose
additional reporting, disclosure, or other
new requirements on insured depository
institutions generally to take effect on
the first day of a calendar quarter that
begins on or after the date on which the
regulations are published in final form.
The OCC has considered the
administrative burdens and benefits of
the rule in determining the effective
date and administrative compliance
requirements for this rule. The final rule
will be effective no earlier than the first
day of the calendar quarter following 30
days from the date on which the final
rule is published in the Federal
Register.
Congressional Review Act
Pursuant to the Congressional Review
Act, 5 U.S.C. 801 et seq., the Office of
Information and Regulatory Affairs
designated this rule as not a ‘‘major
rule,’’ as defined by 5 U.S.C. 804(2).
List of Subjects in 12 CFR Part 101
Administrative practice and
procedure, Assets, Reporting and
recordkeeping requirements, Savings
associations.
■ For the reasons set forth in the
preamble, and under the authority of 12
U.S.C. 93a and 5412(b)(2)(B), chapter I
of title 12 of the Code of Federal
Regulations is amended by adding part
101 to read as follows:
PART 101—COVERED SAVINGS
ASSOCIATIONS
Secs.
101.1 Authority and purposes.
101.2 Definitions and computation of time.
101.3 Procedures.
101.4 Treatment of covered savings
associations.
101.5 Nonconforming subsidiaries, assets,
and activities.
101.6 Termination.
101.7 Reelection.
101.8 Evasion.
Authority: 12 U.S.C. 93a, 1462a, 1463,
1464, 1464a, and 5412(b)(2)(B).
§ 101.1
Authority and purposes.
(a) Authority. This part is issued
pursuant to sections 3, 4, 5, and 5A of
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24005
the Home Owners’ Loan Act (HOLA) (12
U.S.C. 1462a, 1463, 1464, and 1464a),
section 5239A of the Revised Statutes
(12 U.S.C. 93a), and section 312(b)(2)(B)
of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (12 U.S.C.
5412(b)(2)(B)).
(b) Purposes. This part establishes
standards and procedures for a Federal
savings association to elect to operate as
a covered savings association pursuant
to section 5A of the HOLA and clarifies
the requirements for the treatment of
covered savings associations. It also
establishes standards and procedures to
terminate an election and to reelect to
operate as a covered savings association.
§ 101.2
time.
Definitions and computation of
(a) Definitions. As used in this part:
(1) Covered savings association means
a Federal savings association that has
made an election that is in effect in
accordance with § 101.3(b).
(2) Effective date of the election
means, with respect to a Federal savings
association, the date on which the
Federal savings association’s election to
operate as a covered savings association
takes effect pursuant to § 101.3(b).
(3) Nonconforming subsidiary, asset,
or activity. (i) With respect to a covered
savings association:
(A) Means any subsidiary, asset, or
activity that is not permissible for a
covered savings association or, if
permissible, is being operated, held, or
conducted in a manner that exceeds the
limit applicable to a covered savings
association; and
(B) Includes an investment in a
subsidiary or other entity that is not
permissible for a covered savings
association; and
(ii) With respect to a Federal savings
association that has terminated an
election to operate as a covered savings
association:
(A) Means any subsidiary, asset, or
activity that is not permissible for a
Federal savings association or, if
permissible, is being operated, held, or
conducted in a manner that exceeds the
limit applicable to a Federal savings
association; and
(B) Includes an investment in a
subsidiary or other entity that is not
permissible for a Federal savings
association.
(4) Similarly located national bank
means, with respect to a covered savings
association, a national bank that has its
main office situated in the same location
as the home office of the covered
savings association.
(b) Computation of time. The OCC
will compute a period of days for
purposes of this part in accordance with
12 CFR 5.12.
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24MYR1
24006
§ 101.3
Federal Register / Vol. 84, No. 101 / Friday, May 24, 2019 / Rules and Regulations
Procedures.
(a) Notice—(1) Submission. A Federal
savings association that had total
consolidated assets of $20 billion or less
as of December 31, 2017, as reported on
the Federal savings association’s
Consolidated Reports of Condition and
Income for December 31, 2017, may
make an election to operate as a covered
savings association by submitting a
notice to the OCC.
(2) Contents. The notice shall:
(i) Be signed by a duly authorized
officer of the Federal savings
association; and
(ii) Identify and describe each
nonconforming subsidiary, asset, or
activity that the Federal savings
association operates, holds, or conducts
at the time it submits the notice, each
of which must be divested, conformed,
or discontinued pursuant to § 101.5.
(b) Effective date of the election—(1)
In general. An election to operate as a
covered savings association shall take
effect on the date that is 60 days after
the date on which the OCC receives the
notice submitted under paragraph (a) of
this section.
(2) Earlier notice. Notwithstanding
paragraph (b)(1) of this section, the OCC
may notify a Federal savings association
in writing prior to the expiration of 60
days that it is eligible to make an
election, and the election shall take
effect on the date the OCC so notifies
the Federal savings association.
§ 101.5 Nonconforming subsidiaries,
assets, and activities.
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§ 101.4 Treatment of covered savings
associations.
(a) In general—(1) National bank
activities. Except as provided in this
section, a covered savings association
may engage in any activity that is
permissible for a similarly located
national bank to engage in as part of, or
incidental to, the business of banking, or
explicitly authorized by statute for a
national bank, subject to the same
authorization, terms, and conditions
that would apply to a similarly located
national bank, as determined by the
OCC for purposes of this part.
(2) Treatment as a Federal savings
association. A covered savings
association shall continue to comply
with the provisions of law that apply to
Federal savings associations for
purposes of:
(i) Governance (including
incorporation, bylaws, boards of
directors, shareholders, members, and
distribution of dividends);
(ii) Consolidation, merger,
dissolution, conversion (including
conversion to a stock bank or to another
charter), conservatorship, and
receivership;
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16:08 May 23, 2019
Jkt 247001
(iii) Provisions of law applicable only
to Federal mutual savings associations;
(iv) Offers and sales of securities at an
office of a Federal savings association;
(v) Savings bank activities authorized
by section 5(i)(4) of HOLA;
(vi) Issuance of subordinated debt
securities and mandatorily redeemable
preferred stock;
(vii) Increases in permanent capital of
a Federal stock savings association;
(viii) Rules of practice and procedure
in adjudicatory proceedings;
(ix) Rules for investigative
proceedings and formal examination
proceedings;
(x) Removals, suspensions, and
prohibitions where a crime is charged or
proven;
(xi) Security procedures;
(xii) Maintenance of records and
recordkeeping and confirmation
requirements for securities transactions;
(xiii) Accounting and disclosure
standards;
(xiv) Nondiscrimination; and
(xv) Advertising.
(b) Existing branches. A covered
savings association may continue to
operate any branch or agency that the
covered savings association operated on
the effective date of the election.
(c) Assets greater than $20 billion. A
covered savings association may
continue to operate as a covered savings
association if, after the effective date of
the election, it has total consolidated
assets greater than $20 billion.
(a) Divestiture, conformance, or
discontinuation. A covered savings
association shall divest, conform, or
discontinue a nonconforming
subsidiary, asset, or activity at the
earliest time that prudent judgment
dictates but not later than two years
after the effective date of the election.
The OCC may require a covered savings
association to submit a plan to divest,
conform, or discontinue a
nonconforming subsidiary, asset, or
activity.
(b) Extension. The OCC may grant a
covered savings association extensions
of not more than two years each up to
a maximum of eight years if the OCC
determines that:
(1) The covered savings association
has made a good faith effort to divest,
conform, or discontinue the
nonconforming subsidiary, asset, or
activity;
(2) Divestiture, conformance, or
discontinuation would have a material
adverse financial effect on the covered
savings association; and
(3) Retention or continuation of the
nonconforming subsidiary, asset, or
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Frm 00016
Fmt 4700
Sfmt 4700
activity is consistent with the safe and
sound operation of the covered savings
association.
(c) Applicable law. Until a covered
savings association divests, conforms, or
discontinues a nonconforming
subsidiary, asset, or activity, the
nonconforming subsidiary, asset, or
activity shall continue to be subject to
the same provisions of law that applied
to the nonconforming subsidiary, asset,
or activity on the day before the
effective date of the election, including
any amendments to those provisions of
law.
§ 101.6
Termination.
(a) Termination. A covered savings
association may terminate its election to
operate as a covered savings association,
after an appropriate period of time as
determined by the OCC, by submitting
a notice to the OCC.
(b) Procedures. A covered savings
association wishing to terminate its
election shall comply with, and shall be
subject to, the provisions of §§ 101.2,
101.3, and 101.5, except that:
(1) The provisions of §§ 101.3 and
101.5 shall be applied by substituting
‘‘covered savings association’’ for
‘‘Federal savings association’’ and
‘‘Federal savings association’’ for
‘‘covered savings association’’ each
place those terms appear in those
sections;
(2) Section 101.3(a)(1) shall not apply;
and
(3) Sections 101.3 and 101.5 shall be
applied by substituting ‘‘effective date
of the termination’’ for ‘‘effective date of
the election.’’
(c) Applicable law. On and after the
effective date of the termination, a
Federal savings association that has
terminated its election to operate as a
covered savings association shall be
subject to the same provisions of law as
a Federal savings association that has
not made an election under this part.
§ 101.7
Reelection.
(a) Reelection. A Federal savings
association that has terminated its
election to operate as a covered savings
association may submit a notice to
reelect to operate as a covered savings
association, if at least five years have
elapsed since the effective date of the
termination. Upon determining that
good cause exists, the OCC may permit
a Federal savings association to reelect
to operate as a covered savings
association prior to the expiration of the
five-year period.
(b) Procedures and treatment. A
Federal savings association reelecting to
operate as a covered savings association
shall comply with, and shall be subject
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Federal Register / Vol. 84, No. 101 / Friday, May 24, 2019 / Rules and Regulations
to, the provisions of this part as if it
were making an election for the first
time.
§ 101.8
Evasion.
The OCC may disapprove any notice
submitted pursuant to this part if the
OCC determines that the notice is made
for the purpose of evading § 101.5,
including as that section applies to a
covered savings association terminating
an election.
Dated: May 20, 2019.
Joseph M. Otting,
Comptroller of the Currency.
[FR Doc. 2019–10902 Filed 5–23–19; 8:45 am]
BILLING CODE 4810–33–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2019–0350; Product
Identifier 2019–CE–025–AD; Amendment
39–19634; AD 2019–08–13]
RIN 2120–AA64
Airworthiness Directives; Textron
Aviation, Inc. Airplanes
Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule; request for
comments.
AGENCY:
We are adopting a new
airworthiness directive (AD) for certain
Textron Aviation, Inc. (type certificate
previously held by Cessna Aircraft
Company) Models 525, 525A, and 525B
airplanes with Tamarack active load
alleviation system (ATLAS) winglets
installed in accordance with
Supplemental Type Certificate (STC)
SA03842NY. This AD results from
mandatory continuing airworthiness
information (MCAI) issued by the
aviation authority of another country to
identify and correct an unsafe condition
on an aviation product. The MCAI
describes the unsafe condition as
malfunction of the ATLAS. We are
issuing this AD to require actions to
address the unsafe condition on these
products.
SUMMARY:
This AD is effective May 24,
2019.
We must receive comments on this
AD by July 8, 2019.
ADDRESSES: You may send comments by
any of the following methods:
• Federal eRulemaking Portal: Go to
https://www.regulations.gov. Follow the
instructions for submitting comments.
• Fax: (202) 493–2251.
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DATES:
VerDate Sep<11>2014
16:08 May 23, 2019
Jkt 247001
• Mail: U.S. Department of
Transportation, Docket Operations,
M–30, West Building Ground Floor,
Room W12–140, 1200 New Jersey
Avenue SE, Washington, DC 20590.
• Hand Delivery: U.S. Department of
Transportation, Docket Operations,
M–30, West Building Ground Floor,
Room W12–140, 1200 New Jersey
Avenue SE, Washington, DC 20590,
between 9 a.m. and 5 p.m., Monday
through Friday, except Federal holidays.
Examining the AD Docket
You may examine the AD docket on
the internet at https://
www.regulations.gov by searching for
and locating Docket No. FAA–2019–
0350; or in person at Docket Operations
between 9 a.m. and 5 p.m., Monday
through Friday, except Federal holidays.
The AD docket contains this AD, the
regulatory evaluation, any comments
received, and other information. The
street address for Docket Operations
(telephone (800) 647–5527) is in the
ADDRESSES section. Comments will be
available in the AD docket shortly after
receipt.
FOR FURTHER INFORMATION CONTACT:
Steven Dzierzynski, Aerospace
Engineer, FAA, New York ACO Branch,
1600 Stewart Avenue, Suite 410,
Westbury, New York 11590; telephone:
(516) 228–7367; fax: (516) 794–5531;
email: steven.dzierzynski@faa.gov.
SUPPLEMENTARY INFORMATION:
Discussion
The European Aviation Safety Agency
(EASA), which is the Technical Agent
for the Member States of the European
Community, has issued EASA AD No.:
2019–0086–E, dated April 19, 2019
(referred to after this as ‘‘the MCAI’’), to
correct an unsafe condition for Textron
Aviation, Inc. Models 525, 525A, and
525B airplanes with Tamarack ATLAS
winglets installed in accordance with
STC SA03842NY. The MCAI states:
The active load alleviation system
(ATLAS), when operational, deflects the
Tamarack active control surfaces (TACS) on
the outboard wings. Recently, occurrences
have been reported in which ATLAS appears
to have malfunctioned, causing upset events
where, in some cases, the pilots had
difficulty to recover the aeroplane to safe
flight. Investigation continues to determine
the cause(s) for the reported events.
This condition, if not corrected, could lead
to loss of control of the aeroplane.
To address this potential unsafe condition,
Cranfield Aerospace Solutions have issued
the [service bulletin] SB, providing
instructions to pull and collar the ATLAS
circuit breaker, to make TACS immovable
and to amend the applicable AFMS.
For the reasons described above, this
[EASA] AD requires the Tamarack ATLAS to
PO 00000
Frm 00017
Fmt 4700
Sfmt 4700
24007
be deactivated and the TACS to be fixed in
place. This [EASA] AD also requires
implementation of operational limitations
and repetitive pre-flight inspections by
amending the applicable AFMS. Finally, this
[EASA] AD requires a modification of the
ATLAS, which would provide relief for the
deactivation, limitations and repetitive
inspections as required by this AD.
This [EASA] AD is an interim action
and further AD action may follow.
The National Transportation Safety
Board (NTSB) is investigating a fatal
accident involving a Model 525 airplane
with the ATLAS STC installed. The
NTSB investigation focuses on the role
the ATLAS may have played in the
accident. In addition to the accident,
five incidents of aircraft uncommanded
roll events with the ATLAS activated
have been reported to EASA and the
FAA. In each incident, the pilot was
able to recover from the event and land
the aircraft safely. You may examine the
MCAI on the internet at https://
www.regulations.gov by searching for
and locating Docket No. FAA–2019–
0350.
FAA’s Determination and Requirements
of the AD
This product has been approved by
the aviation authority of another
country, and is approved for operation
in the United States. Pursuant to our
bilateral agreement with this State of
Design Authority, they have notified us
of the unsafe condition described in the
MCAI and service information
referenced above. We are issuing this
AD because we evaluated all
information provided by the State of
Design Authority and determined the
unsafe condition exists and is likely to
exist or develop on other products of the
same type design.
EASA has approved a master
minimum equipment list (MMEL) for
the ATLAS, which allows operation of
the airplane with the system disabled
for up to 10 flight hours with operating
limitations. However, the FAA has not
approved an MMEL for the ATLAS. The
EASA AD allows operation for up to 100
flight hours with the system disabled
and with the same operating limitations
as in the MMEL. However, this AD does
not allow operation with the ATLAS
disabled.
Instead, this AD prohibits all flight
until a modification has been
incorporated in accordance with an
FAA-approved method. Until a
modification method is developed and
approved, this AD requires revising the
operating limitations in the AFM and
fabricating and installing a placard to
prohibit further flight.
E:\FR\FM\24MYR1.SGM
24MYR1
Agencies
[Federal Register Volume 84, Number 101 (Friday, May 24, 2019)]
[Rules and Regulations]
[Pages 23991-24007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-10902]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
========================================================================
Federal Register / Vol. 84, No. 101 / Friday, May 24, 2019 / Rules
and Regulations
[[Page 23991]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 101
[Docket ID OCC-2018-0020]
RIN 1557-AE45
Covered Savings Associations
AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The OCC is issuing a final rule to implement a new section of
the Home Owners' Loan Act (HOLA). The Economic Growth, Regulatory
Relief, and Consumer Protection Act (EGRRCPA) amended HOLA to add a new
section that allows a Federal savings association with total
consolidated assets equal to or less than $20 billion, as reported by
the association to the Comptroller as of December 31, 2017, to elect to
operate as a covered savings association. A covered savings association
has the same rights and privileges as a national bank and is subject to
the same duties, restrictions, penalties, liabilities, conditions, and
limitations as a national bank. A covered savings association retains
its Federal savings association charter and existing governance
framework. The new section of HOLA requires the OCC to issue rules
that, among other things, establish streamlined standards and
procedures for elections to operate as covered savings associations and
clarify requirements for the treatment of covered savings associations.
DATES: The final rule takes effect on July 1, 2019.
FOR FURTHER INFORMATION CONTACT: For additional information, contact
Charlotte Bahin, Senior Advisor for Thrift Supervision, 202-649-6281,
Lazaro Barreiro, Director for Governance and Operational Risk Policy,
202-649-6550, Alison MacDonald, Special Counsel, 202-649-5490, Demetria
H. Springs, Special Counsel, 202-649-5500, Chief Counsel's Office, for
persons who are deaf or hearing impaired, TTY, 202-649-5597, Office of
the Comptroller of the Currency, 400 7th Street SW, Washington, DC
20219.
SUPPLEMENTARY INFORMATION:
I. Background
On September 18, 2018, the OCC published a proposed rule \1\ to
implement section 206 of the Economic Growth, Regulatory Relief, and
Consumer Protection Act (EGRRCPA), Public Law 115-174, 132 Stat. 1310.
Section 206 of EGRRCPA amended the Home Owners' Loan Act (HOLA) (12
U.S.C. 1461 et seq.) to add a new section 5A (12 U.S.C. 1464a). Section
5A allows a Federal savings association with total consolidated assets
equal to or less than $20 billion, as reported by the association to
the Comptroller as of December 31, 2017, to elect to operate as a
covered savings association. A covered savings association has the same
rights and privileges as a national bank that has its main office
situated in the same location as the home office of the covered savings
association. A covered savings association is subject to the same
duties, restrictions, penalties, liabilities, conditions, and
limitations that would apply to such a national bank. However, a
covered savings association retains its Federal savings association
charter and continues to be treated as a Federal savings association
for purposes of governance, including procedures and requirements for
incorporation, charters and bylaws (e.g., form, amendments), boards of
directors (e.g., elections, term of service), shareholders (e.g.,
meetings, voting requirements, requirements for stakeholders such as
mutual members), and distribution of dividends (e.g., payment, prior
approval, and other restrictions). A covered savings association also
is treated as a Federal savings association for purposes of
consolidation, merger, dissolution, conversion (including conversion to
a stock bank or another charter), conservatorship, and receivership, as
well as for other purposes determined by OCC regulation. A covered
savings association may continue to operate any branch or agency that
the covered savings association operates on the date an election to
operate as a covered savings association takes effect. A covered
savings association will continue to be treated as a covered savings
association even if its total consolidated assets exceed $20 billion
after it makes an election.
---------------------------------------------------------------------------
\1\ Covered Savings Associations, 83 FR 47101 (September 18,
2018) (Proposed Rule).
---------------------------------------------------------------------------
II. Summary of General Comments
The OCC received 16 comments in response to the notice of proposed
rulemaking. The commenters included Federal savings associations,
industry trade associations, an unincorporated association, a U.S.
Senator, a law firm (on behalf of a client), and a grandfathered
unitary savings and loan holding company.
The comments generally supported the proposed rule implementing
section 5A of HOLA. One commenter urged the OCC to focus on the
underlying purpose of section 5A, which the commenter believes is to
provide flexibility for Federal savings associations without imposing
undue impediments. As explained in the preamble to the proposed rule,
the OCC views section 5A of HOLA as a way to provide Federal savings
associations with additional flexibility to adapt to new economic
conditions and business environments without the cost and time involved
in a change of charter.\2\ The OCC has considered various factors in
implementing section 5A, including the importance of providing an
effective regulatory framework for Federal savings associations seeking
to make an election and ensuring that the institutions that make an
election can continue to operate safely and soundly. The final rule
balances these considerations. To that end, consistent with section 5A,
the final rule provides a regulatory framework that ensures that
covered savings associations that make an election are treated in the
same manner as similarly located national banks except where
differences are necessary or appropriate to permit covered savings
associations to retain their existing charter and governance framework.
---------------------------------------------------------------------------
\2\ Proposed Rule at 47102.
---------------------------------------------------------------------------
Four commenters requested that the OCC work closely with other
federal regulators to ensure consistency in the interpretation of
section 5A. Several commenters specifically raised
[[Page 23992]]
questions regarding the treatment of savings and loan holding
companies, including grandfathered unitary savings and loan holding
companies. In addition, a number of commenters recommended that the OCC
clarify that covered savings associations would not be required to be
members of the Federal Reserve System, with some adding that membership
should be voluntary. The Board of Governors of the Federal Reserve
System (FRB) has primary responsibility for supervising savings and
loan holding companies and administering Federal Reserve membership.
The OCC will continue to consult with the FRB on interpretive issues
regarding the application of section 5A to savings and loan holding
companies and regarding issues related to membership. The OCC
recommends that individuals or institutions with specific questions
about membership or the treatment of holding companies of Federal
savings associations that elect to operate as covered savings
associations contact the FRB.
Several other commenters were concerned about how covered savings
associations would be treated within the Federal Home Loan Bank
(FHLBank) system. Two commenters asserted that the FHLBanks rate
institutions that meet the qualified thrift lender (QTL) test under
HOLA higher than institutions that do not meet the QTL test. Another
commenter requested that the OCC work with the FHLBanks to ensure that
an election does not negatively impact membership privileges. The OCC
understands that the Gramm-Leach-Bliley Act amended the Federal Home
Loan Bank Act to eliminate certain provisions applicable only to non-
QTL compliant members.\3\ The OCC recommends that individuals or
institutions with specific questions about the activities and
authorities of the FHLBanks contact either the Federal Housing Finance
Agency, which has primary responsibility for supervising the FHLBank
system, or the appropriate FHLBank.
---------------------------------------------------------------------------
\3\ Section 604 of the Gramm-Leach-Bliley Act, Public Law 106-
102, 113 Stat. 1338.
---------------------------------------------------------------------------
As discussed more fully in subsequent sections of this preamble,
the OCC has revised the final rule in response to issues raised by
commenters. These revisions and explanations that address other
comments received are described in the section-by-section description
of the final rule.
III. Section-by-Section Description
101.1 Authority and purposes. Section 101.1(a) of the proposed rule
provided that the rule would be issued pursuant to sections 3, 4, 5,
and 5A of HOLA (12 U.S.C. 1462a, 1463, 1464, and 1464a), section 5239A
of the Revised Statutes (12 U.S.C. 93a), and section 312(b)(2)(B) of
the Dodd-Frank Wall Street Reform and Consumer Protection Act (12
U.S.C. 5412(b)(2)(B)).
Section 101.1(b) of the proposed rule described the purposes of the
proposed rule. Those purposes were to establish standards and
procedures for a Federal savings association's election to operate as a
covered savings association, to clarify the requirements that apply to
covered savings associations, and to establish standards and procedures
for terminations of elections and for reelections.
The OCC did not receive comment on this section of the proposed
rule. The OCC adopts this section of the proposed rule without change.
101.2 Definitions and computation of time. Section 101.2(a) of the
proposed rule set out definitions for the final rule. Section 101.2(b)
of the proposed rule provided that, for purposes of the rule, the OCC
would compute time in the same manner as set forth in 12 CFR 5.12.
Section 5.12 provides that, in computing a period of days, the OCC does
not include the day of the act (in this case, the date the OCC receives
a Federal savings association's notice of election or termination) from
which the period begins to run. If the last day of the 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.
The OCC did not receive comment on the definitions included in this
section or the manner of computation of time. The OCC adopts this
section as proposed, with one change. As discussed in more detail later
in this preamble, because the final rule refers consistently to ``the
OCC'' throughout, the final rule does not include a definition of the
term ``appropriate OCC supervisory office.''
101.3 Procedures. Section 101.3 of the proposed rule set out
streamlined procedures and standards of review for a Federal savings
association's election to operate as a covered savings association.
Section 101.3(a)(1) of the proposed rule would have allowed a
Federal savings association that had total consolidated assets of $20
billion or less as of December 31, 2017, to make an election to operate
as a covered savings association by submitting a notice to the
appropriate OCC supervisory office. The OCC proposed to use the
Consolidated Reports of Condition and Income (Call Reports) submitted
for the quarter ending December 31, 2017, to determine if a Federal
savings association met this threshold.
The proposal provided that institutions that were not Federal
savings associations as of December 31, 2017, would not be eligible to
make an election to operate as covered savings associations. Therefore,
under the proposed approach, an institution that was a credit union,
state savings association, or state bank on December 31, 2017, but that
later converted to a Federal savings association charter, would not be
eligible to make an election to operate as a covered savings
association. Similarly, a de novo Federal savings association chartered
after December 31, 2017, would not be eligible to make an election. The
proposal noted that a Federal savings association in stock form could
convert directly to a national bank charter, but for institutions in
mutual form, a national bank charter is not available without first
converting to stock form. The OCC invited comment on whether the option
to elect to operate as a covered savings association should be limited
to institutions that were Federal savings associations on December 31,
2017.
One commenter supported the proposed approach, but four commenters
expressed concern. Three were concerned about limiting the ability of
state-chartered institutions and credit unions to make elections
following a conversion to a Federal savings association charter. Two
urged the OCC to allow state savings associations, savings banks, or
cooperative banks that were in existence prior to December 31, 2017, to
make an election following a conversion, and the third urged the OCC to
support legislative efforts to eliminate the eligibility date. Another
commenter argued that Congress did not intend to exclude de novo
savings associations from eligibility.
The OCC is adopting Sec. 101.3(a)(1) as proposed, with one
technical change to ensure that the final rule consistently refers to
``the OCC'' rather than to ``the appropriate OCC supervisory office.''
Section 5A of HOLA provides that ``a Federal savings association'' with
total consolidated assets of $20 billion or less ``as reported by the
association to the Comptroller as of December 31, 2017,'' may make an
election to operate as a covered savings association. Based on this
statutory language, the OCC believes that section 5A precludes
institutions that were not Federal savings associations as of December
31, 2017, from making an election. Although commenters identified
[[Page 23993]]
potentially undesirable policy implications of this approach, no
commenter offered a legal argument that would allow the OCC to
disregard the limits imposed by the statute.
The OCC notes that de novo institutions, state savings
associations, and state savings banks that are not in mutual form may
apply for a national bank charter if they are seeking a Federal charter
and want to exercise the powers of a national bank. This option would
not be available to state savings associations or state savings banks
that are in mutual form unless they first convert to stock form.
The OCC also received comments on other aspects of Sec.
101.3(a)(1). One commenter asked the OCC to clarify whether
institutions that are not eligible to make an election can become
eligible by merging into an eligible Federal savings association. Under
section 5A of HOLA and the final rule, an institution that was a
Federal savings association with total consolidated assets of $20
billion or less as of December 31, 2017, is eligible to make an
election, regardless of whether that institution later grows in asset
size as a result of a merger with another institution or otherwise. If
an institution that is not otherwise eligible to make an election
merges into a Federal savings association that is eligible to make an
election, and the eligible Federal savings association is the surviving
charter, then that Federal savings association would not lose its
eligibility to operate as a covered savings association because of the
acquisition.
Another commenter requested the OCC to clarify that a Federal
savings association that meets the asset threshold as of December 31,
2017, remains eligible to make an election or reelection even if it
subsequently grows beyond the threshold. Neither section 5A of HOLA nor
the final rule imposes an expiration date on a Federal savings
association's eligibility to make an election, nor do they require that
a Federal savings association maintain assets equal to or less than $20
billion to retain its eligibility. This means that a Federal savings
association that was in existence and met the asset threshold as of
December 31, 2017, may make an election at any time after
implementation of the final rule. The Federal savings association does
not lose its eligibility even if it has grown beyond the $20 billion
asset threshold at the time of its election. The OCC does not believe
that it is necessary to include language to this effect in the rule.
Instead, the OCC has added a paragraph (c) to Sec. 101.4 of the final
rule to highlight the express language of section 5A(g) of HOLA.
Section 5A(g) provides that a covered savings association may continue
to operate as a covered savings association if, after the date of the
election, the covered savings association has total consolidated assets
greater than $20 billion.
Section 101.3(a)(2) of the proposed rule would have required that a
Federal savings association's notice of an election: Be signed by a
duly authorized officer of the Federal savings association; identify
each branch or agency that the Federal savings association will operate
on the effective date of the election that has not been the subject of
an application or notice under 12 CFR part 5; and identify and describe
each nonconforming subsidiary, asset, or activity that the Federal
savings association operates, holds, or conducts at the time it submits
the notice, each of which must be divested, conformed, or discontinued
pursuant to Sec. 101.5. The OCC received several comments regarding
the contents of the notice.
Four commenters requested that the OCC make clear that no
shareholder or member vote would be required to make an election, with
several commenters noting that boards of directors are responsible for
business plans. As explained in the preamble of the proposed rule, the
statute does not require that a Federal savings association obtain
shareholder or member approval to make an election to operate as a
covered savings association. For this reason, the OCC did not include
any requirements for a shareholder or member vote in the proposed rule
and will not include any such requirement in the final rule.
Nevertheless, the election to operate as a covered savings association
could have implications not only for the electing association but also
for its savings and loan holding company, shareholders, or members.
Therefore, each Federal savings association that makes an election
should review its respective charter and bylaws, as well as any other
applicable law, to determine whether an election to operate as a
covered savings association will require shareholder or member approval
or additional changes to the association's charter and bylaws.
Two commenters asserted that the requirement to provide information
relating to existing branches and agencies under Sec. 101.3(a)(2)(ii)
is unduly burdensome. One commenter argued that the proposed regulatory
text could be read to require Federal savings associations to submit
information on a significant number of branches and agencies, not just
newly established ones. The commenter noted that many branch
applications or notices were submitted prior to the integration of 12
CFR part 5. This commenter also noted that applications or notices are
generally not required for a Federal savings association to establish
an agency. The commenter believes such a requirement would be
unnecessary, would require time and cost that do not serve a compelling
supervisory or regulatory purpose, and would require a covered savings
association to disclose more information than a Federal savings
association or national bank would be required to disclose. This
commenter recommended that the OCC either eliminate this requirement or
further clarify its scope. Another commenter stated that the
requirement to provide information on existing branches and agencies is
unnecessary and burdensome, noting that it may be difficult to provide
information on branches that have been operational for a number of
years. This commenter suggested that all branches that are open or
operational or that have received regulatory approval or non-objection
should be presumed to be compliant and documentation should not be
required. Neither commenter believes that the OCC has clearly indicated
why it needs this information.
The final rule does not require Federal savings associations to
identify branches or agencies in a notice of an election. The OCC
believes that it can obtain sufficient information about the branches
and agencies of a prospective covered savings association by reviewing
information the association submits on its nonconforming subsidiaries,
assets, or activities.\4\ This information will allow the OCC to
monitor covered savings associations for compliance with the final rule
without imposing any additional burden that could be associated with
submitting information identifying branches and agencies. After an
election, a covered savings association seeking to establish new
branches will be subject to the terms and conditions for the
establishment of branches applicable to a similarly located national
bank.\5\ A covered savings association seeking to establish new non-
branch offices (e.g., loan or deposit production offices) will also be
subject to any terms and conditions (including limitations) on the
operation of non-branch offices
[[Page 23994]]
applicable to a similarly located national bank.\6\
---------------------------------------------------------------------------
\4\ This would include information identifying activities
conducted in an agency that would cause the agency to be defined as
a branch under national bank law, as discussed later in this
preamble.
\5\ See, e.g., 12 U.S.C. 36 and 12 CFR 5.30.
\6\ See, e.g., 12 CFR 7.1003, 7.1004, 7.1005, 7.4004 and 7.4005.
---------------------------------------------------------------------------
Section 101.3(a)(2)(iii) of the proposed rule would have required
Federal savings associations to identify nonconforming subsidiaries,
assets, and activities because these are the subsidiaries, assets, and
activities the Federal savings association would need to divest,
conform, or discontinue pursuant to section 5A(f)(3) of HOLA and Sec.
101.5 of the rule after an election takes effect. The OCC solicited
feedback on whether the final rule should specify metrics for
determining the size or scope of a subsidiary, asset, or activity. The
OCC did not receive any comments responding to this solicitation and is
adopting this provision (which is designated as Sec. 101.3(a)(2)(ii)
in the final rule) as proposed. The OCC did receive comments on the
proposed treatment of nonconforming subsidiaries, assets, and
activities. These comments are addressed in the discussion of Sec.
101.5 later in this preamble.
Section 101.3(b) of the proposed rule provided that a Federal
savings association's election to operate as a covered savings
association would automatically take effect 60 days after the OCC
receives a notice from the Federal savings association, unless the OCC
notifies the Federal savings association that it is not eligible in
accordance with paragraph (c). The proposal also provided that the OCC
could notify a Federal savings association that it is eligible to
operate as a covered savings association before 60 days have elapsed.
The OCC did not receive any comments on this provision of the proposal.
The OCC is adopting Sec. 101.3(b) with one conforming change to
reflect the elimination of Sec. 101.3(c) as discussed later in this
preamble.
Section 101.3(c) of the proposed rule would have permitted the OCC
to notify a Federal savings association in writing that it is not
eligible to make an election to operate as a covered savings
association if the Federal savings association is not an ``eligible
savings association'' as that term is defined in 12 CFR 5.3(g). Under
the definition in 12 CFR 5.3(g), an eligible savings association is a
Federal savings association that (1) is well capitalized as defined in
12 CFR 6.4; (2) has a composite rating of 1 or 2 under the Uniform
Financial Institutions Rating System (CAMELS); (3) has a Community
Reinvestment Act (CRA) rating of ``outstanding'' or ``satisfactory,''
if applicable; (4) has a consumer compliance rating of 1 or 2 under the
Uniform Interagency Consumer Compliance Rating System; and (5) is not
subject to a cease and desist order, consent order, formal written
agreement, or Prompt Corrective Action directive or, if subject to any
such order, agreement, or directive, is informed in writing by the OCC
that the savings association may be treated as an ``eligible savings
association'' for purposes of 12 CFR part 5. Because the purposes of 12
CFR part 5 and the purposes of the proposed rule were different, the
proposed rule specified that a Federal savings association that is
subject to a cease and desist order, consent order, formal written
agreement, or Prompt Corrective Action directive would not be eligible
to elect to operate as a covered savings association unless the OCC
informed it in writing that it is eligible for purposes of part 101
(that is, for purposes of the proposed rule).
The preamble to the proposed rule noted that the concept of an
``eligible savings association'' as described in 12 CFR 5.3(g) is well
understood and relatively straightforward to apply. In the licensing
context, an ``eligible savings association'' may receive expedited
review of filings because it is generally the type of savings
association that can operate safely and soundly. The preamble to the
proposed rule explained that a Federal savings association that meets
the definition of ``eligible savings association'' typically would not
raise the types of concerns that would suggest it should not operate as
a covered savings association.
The OCC invited comment on whether there are standards other than
those in the definition of ``eligible savings association'' in 12 CFR
5.3(g) that would allow the OCC to determine, without imposing undue
burden, whether a Federal savings association is eligible to operate as
covered savings association. The OCC also invited comment on whether
there are situations in which, or Federal savings associations for
which, it would not be appropriate to use the definition of ``eligible
savings association'' to make determinations about the eligibility of a
Federal savings association to operate as a covered savings
association. Additionally, the OCC invited comment on whether the rule
should identify other factors for consideration when determining a
Federal savings association's eligibility to operate as a covered
savings association.
Although one commenter supported the OCC's proposed approach, four
commenters disagreed with the use of the ``eligible savings
association'' criteria as the basis for eligibility, noting that the
criteria are not expressly required by the statute. Some commenters
also contended that these criteria would be inconsistent with the
purpose of section 5A because they would add hurdles to making an
election. The commenters also suggested that the OCC has the expertise
to supervise a covered savings association following an election.
The OCC agrees with the commenters who expressed concern with the
proposed approach and is eliminating the ``eligible savings
association'' criteria in the final rule. The OCC believes that
elimination of these criteria is consistent with section 5A, which
directs the OCC to establish ``streamlined standards and procedures . .
. for an election.'' Removal of these criteria will increase the number
of institutions that can elect to operate as covered savings
associations. The OCC believes that it can use its existing supervisory
and enforcement mechanisms, as appropriate, to address any concerns
that may arise when an institution elects to operate as a covered
savings association, regardless of the condition of the institution at
the time of an election. In light of this change, the OCC is also
changing the heading of Sec. 101.3 from ``Procedures and Standards of
Review'' to ``Procedures.''
The OCC also received several comments asking about the impact of a
failure to meet the ``eligible savings association'' criteria on an
ongoing basis after an election. Because the final rule eliminates
these criteria, this is no longer an issue.
Although the final rule, like the proposed rule, does not require
the OCC to send written notice to a Federal savings association that
becomes a covered savings association by operation of law 60 days after
an election, the OCC would expect to send such notice as a matter of
course. The notice would include a reminder that covered savings
associations are subject to the same laws, regulations, and safety and
soundness expectations as a similarly located national bank, including
any appropriate enforcement action for failure to comply with
applicable laws and regulations.
101.4 Treatment of covered savings associations. Section 5A(c) of
HOLA provides that a covered savings association has the same rights
and privileges as a similarly located national bank and is subject to
the same duties, restrictions, penalties, liabilities, conditions, and
limitations that would apply to such a national bank. Section 5A(d)
further provides that a covered savings association will be treated as
a
[[Page 23995]]
Federal savings association for purposes of the governance of the
savings association, as well as for purposes of consolidation, mergers,
dissolution, conversion, conservatorship, and receivership. A covered
savings association also will be treated as a Federal savings
association for any other purposes the Comptroller identifies by
regulation.
Section 101.4(a)(1) of the proposed rule offered two alternative
ways of explaining what it means for a covered savings association to
have the rights and privileges of a similarly located national bank
while being subject to the same duties, restrictions, penalties,
liabilities, conditions, and limitations as a similarly located
national bank. The first alternative (option A) would have required a
covered savings association to comply with the same provisions of law
that would apply to a similarly located national bank and would not
have required the covered savings association to comply with the
provisions of law that apply to Federal savings associations, except in
specific areas. The second alternative (option B) focused on the
activities that would be permissible for a covered savings association.
It was modeled on the language used in the OCC's regulations on
national bank and Federal savings association operating subsidiaries
set out in 12 CFR 5.34(e) and 5.38(e). This alternative would have
provided that a covered savings association may engage in any activity
that is permissible for a national bank to engage in as part of, or
incidental to, the business of banking, or explicitly authorized by
statute for a national bank, subject to the same authorization, terms,
and conditions that would apply to a similarly located national bank,
as determined by the OCC. Both options would have been subject to
specific categories of Federal savings association law that would apply
to covered savings associations.
The OCC invited comment on which of these alternatives would best
clarify the requirements for the treatment of covered savings
associations, including the provisions of law that would apply to
covered savings associations. Five commenters supported option A, which
they considered to be a broader and less definitive approach that would
permit timely creativity and innovation by covered savings
associations. They also noted that updating a list of applicable laws
by regulatory action can take time and that guidance is of limited
reliability.
Two commenters supported option B, while two others appeared to
support option B but were less definitive. One commenter believed
option B would provide greater flexibility for the OCC, which the
commenter argued would be preferable even if it would be less certain
and would require more consultation with the OCC. Two commenters that
supported option B would also support option A if it included a
reservation of authority to allow the OCC to determine that a provision
of national bank law does not apply to covered savings associations.
The OCC is adopting option B to clarify the requirements for the
treatment of covered savings associations. This option provides general
guidance about the types of activities in which a covered savings
association would be permitted to engage. Covered savings associations
would be able to refer to OCC publications to find activities that are
permissible for national banks and understand the authorization, terms,
and conditions that apply to those activities.\7\ Option B is more
narrowly tailored than option A, and it preserves the OCC's authority
to determine that a particular provision of national bank law does not
apply to covered savings associations.
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\7\ Many of these documents and resources are available on
OCC.gov. These documents do not constitute an exhaustive list of all
activities permissible for national banks. Further, institutions are
responsible for determining whether any changes to applicable laws
or regulations impact the permissibility of an activity.
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Section 101.4(a)(2) of the proposed rule set out specified areas in
which a covered savings association would have continued to be treated
as a Federal savings association. These included the categories
specifically identified in the statute (governance of the covered
savings association (including incorporation, bylaws, boards of
directors, shareholders, and distribution of dividends), consolidation,
merger, dissolution, conversion (including conversion to a stock bank
or to another charter), conservatorship, and receivership). The
proposed rule also identified three additional areas in which it would
be appropriate to treat covered savings associations as Federal savings
associations. These areas were: (1) Provisions that allow Federal
mutual savings associations to conduct business as mutual institutions;
(2) provisions that set out procedural and operational requirements for
Federal savings associations but that do not result in substantively
different outcomes for Federal savings associations and national banks;
and (3) areas where there is a specific Federal savings association
rule with no corresponding specific national bank rule, but the Federal
savings association rule sets out requirements that are consistent with
supervisory expectations for national banks or is substantially similar
to an interagency rule. In the preamble to the proposed rule, the OCC
provided several charts to illustrate the types of provisions that the
OCC would expect to identify in guidance as provisions of law that
apply to Federal savings associations.
The OCC invited comment on whether particular provisions should be
considered provisions of law that relate to governance (including
incorporation, bylaws, boards of directors, shareholders, and
distribution of dividends), consolidation, merger, dissolution,
conversion (including conversion to a stock bank or to another
charter), conservatorship, and receivership and whether there are other
provisions of law that the OCC should identify. The OCC also invited
comment on whether these provisions should be specifically identified
in the rule rather than in guidance. The OCC received a number of
comments on this section of the proposed rule.
Five commenters requested clarification that covered savings
associations would not be required to change their name to include the
word ``National.'' National banks are required by statute to include
the word ``National'' in their name.\8\ Although section 5A of HOLA
provides flexibility for certain Federal savings associations to engage
in activities permissible for national banks, these covered savings
associations are not national banks and, as such, retain their Federal
savings association charter. Because covered savings associations
retain their Federal savings association charters, covered savings
associations will not be required to change their names to include the
word ``National.''
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\8\ 12 U.S.C. 22; 12 U.S.C. 30.
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One commenter requested that the OCC clarify that the rules
governing directors remain the same for Federal savings associations
that elect to operate as covered savings associations, noting in
particular that electing directors is a governance requirement. As
discussed in the preamble to the proposed rule, section 5A of HOLA sets
out specific categories of Federal savings association laws that will
continue to apply to covered savings associations, including those
governance provisions relating to boards of directors (e.g., elections,
term of service). Accordingly, covered savings associations will
continue to be required to comply with Federal savings association laws
with respect to boards of directors and will not be subject to national
bank laws with respect to
[[Page 23996]]
boards of directors. For example, covered savings associations will not
be subject to the statutory citizenship and residence requirements that
apply to directors of national banks.\9\
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\9\ 12 U.S.C. 72. The same principle would apply to other
requirements specific to the directors of national banks. See, e.g.,
12 U.S.C. 71 (election of directors); 12 U.S.C. 76 (president as
member of the board).
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Another commenter agreed that provisions of Federal savings
association law that relate to members of a Federal mutual savings
association should continue to apply to mutual covered savings
associations. However, the commenter was concerned that the preamble's
justification for this treatment could suggest that the rights of
members of a Federal mutual savings association are the same as the
rights of shareholders of a Federal stock savings association. The OCC
does not intend to use this rule to change the rights of members of a
Federal mutual savings association or equate those rights to the rights
of shareholders of a Federal stock savings association. Rather, the OCC
believes that the term ``shareholder,'' as it is used in the specific
context of section 5A(d)(1) of HOLA and this rule, indicates that
provisions of Federal savings association law that relate to governance
by the Federal savings association's stakeholders--including
shareholders and members--should continue to apply to stock and mutual
covered savings associations, respectively. This includes provisions of
Federal savings association law that describe the rights of members of
Federal mutual savings associations. This interpretation of the term
``shareholder'' is specific to section 5A of HOLA and is not intended
to be applied outside that context. To clarify this interpretation, the
OCC is adding ``members'' to the list of types of Federal savings
association governance provisions that apply to covered savings
associations in Sec. 101.4(a)(2)(i).
One commenter supported two of the categories of Federal savings
association law that the OCC proposed to apply to covered savings
associations: (1) Operational and procedural requirements that do not
create substantively different outcomes; and (2) certain requirements
for which there is no corresponding national bank requirement. Another
commenter supported the proposal's application of laws with particular
relevance for Federal mutual savings associations, such as those
regarding mutual capital certificates. These provisions of the proposed
rule remain unchanged in the final rule. The OCC has updated Sec.
101.4(a)(2)(xiii) of the final rule to expressly include the accounting
and disclosure standards in 12 CFR part 162.
Another commenter suggested that the OCC should preserve the
differences between national banks and Federal savings associations
unless section 5A expressly provides otherwise. The OCC does not
believe this approach is consistent with the language of section 5A of
HOLA, which provides that covered savings associations have the same
rights and privileges and are subject to the same duties, restrictions,
penalties, liabilities, conditions, and limitations as national banks
except where section 5A or the OCC's rules specifically provide
otherwise.
Three commenters requested that the OCC clarify that the preemption
standards for national banks and Federal savings associations are the
same and would not change following an election. Another commenter
requested that the OCC permit covered savings associations to rely on
whichever law most supports the OCC's preemptive authority, expressing
concern that covered savings associations would not benefit from any
preemption determinations applicable only to Federal savings
associations. The commenter also argued that Federal savings
associations benefit from more expansive preemption of state law
through established case law and authority reserved to the OCC, even
following the changes to preemption made in the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd-Frank Act).
The OCC agrees with commenters who stated that the preemption
standards applicable to national banks and Federal savings associations
are the same. Section 1046 of the Dodd-Frank Act added a new section 6
to HOLA (12 U.S.C. 1465), which provides that Federal savings
associations are subject to the same laws and legal standards as
national banks regarding the preemption of state law. This amendment is
codified in the OCC's regulations at 12 CFR 7.4010 and 34.6.
Two commenters recommended that the OCC include a mechanism that
would allow the agency to identify additional provisions of Federal
savings association law applicable to covered savings associations. One
of these commenters believes that this approach would provide the OCC
with flexibility to tailor the applicable regulations and that
publishing interpretive letters or updating relevant publications, with
accompanying public notice, would provide sufficient clarity. Although
the OCC agrees that this approach would provide additional flexibility,
section 5A(d) of HOLA requires that the additional purposes for which a
covered savings association is treated as a Federal savings association
be ``determined by regulation of the Comptroller.'' If the OCC
identifies additional categories of Federal savings association law
that should be applicable to covered savings associations, the OCC will
initiate a rulemaking to amend part 101.
Several commenters requested that the OCC clarify that covered
savings associations will not be subject to Federal savings association
regulations on interest rate risk management procedures and asset
classification, with two commenters asserting that these regulations do
not fall within the governance category. In the preamble to the
proposed rule, the OCC characterized the interest rate risk management
provisions in 12 CFR 163.176 as governance provisions that apply to
boards of directors because the provisions set out board
responsibilities with respect to interest rate risk management. On
further consideration, the OCC agrees that 12 CFR 163.176 should not be
classified as a governance provision for purposes of section 5A of
HOLA.\10\ Although 12 CFR 163.176 sets out requirements for the board
of directors and management, it is more appropriately viewed as a duty
that applies to a Federal savings association's activities. The
interest rate risk management provisions reflect the unique risk
profile of Federal savings associations, which historically often held
balance sheet concentrations in longer-term assets. Because of these
concentrations, Federal savings associations had to more closely
monitor sensitivity to market risk. A covered savings association may
be able to diversify its portfolio and therefore its interest rate risk
exposure. The risk-based examination approach taken by the OCC includes
supervision for interest rate risk. Further, all insured OCC-supervised
institutions, including covered savings associations, other Federal
savings associations, and national banks, continue to be subject to the
operational and managerial standards under 12 CFR part 30, Appendix A,
which specifically include standards for managing interest rate risk
exposure. This approach will give the OCC the flexibility to tailor its
supervision of a covered savings
[[Page 23997]]
association to risks associated with the business model of that covered
savings association.
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\10\ This determination relates to the OCC's interpretation of
the language of section 5A of HOLA and is not intended to change the
meaning of the term ``governance'' for other purposes. For example,
OCC examiners will continue to supervise Federal savings
associations as set out in Comptroller's Handbook: Corporate and
Risk Governance, Version 1.0, July 2016 at 77.
---------------------------------------------------------------------------
The proposed rule did not specifically address asset classification
regulations. The final rule does not subject covered savings
associations to the asset classification regulations applicable solely
to Federal savings associations, such as 12 CFR 160.160, as these
regulations do not fall within the categories of Federal savings
association laws that the final rule makes applicable to covered
savings associations (e.g., it is not a governance provision or a
merger provision, nor is it specifically designated in the final rule
as a provision of Federal savings association law that applies to
covered savings associations). In addition, covered savings
associations and OCC examiners can use the standards under 12 CFR part
30, appendix A, and the real estate lending standards under 12 CFR part
34 applicable to national banks to identify, classify, and otherwise
address problem assets as needed, consistent with safety and soundness.
One commenter recommended that a November 1, 2000, Office of Thrift
Supervision memorandum with supervisory and examiner guidance be
supplemented and not superseded by national bank examination guidance.
The OCC rescinded CEO Memo 153, ``Examinations of Mutual Savings
Associations'' in 2012.\11\
---------------------------------------------------------------------------
\11\ See OCC Bulletin 2012-15, OTS Integration: Rescission of
OTS Documents, Attachment A, available at https://www.occ.gov/news-issuances/bulletins/2012/2012-15a.pdf. See also OCC Bulletin 2014-
35, Mutual Federal Savings Associations: Characteristics and
Supervisory Considerations, July 22, 2014, available at https://www.occ.gov/news-issuances/bulletins/2014/bulletin-2014-35.html.
---------------------------------------------------------------------------
Six commenters requested clarification on how covered savings
associations would be treated for purposes of the QTL requirements in
HOLA and requested that the OCC's final rule expressly state that
covered savings associations are not required to comply with QTL. One
commenter added that compliance with QTL should not be required absent
a safety and soundness concern.
As discussed in the preamble to the proposed rule, unlike national
banks, Federal savings associations \12\ are required to comply with
the QTL test set forth in section 10(m) of HOLA, which requires a
Federal savings association to qualify as a domestic building and loan
association as defined in 26 U.S.C. 7701(a)(19) or to maintain a
certain percentage of qualified thrift investments in the Federal
savings association's portfolio.\13\ The preamble described the QTL
test as a key difference between the rights and privileges of a savings
association and a national bank. The OCC continues to believe that a
covered savings association will not be able to exercise the rights and
privileges conferred on it under section 5A while simultaneously being
subject to the limitations of the QTL test.\14\
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\12\ The OCC acknowledges that some provisions of section 10(m)
of HOLA apply to savings associations and other provisions apply to
savings and loan holding companies. The discussion in this preamble
focuses on the provisions of section 10(m) that apply to savings
associations.
\13\ 12 U.S.C. 1467a(m).
\14\ As discussed later in this preamble, a similar analysis
applies to the lending limitations imposed on Federal savings
associations by section 5(c) of HOLA. Section 5(c) permits Federal
savings associations to make residential real property and other
housing related loans without limit, but consumer and commercial
loans are subject to specific limitations established in the
statute.
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Section 101.4(a) of the final rule provides that a covered savings
association may engage in any activity that is permissible for a
similarly located national bank to engage in, subject to the same
authorization, terms, and conditions that would apply to a similarly
located national bank. Lending and investment are activities that
national banks are permitted to engage in as part of the business of
banking.\15\ When making loans and investments, covered savings
associations are subject to the same authorization, terms, and
conditions that would apply to similarly located national banks. There
are no authorizations, terms, or conditions that require national banks
to maintain status as qualified thrift lenders. Furthermore, unlike
governance, conservatorship, and receivership, lending and investment
are not purposes for which section 5A(d) of HOLA or the final rule
require that a covered savings association be treated as a Federal
savings association. Accordingly, a covered savings association
operating under section 5A is not subject to, among other things, the
penalties in 12 U.S.C. 1467a(m)(3) for failing to meet the QTL test.
The OCC believes this is consistent with both the language of Sec.
101.4(a) of the final rule and the statutory mandate that covered
savings associations exercise the rights and privileges of similarly
located national banks. Requiring compliance with the QTL test would be
inconsistent with and frustrate the purpose of allowing Federal savings
associations to make an election. The OCC does not believe it is
necessary to state explicitly in the final rule that the QTL test does
not apply to a covered savings association.
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\15\ 12 U.S.C. 24 (Seventh); see also 12 U.S.C. 371.
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The OCC applies a similar analysis to section 5(c) of HOLA. Section
5(c) sets out lending and investment restrictions that apply to Federal
savings associations. These authorizations, terms, and conditions do
not apply to the activities of national banks. Consequently, they do
not apply to covered savings associations.
The OCC also applies a similar analysis to public welfare and
community development investments. One commenter argued that covered
savings associations should be treated as Federal savings associations
for purposes of public welfare and community development investments.
Four commenters also suggested that the OCC consider grandfathering
public welfare or community development projects existing at the time
of an election. National banks are permitted to make public welfare
investments, subject to specific authorization, terms, and conditions
(namely, limits on the total amount of such investments). Covered
savings associations also will be permitted to make public welfare
investments, subject to the same authorization, terms, and conditions
(including the limits on the total amount of such investments) as a
national bank. Any public welfare or community development projects
existing at the time of an election that would not comply with the
authorizations, terms, and conditions applicable to a national bank
will be subject to Sec. 101.5 of this final rule, which the OCC
believes provides adequate time and flexibility for divestiture or
conformance.
In the preamble to the proposed rule, the OCC applied a similar
analysis to the affiliate transaction restrictions in section 11(a) of
HOLA. While two commenters agreed that covered savings associations
should not be subject to the affiliate transaction rules specific to
Federal savings associations, they requested that the OCC clarify this
in the final rule. Affiliate transaction restrictions for savings
associations are set out in section 11(a) of HOLA and 12 CFR 223.72.
These provisions present potential complications that the QTL
restrictions, community development restrictions, and lending and
investment restrictions do not. The OCC will continue to consult with
the FRB on interpretive issues regarding the application of these
provisions to covered savings associations. The OCC recommends that
individuals or institutions with specific questions about the
application of these
[[Page 23998]]
provisions to covered savings associations contact the FRB.
Several commenters requested that the OCC clarify in the final rule
which merger provisions would apply when a covered savings association
merges with another entity. One commenter asserted that the proposed
rule could limit a covered savings association's ability to engage in
certain interstate merger transactions if covered savings associations
are treated as national banks for purposes of interstate merger laws.
The commenter asked the OCC to confirm that covered savings
associations are subject only to the merger provisions that apply to
Federal savings associations and not to interstate or other provisions
applicable to national banks. Several commenters noted that the
proposal does not clarify how applicable branching laws and merger
requirements will work together.
National banks and Federal savings associations are subject to
different laws regarding business combinations.\16\ For instance,
national banks are subject to a specific statutory framework that sets
out the authorization, terms, and conditions for merger and
consolidation activities.\17\ There are fewer statutory requirements
for the merger and consolidation activities of Federal savings
associations.\18\ The OCC has detailed regulations to address the
authority of national banks and Federal savings associations to engage
in mergers and consolidations, including procedural requirements. Where
consistent with underlying statutory authorities, the OCC has
harmonized the regulations for business combination activities of
national banks and Federal savings associations, respectively, although
some differences remain.\19\ The regulations for business combination
activities involving national banks and Federal savings associations
are set forth in 12 CFR 5.33.
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\16\ The term ``business combination'' includes mergers and
consolidations. See 12 CFR 5.33(d)(2).
\17\ See, e.g., 12 U.S.C. 214a, 214b, 215, 215a, 215a-1, 215a-3,
215b, 215c, 1828(c), and 1831u. Some of these provisions also apply
to savings associations (e.g., 12 U.S.C. 1828(c)).
\18\ See, e.g., 12 U.S.C. 1467a(s).
\19\ Integration of National Banks and Federal Savings
Association Regulations: Licensing Rules, 80 FR 28346, 28368 (May
18, 2015).
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Section 5A of HOLA provides that a covered savings association
shall be treated as a Federal savings association for purposes of
consolidation and merger.\20\ In the preamble to the proposed rule, the
OCC explained that where the business combination provisions in 12 CFR
5.33 set out different requirements for Federal savings associations
and national banks, the Federal savings association requirements would
apply to a covered savings association.
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\20\ 12 U.S.C. 1464a(d)(2). Furthermore, by including a specific
provision allowing branches in operation on the date an election is
approved to continue to operate after an election, section 5A(e)
suggests that, after an election, national bank branching
requirements should apply.
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However, the OCC understands that merger provisions and branching
provisions can intersect in certain situations, such as the interstate
branch acquisition provisions covered by 12 U.S.C. 1831u. This can lead
to additional complications because, under the final rule, covered
savings associations may engage in any activity that is permissible for
a similarly located national bank to engage in as part of, or
incidental to, the business of banking, or explicitly authorized by
statute for a national bank, subject to the same authorization, terms,
and conditions that would apply to a similarly located national
bank.\21\ Branching is such an activity. As a result, under the final
rule, a covered savings association will be permitted to establish or
retain new branches, or to close branches, subject to the
authorization, terms, and conditions that apply to a similarly located
national bank. This is true whether or not the branch is retained or
closed as part of a merger. The OCC has concluded that, for purposes of
section 5A of HOLA and the final rule, the provisions of law relating
to retention of branches in mergers and those that establish interstate
branching restrictions in the merger context should be considered
branching requirements rather than merger requirements. For a covered
savings association, this means that while the authority to engage in a
proposed merger or consolidation transaction will be governed under the
laws applicable to Federal savings associations, the ability to
establish or retain branches will be subject to the same authorization,
terms, and conditions that would apply to a similarly located national
bank (including conditions on the establishment of interstate
branches). Any other interpretation could permit covered savings
associations to acquire, through a merger, new branches under terms or
conditions that would not be permissible for a similarly located
national bank to acquire. Allowing covered savings associations to
engage in branching activities under terms or conditions that are not
available for similarly located national banks would be counter to the
language of section 5A of HOLA.
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\21\ Section 5A(c)(2) provides that covered savings associations
are subject to the duties, restrictions, penalties, liabilities,
conditions, and limitations that would apply to a similarly located
national bank, except as provided in section 5A(d). Section 5A(d)
does not include branching as a purpose for which a covered savings
association will be treated as Federal savings association.
Furthermore, by including a specific provision allowing branches in
operation on the date an election is approved to continue to operate
after an election, section 5A(e) suggests that, after an election,
national bank branching requirements should apply. If covered
savings associations were permitted to operate branches that
national banks are not, section 5A(e) would be surplusage.
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Several commenters requested that the OCC clarify in the final rule
that trust-only covered savings associations would not be required to
maintain deposit insurance where similarly located trust-only national
banks would not be subject to this requirement. The proposed rule did
not explicitly address whether a trust-only covered savings association
must have deposit insurance, although it did provide that a covered
savings association would be required to comply with 12 CFR 5.20, which
requires deposit insurance as a condition of obtaining a Federal
savings association charter. The commenters argued that the requirement
to have deposit insurance is a ``condition,'' ``limitation,'' and
``restriction'' on a ``right'' or ``privilege'' and, therefore, should
not apply to trust-only covered savings associations. One commenter
noted that this disparity in the treatment of non-depository Federal
savings associations and national banks should be eliminated absent a
safety and soundness concern. One commenter argued that deposit
insurance is a restriction, condition, and limitation similar to the
QTL requirements, which the proposal makes inapplicable. The commenter
believes that providing parity on deposit insurance requirements would
advance the goal of uniform treatment. The commenter also believes that
the OCC's authority to determine the laws applicable to covered savings
associations is limited by the requirement that trust-only covered
savings associations be treated the same as comparable national banks.
Two commenters noted that the proposal lists 12 CFR 5.20 as a
governance provision but argued that 12 CFR 5.20(e)(3), which addresses
deposit insurance, is not properly viewed as a governance provision.
These commenters requested that the OCC clarify that 12 CFR 5.20(e)(3)
is not a governance provision and does not apply to trust-only covered
savings associations. One commenter made several arguments in support
of this view: (1) Governance provisions are the standards that govern
incorporation and the relationship between a Federal savings
association and its shareholders,
[[Page 23999]]
members, and management, not the laws implicating substantive areas of
banking or savings association powers, authorities, and activities; (2)
unlike deposit insurance, the other governance provisions identified in
the proposal are analogous to state corporate governance laws; (3)
unlike other identified governance provisions, deposit insurance is not
included in the OCC's model charter or bylaws; (4) deposit insurance is
not analogous to the other examples of governance provisions identified
in the statute or the proposal; and (5) it would be simpler for a
trust-only covered savings association to drop its deposit insurance
than to comply with new governance requirements.
One commenter articulated the burdens associated with being
required to maintain deposit insurance as a trust-only entity,
including (1) the requirement to have a minimum of $500,000 in insured
deposits to retain deposit insurance; (2) the requirement to have 99%
of deposits be trust funds to qualify for the trust-only savings and
loan holding company exclusion; \22\ (3) and the costs associated with
seeking trust-only carve outs from laws that apply to ``insured
depository institutions.'' \23\ One commenter addressed the OCC's
enforcement, receivership, and conservatorship authority over an
uninsured trust-only covered savings association, arguing that section
5A provides the OCC with the full array of such authority. The
commenter argued that the OCC's enforcement authorities in section 8 of
the Federal Deposit Insurance Act (FDIA) are clearly ``restrictions,
penalties, liabilities, conditions, and limitations'' and, therefore,
should apply to uninsured covered savings associations in the same way
as they apply to uninsured national banks. The commenter also
recommended that the OCC rely on its authority to issue rules that
clarify the provisions of law applicable to covered savings
associations and in the interest of safety and soundness to provide
that uninsured covered savings associations would be subject to section
8. The commenter argued that the OCC's authority to issue rules ``in
the interest of safety and soundness'' provide the agency with
sufficient authority to issue regulations for appointing conservators
and receivers of uninsured covered savings associations. The commenter
cited the OCC's rule for receiverships of uninsured national banks as a
model.
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\22\ The commenter noted that the FRB permitted the company to
exclude the $500,000 deposit from its 99% calculation in the course
of approving the commenter's application to deregister as a savings
and loan holding company.
\23\ The commenter believes that this phrase is often used as a
proxy to indicate that an institution is engaged in all commercial
banking activities.
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For the reasons that follow, the OCC concludes that HOLA requires
all savings associations, whether they elect to operate as covered
savings associations or not, to have deposit insurance. The OCC bases
this determination on the language of HOLA rather than a determination
that 12 CFR 5.20(e)(3) is a governance provision. Under the HOLA
definition of ``savings association,'' all Federal savings
associations, including those that engage only in trust activities and
those that elect to operate as covered savings associations, are
required to have deposit insurance.\24\ Under section 5A of HOLA and
Sec. Sec. 101.2(a)(2) and 101.3(a)(1) of the final rule, only Federal
savings associations are eligible to elect to operate as covered
savings associations. An election to operate as a covered savings
association does not change a Federal savings association's charter,
its status as a savings association, or its stock or mutual form.
Because only Federal savings associations can elect to operate as
covered savings associations, and because all Federal savings
associations are required to have deposit insurance, a Federal savings
association must have deposit insurance in order to elect to operate as
a covered savings association. The OCC does not believe that the
``rights and privileges'' or ``duties, restrictions, penalties,
liabilities, conditions, and limitations'' language in section 5A is
sufficient to overcome the requirement that a covered savings
association be a Federal savings association. Therefore, because a
trust-only covered savings association still retains its Federal
savings association form and charter, HOLA's definitional deposit
insurance requirement continues to apply after an election and a trust-
only covered savings association must continue to maintain deposit
insurance.
---------------------------------------------------------------------------
\24\ Section 2(2) of HOLA (12 U.S.C. 1462(2)) defines a
``savings association'' as ``a savings association, as defined in
section 3 of the Federal Deposit Insurance Act [12 U.S.C. 1813], the
deposits of which are insured by the Corporation.'' Furthermore,
section 5(d) of HOLA, which gives the OCC enforcement authority over
Federal savings associations, defines ``savings association'' for
purposes of that subsection as ``any savings association or former
savings association that retains deposits insured by the
Corporation, notwithstanding termination of its status as an
institution insured by the Corporation.'' Because Federal savings
associations are a type of savings association, these requirements
also apply to Federal savings associations.
---------------------------------------------------------------------------
The language of section 5A of HOLA supports the conclusion that
covered savings associations must continue to maintain deposit
insurance after making an election. Section 5A states that a covered
savings association shall be treated as a Federal savings association
for purposes of ``conservatorship'' and ``receivership.'' \25\ The
existing conservatorship and receivership framework for Federal savings
associations (including trust-only institutions) only covers insured
Federal savings associations, and HOLA contemplates ``only the Federal
Deposit Insurance Corporation as receiver for a savings association for
the purpose of liquidation or winding up the affairs of such savings
association.'' \26\ Moreover, the plain language of section 5A prevents
the OCC from applying the national bank conservatorship and
receivership rules (including those that cover uninsured trust-only
national banks) to covered savings associations. For these reasons, the
final rule does not include a new receivership and conservatorship
framework for trust-only covered savings associations.
---------------------------------------------------------------------------
\25\ 12 U.S.C. 1464a(d)(2).
\26\ 12 U.S.C. 1464(d)(2)(E)(ii).
---------------------------------------------------------------------------
Six commenters requested that the OCC allow covered savings
associations to continue to engage in any activities and retain any
investments grandfathered under section 5(i)(4) of HOLA. That provision
of HOLA (1) allows any Federal savings bank chartered as such prior to
October 15, 1982, to continue to make any investment or engage in any
activity not otherwise authorized under section 5 of HOLA, to the
degree it was permitted to do so as a Federal savings bank prior to
October 15, 1982; and (2) allows any Federal savings bank in existence
on August 9, 1989, and formerly organized as a mutual savings bank
under State law to continue to make any investment or engage in any
activity not otherwise authorized under section 5 of HOLA, to the
degree it was authorized to do so as a mutual savings bank under State
law. Four commenters stated that eliminating this authority would
disproportionately impact institutions with grandfathered equity
powers, with three adding that forcing divestiture may have unintended
consequences. One commenter requested that the OCC consider a more
flexible approach by reviewing long-term investment portfolios on a
case-by-case basis. The commenter noted that these activities were
reaffirmed as safe and sound in 1991 in section 24 of the FDIA and that
many associations use the authority for long-term investing, not active
trading. One commenter asserted that there is no indication that
Congress intended to repeal section 5(i)(4) and that OCC
[[Page 24000]]
should not interpret section 5A to eliminate this authority.
The OCC agrees that a Federal savings association engaged in
activities or retaining investments grandfathered under section 5(i)(4)
of HOLA should continue to be permitted to engage in those activities
and retain those investments if the association elects to be treated as
a covered savings association. The volume of these activities and the
amount of these investments are capped by the language of section
5(i)(4) of HOLA, and those limits would continue to apply after an
election. The OCC has, on at least one prior occasion, permitted a
state bank with activities and investments permitted by the state to
continue to engage in those activities and retain those investments
after converting to a national bank. Section 101.4(a)(2) of the final
rule provides that covered savings associations can continue to engage
in the specific, limited types of grandfathered nonconforming
activities and investments permitted under section 5(i)(4) of HOLA.
Several commenters argued that covered savings associations should
not be precluded from operating or investing in service corporations
that engage only in activities permissible for national banks. One
commenter argued that allowing covered savings associations to operate
new and existing service corporations that engage only in national bank
permissible activities is critical to achieving the full exercise of
the election. Another commenter argued that if a service corporation's
activities are permissible for both FSAs and national banks, CSAs
should not be required to re-characterize the investment to rely on
national bank authority or to change documentation to reflect that
authority. The commenter believes that this would be inconsistent with
a streamlined process and would result in material burden. A third
commenter recommends that the OCC not require a change in legal form
for any subsidiary, asset, or activity that is permissible for a
national bank, unless the OCC can demonstrate that a material adverse
financial effect would be imminent following the election.
Other commenters asked whether a service corporation would
automatically become an operating subsidiary or whether this would be
an unnecessary governance change. One commenter believes that service
corporations should be allowed to continue their operations following
an election.
Under the final rule, covered savings associations are not
permitted to retain nonconforming subsidiaries, assets, or activities.
A nonconforming subsidiary, asset, or activity includes an investment
in a subsidiary or other entity that is not permissible for a covered
savings association. Federal savings associations have authority to
invest in service corporations under section 5 of HOLA.\27\ National
banks do not have express statutory authority to invest in service
corporations. Consequently, a covered savings association may not
retain an existing service corporation or establish and invest in a new
service corporation.
---------------------------------------------------------------------------
\27\ 12 U.S.C. 1464(c)(4)(B).
---------------------------------------------------------------------------
A Federal savings association that elects to operate as a covered
savings association would be required to comply with Sec. 101.5 of the
final rule by divesting or conforming any investment in a service
corporation within the timeframe set out in Sec. 101.5. The covered
savings association could do so simply by divesting any investment in a
service corporation. The covered savings association could also choose
to conform the investment by redesignating the service corporation as
an operating subsidiary, because national banks are permitted to have
operating subsidiaries.
An operating subsidiary of a covered savings association is only
permitted to engage in the activities permissible for the covered
savings association to engage in directly (i.e., those permissible for
a national bank). A covered savings association that chooses to
redesignate a service corporation as an operating subsidiary must
ensure that the operating subsidiary is only engaged in such
permissible activities--in other words, it must discontinue any
nonconforming activities.
The OCC did not receive comment on Sec. 101.4(b) of the proposed
rule, which would have implemented section 5A(e) of HOLA by providing
that a covered savings association may continue to operate any branch
or agency that the covered savings association operated on the
effective date of the election. The OCC adopts this provision of the
proposed rule without change.
As discussed in the preamble to the proposed rule, a covered
savings association seeking to establish a de novo branch or to
relocate or close an existing branch would be subject to the
authorization, terms, and conditions that govern the establishment or
closing of a national bank branch. Furthermore, if a branch of a
covered savings association engages in activities that are included in
the definition of a branch under the national bank branching
regulation, 12 CFR 5.30, that branch may continue to operate subject to
the same authorization, terms, and conditions as a similarly located
branch of a similarly located national bank. If an agency of a covered
savings association engages in activities that would qualify the agency
as a branch under the national bank branching regulation, 12 CFR 5.30,
those activities would be considered nonconforming activities, and the
covered savings association would be required to discontinue or conform
the activities or submit an application and obtain OCC approval under
12 CFR 5.30 to establish the agency as a branch.\28\ If a covered
savings association wishes to establish a new branch, it would be
required to do so under the rules for national bank branches in 12 CFR
5.30. The OCC believes this approach best allows covered savings
associations to continue to operate the branches and agencies they
operated on the date on which an election was approved but subject to
the same authorization, terms, and conditions that would apply to a
similarly located national bank.
---------------------------------------------------------------------------
\28\ There is overlap between the activities that a Federal
savings association may undertake in an agency and the activities
that a national bank may undertake in an entity that is not a
branch. See 12 CFR 5.30, 5.31, and part 7.
---------------------------------------------------------------------------
As noted earlier in this preamble, the final rule adds a new Sec.
101.4(c) to reflect the language of section 5A(g) of HOLA.
The proposed rule provided that the Federal savings associations
regulations applicable to the issuance of subordinated debt and
mandatorily redeemable preferred stock for inclusion in tier 2 capital
would apply to covered savings associations. Title 12 CFR 5.56(a)
provides that Federal savings associations must comply with the
requirements of 12 CFR 163.80 (Borrowing limitations) when issuing
subordinated debt or mandatorily redeemable preferred stock that is not
included in tier 2 capital. The OCC has revised the final rule to
clarify that Sec. 163.80 applies to covered savings associations when
the covered savings association's issuance of subordinated debt or
mandatorily redeemable preferred stock is not included in tier 2
capital.
For the convenience of readers, the following chart summarizes the
provisions of law discussed in this preamble and the preamble to the
proposed rule and their applicability to covered savings associations.
It includes provisions in the categories specifically listed in the
statute (governance (including incorporation, bylaws, boards of
directors, shareholders and members, and distribution of dividends),
consolidation, merger, dissolution, conversion (including conversion to
a stock bank or to another
[[Page 24001]]
charter), conservatorship, and receivership). It also includes: (1)
Provisions that allow Federal mutual savings associations to conduct
business as mutual institutions; (2) provisions that set out procedural
and operational requirements for Federal savings associations but that
do not result in substantively different outcomes for Federal savings
associations and national banks; and (3) areas where there is a
specific Federal savings association rule with no corresponding
specific national bank rule, but the Federal savings association rule
sets out requirements that are consistent with supervisory expectations
for national banks or is substantially similar to an interagency rule.
This chart is not an exhaustive list of the statutes and regulations
that apply to covered savings associations. In addition, the provisions
of law included in the chart may change, whether as a result of
amendments to a statute or future OCC rulemaking. For example, if the
OCC later issues a rule integrating the national bank and Federal
savings association rules for adjudicative procedures, the references
in this chart to parts 19, 108, and 109 may no longer be accurate.
------------------------------------------------------------------------
Applicability to covered savings
Provision of law associations
------------------------------------------------------------------------
Selected Statutory Provisions Applicable to National Banks
------------------------------------------------------------------------
12 U.S.C. 24 (Eleventh) and 12 CFR Applies.
part 24. These sections permit
national banks to make public
welfare investments, subject to
certain limitations.
12 U.S.C. 22 and 30. These sections Does not apply.
require national banks to have the
word ``National'' in their names.
12 U.S.C. 71. This section sets out Does not apply.
standards for the election of
directors of national banks.
12 U.S.C. 72. This section sets out Does not apply.
citizenship and residency
requirements for directors of
national banks.
12 U.S.C. 76. This section requires Does not apply.
the president of a national bank to
be a member of the board of
directors of the national bank.
------------------------------------------------------------------------
Selected Statutory Provisions Applicable to Federal Savings Associations
------------------------------------------------------------------------
12 U.S.C. 1462(2). This paragraph Applies.
defines a ``savings association.''
The OCC interprets this definition
to require deposit insurance.
12 U.S.C. 1464(c). This subsection Does not apply.
establishes limitations on the
lending and investment authority of
Federal savings associations,
including the authority to make
community development investments.
12 U.S.C. 1464(d) and 1821(c). These Applies.
statutes set forth the authorities
for the appointment of a
conservator or receiver for Federal
savings associations.
12 U.S.C. 1464(i)(4) and 12 CFR part Applies.
143. These provide: (1) That
Federal savings banks chartered
prior to October 15, 1982, may
continue to make any investment or
engage in any activity not
otherwise authorized under section
5 of HOLA to the degree they were
permitted to do so as a Federal
savings bank prior to October 15,
1982; and (2) that any Federal
savings bank in existence on August
9, 1989, and formerly organized as
a mutual savings bank under State
law to continue to make any
investment or engage in any
activity not otherwise authorized
under section 5 of HOLA, to the
degree it was authorized to do so
as a mutual savings bank under
State law.
12 U.S.C. 1467a(m). This subsection Does not apply.
sets out the qualified thrift
lender test.
------------------------------------------------------------------------
Selected Governance Regulations Applicable to Federal Savings
Associations
------------------------------------------------------------------------
12 CFR 5.21. This section sets out Applies.
the requirements for Federal mutual
savings associations when adopting
or amending the charters or bylaws.
12 CFR 5.22. This section sets out Applies.
the requirements for Federal stock
savings associations when adopting
or amending the charters or bylaws.
12 CFR 145.121. This section Applies.
requires Federal savings
associations to indemnify
directors, officers, and employees.
12 CFR 160.130. This section Applies.
prohibits directors and officers
from receiving loan procurement
fees.
12 CFR 163.33. This section sets out Applies.
requirements for the composition of
the board of directors of a Federal
savings association.
12 CFR 163.47. This section sets out Applies.
requirements for employee pension
plans of Federal savings
associations, which may be amended
or terminated by the board of
directors.
12 CFR 163.172(c), (d), and (e). Applies.
These provisions establish
requirements for directors and
management of Federal savings
associations to oversee and keep
records pertaining to derivatives
transactions.
12 CFR 163.200. This section sets Applies.
expectations for the directors,
officers, and employees of Federal
savings associations, particularly
as it relates to conflicts of
interest.
12 CFR 163.201. This section sets Applies.
expectations for the directors and
officers of Federal savings
associations, particularly as it
relates to corporate opportunity.
------------------------------------------------------------------------
Selected Merger, Consolidation, Conversation, Reorganization, and
Subsidiary Regulations Applicable to Federal Savings Associations
------------------------------------------------------------------------
12 CFR 5.25. This section sets out Applies.
requirements for conversion from a
national bank or Federal savings
association to a state bank or
state savings association. Although
many aspects of this section are
identical for national banks and
Federal savings associations, where
there are differences, the Federal
savings association requirements
would apply to a covered savings
association.
12 CFR 5.33. This section sets out Applies.
requirements for business
combinations involving a national
bank or Federal savings
association, including mergers.
Although many aspects of this
section are identical for national
banks and Federal savings
associations, where there are
differences, the Federal savings
association requirements would
apply to a covered savings
association.
12 CFR 5.34, 5.35, and 5.39. These Applies.
sections set out requirements for
the formation of operating
subsidiaries, bank service
companies, and financial
subsidiaries, respectively, by
national banks.
12 CFR 5.36. This section addresses Applies.
other equity investments by
national banks.
[[Page 24002]]
12 CFR 5.48. This section sets out Applies.
requirements for voluntary
liquidation of a national bank or
Federal savings association.
Although many aspects of this
section are identical for national
banks and Federal savings
associations, where there are
differences, the Federal savings
association requirements would
apply to a covered savings
association.
12 CFR 5.59. This section addresses Does not apply.
Federal savings association service
corporations.
12 CFR part 192. This part sets out Applies.
requirements for savings
associations converting from mutual
to stock form.
------------------------------------------------------------------------
Selected Capital Distributions and Subordinated Debt Regulations
------------------------------------------------------------------------
12 CFR 5.45. This section Applies.
establishes requirements for
increases in permanent capital for
Federal stock savings associations.
12 CFR 5.46. This section Does not apply.
establishes requirements for
changes in permanent capital of
national banks.
12 CFR 5.47. This section Does not apply.
establishes requirements for
subordinated debt issued by
national banks.
12 CFR 5.55. This section sets out Applies.
requirements for capital
distributions by Federal savings
associations, including
distributions of dividends. The
entire section would apply to a
covered savings association.
12 CFR 5.56. This section Applies.
establishes requirements for
inclusion of subordinated debt
securities and mandatorily
redeemable preferred stock of
Federal savings associations as
supplementary capital \29\.
12 CFR 163.76. This section Applies.
addresses offers and sales of
securities at an office of a
Federal savings association.
------------------------------------------------------------------------
Selected Regulations Applicable to the Operations of National Banks and
Federal Savings Associations
------------------------------------------------------------------------
12 CFR part 12. This part Does not apply.
establishes requirements relating
to recordkeeping and confirmation
for securities transactions by
national banks.
12 CFR part 19. This part Does not apply.
establishes requirements for
adjudicative and investigative
proceedings that involve national
banks.
12 CFR part 21, subpart A. This Does not apply.
subpart establishes security
procedures for national banks.
12 CFR parts 108 and 109. These Applies.
parts establish requirements for
adjudicative proceedings that
involve Federal savings
associations.
12 CFR part 112. This part Applies.
establishes requirements for
investigative proceedings involving
Federal savings associations.
12 CFR part 128. This part sets out Applies.
nondiscrimination requirements for
Federal savings associations.
12 CFR part 151. This part Applies.
establishes recordkeeping and
confirmation requirements for
securities transactions involving
Federal savings associations.
12 CFR 160.30. This section Does not apply.
implements the statutory lending
and investment limits applicable to
the operations of a Federal savings
association, including community
development investments.
12 CFR 160.36. This section permits Does not apply.
de minimis community development
investments for Federal savings
associations.
12 CFR 160.160. This section sets Does not apply.
out asset classification
requirements applicable to Federal
savings associations.
12 CFR part 162. This part Applies.
implements a provision of HOLA that
requires Federal savings
associations to use generally
accepted accounting principles.
12 CFR 163.27. This section Applies.
prohibits inaccurate or
misrepresentative advertising.
12 CFR 163.76. This section Applies.
addresses offers and sales of
securities at an office of a
Federal savings association.
12 CFR 163.170(c). This provision Applies.
sets out expectations for
maintenance of records.
12 CFR part 168. This part Applies.
establishes security procedures for
Federal savings associations.
12 CFR 163.176. This section Does not apply.
establishes requirements for
Federal savings associations
related to interest rate risk
management.
------------------------------------------------------------------------
Selected Regulations Applicable to Federal Mutual Savings Associations
------------------------------------------------------------------------
12 CFR 5.21. This section sets out Applies.
the requirements for Federal mutual
savings associations when adopting
or amending the charters or bylaws.
12 CFR part 144. This part sets out Applies.
rules for communications between
members of Federal mutual savings
associations. The national bank
laws relating to shareholder
communications do not adequately
address the unique needs and rights
of Federal mutual savings
association members.
12 CFR 163.74. This section Applies.
establishes requirements for mutual
capital certificates.
12 CFR part 169. This part sets out Applies.
rules for proxies in the mutual
context. The national bank laws
relating to proxies do not
adequately address the unique needs
and rights of Federal mutual
savings association members.
------------------------------------------------------------------------
101.5 Nonconforming subsidiaries, assets, and activities. Section
101.5 of the proposed rule established a transition process for
bringing nonconforming subsidiaries, assets, and activities into
conformance with the requirements for national banks.
---------------------------------------------------------------------------
\29\ 12 CFR 5.56(a) provides that Federal savings associations
must comply with the requirements of 12 CFR 163.80 (Borrowing
limitations) when issuing subordinated debt or mandatorily
redeemable preferred stock that is not included in tier 2 capital.
Section 163.80 applies to covered savings associations for purposes
of Sec. 5.56 (i.e., when the covered savings association's issuance
of subordinated debt or mandatorily redeemable preferred stock is
not included in tier 2 capital).
---------------------------------------------------------------------------
Section 101.5(a) of the proposed rule would have required a covered
savings association to divest, conform, or discontinue nonconforming
subsidiaries, assets, and activities at the earliest time that prudent
judgment dictates but not later than two years after the effective date
of an election. Paragraph (a) also would have provided that the OCC may
require a covered savings association to submit a plan to divest,
conform, or discontinue a nonconforming subsidiary, asset, or activity,
to assist OCC supervisory staff in assessing compliance with the
proposed rule. Section 101.5(b) of the proposed rule would have allowed
the OCC to grant a covered savings association extensions of not more
than two years each up to a maximum of eight years if the OCC
determined that: (1) The covered savings association has
[[Page 24003]]
made a good faith effort to divest, conform, or discontinue the
nonconforming subsidiaries, assets, or activities; (2) divestiture,
conformance, or discontinuance would have a material adverse financial
effect on the covered savings association; and (3) retention or
continuation of the nonconforming subsidiaries, assets, or activities
is consistent with the safe and sound operation of the covered savings
association. This paragraph was intended to provide the OCC with
flexibility when a covered savings association, despite its best
efforts, is unable to divest or conform assets or subsidiaries or
discontinue activities within the two-year period.
Several commenters generally addressed the timeframes for
divestiture, conformance, and discontinuance. One commenter believed
that the initial two-year period is reasonable and the ability to seek
extensions provides sufficient flexibility for complex investments or
depressed market conditions. Another commenter recommended a
``reasonable time'' standard for divesture to account for extraordinary
circumstances. This commenter noted that service corporation
investments in real estate may require longer divestiture periods and
that these are not always comparable to other real estate owned (OREO).
A third commenter suggested that a timeframe committed to supervisory
discretion would be preferable to a specific regulatory deadline.
One commenter asserted that there may be situations where a covered
savings association should be allowed to continue a long-standing
nonconforming activity. One commenter believes that the statute
requires the OCC to establish conditions under which a covered savings
association can retain nonconforming subsidiaries, assets, and
activities in perpetuity. The commenter believes that retention should
be subject to review at election and periodically thereafter but that
retention should be presumed permissible.
The OCC adopts the proposed Sec. 101.5(a) and (b) without change.
The OCC believes that the standard in the final rule provides
sufficient flexibility to address extraordinary circumstances while
emphasizing the OCC's expectation that, in the normal course of events,
nonconforming subsidiaries, assets, or activities will be divested,
conformed, or discontinued as soon as prudent judgment dictates. The
OCC is not persuaded that a responsibly managed service corporation
investment in real estate is materially different from real estate held
by a national bank, a Federal savings association, or an operating
subsidiary, such that more than 10 years would be required to fully
divest. Commenters did not clarify what standard the OCC should use to
determine when a service corporation investment in real estate would
need to be divested. Furthermore, for the reasons explained earlier in
this preamble, the final rule requires that covered savings
associations either divest their service corporations or conform their
service corporations by redesignating them as operating subsidiaries.
Any real estate activities in the operating subsidiaries would need to
be activities permissible for a covered savings association operating
subsidiary. Without additional detail about the specific types of
situations in which additional time might be needed, the OCC declines
to extend the 10-year limitation in the final rule.
The OCC does not agree that section 5A of HOLA creates a
presumption that nonconforming subsidiaries, assets, and activities are
permissible. On the contrary, the statute requires covered savings
associations to bring nonconforming assets and subsidiaries into
conformance with the requirements for national banks and provides only
a mechanism for covered savings associations to apply to the OCC to
hold nonconforming assets or subsidiaries after an election. The
statute does not require the OCC to grant permission to hold or
continue nonconforming assets or subsidiaries indefinitely.
Consequently, the final rule permits covered savings associations to
request permission to hold or continue nonconforming subsidiaries,
assets, and activities for additional two-year periods, up to a total
of 8 years, if they are unable to divest, conform, or discontinue
within two years as otherwise required.
The timeframes in the rule should, in most cases, provide a covered
savings association with sufficient lead-time to minimize potential
undue financial harm from divesting, conforming, or discontinuing
nonconforming subsidiaries, assets, and activities. This period also is
short enough to ensure that covered savings associations are not
allowed to gain an advantage by holding or operating assets or
subsidiaries or conducting activities that would not be permissible for
a national bank. Additionally, the timeframe is generally consistent
with the timeframe that the OCC provides for Federal savings
associations to divest nonconforming subsidiaries and assets and
discontinue nonconforming activities when they convert to national
banks.
Proposed Sec. 101.5(c) provided that Federal savings association
law would continue to apply to nonconforming subsidiaries, assets, and
activities during the period before the covered savings association
divests, conforms, or discontinues the subsidiary, asset, or activity.
The OCC did not receive any comments on this provision and adopts it
with one clarifying change. The final rule specifies that the
provisions of Federal savings association law that continue to apply
before divesting, conforming, or discontinuing a subsidiary, asset, or
activity include any amendments to those provisions of law. This change
is intended to ensure that covered savings associations are not subject
to outdated Federal savings association requirements if Federal savings
association laws change between the time the covered savings
association makes an election and the time it divests, conforms, or
discontinues a nonconforming subsidiary, asset, or activity.
101.6 Termination. This section of the proposed rule would have
established standards and procedures to allow a covered savings
association to terminate an election after an appropriate period. The
OCC would generally view an appropriate period to be relatively soon
after an election takes effect (for example, 60 or 90 days). However,
the OCC might determine that a longer period is appropriate where there
is evidence that a covered savings association is attempting to use a
termination to evade the requirements or purposes of section 5A of
HOLA, such as the requirement to divest, conform, or discontinue
nonconforming subsidiaries, assets, and activities.
The OCC did not receive any comments on this section and is
adopting Sec. 101.6 of the proposed rule with one technical change to
ensure that the final rule refers consistently to ``the OCC'' rather
than to ``the appropriate OCC supervisory office.''
101.7 Reelection. This section of the proposed rule would have
allowed a covered savings association to make a subsequent election
after terminating an election. Under the proposed rule, a Federal
savings association that wishes to make a subsequent election after
terminating a previous election would have been subject to the same
requirements as a Federal savings association making an election for
the first time. However, a Federal savings association that previously
made and terminated an election to operate as a covered savings
association would have been required to wait five years after the
termination before making a subsequent election.
[[Page 24004]]
The OCC did not receive any comments on this section and is
adopting Sec. 101.7 of the proposed rule without change.
101.8 Evasion. This section of the proposed rule would have
provided that the OCC may disapprove a notice of election, termination,
or reelection if the OCC has reasonable cause to believe the notice is
made for the purpose of evading Sec. 101.5 of the proposed rule,
including as that section applies to a termination. For example, the
OCC might disapprove a covered savings association's notice of
termination if it determined the covered savings association was
attempting to terminate to take unfair advantage of an overlap between
the period to divest, conform, or discontinue nonconforming
subsidiaries, assets, and activities provided for an election and the
period to divest, conform, or discontinue nonconforming subsidiaries,
assets, and activities provided for a termination.
The final rule provides that the OCC may disapprove a notice of
election, termination, or reelection if the OCC determines that notice
is made for the purpose of evading Sec. 101.5. This change clarifies
that the OCC's determination that a notice is made for purposes of
evasion is subject to review under the standards set out in 5 U.S.C.
706(2).
IV. Regulatory Analysis
Regulatory Flexibility Act
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA),
requires an agency, in connection with a final rule, to prepare a Final
Regulatory Flexibility Analysis describing the impact of the rule on
small entities (defined by the Small Business Administration (SBA) for
purposes of the RFA to include commercial banks and savings
institutions with total assets of $550 million or less and trust
companies with total revenue of $38.5 million or less) or to certify
that the rule would not have a significant economic impact on a
substantial number of small entities. The OCC supervises approximately
886 small entities, of which 258 are Federal savings associations.\30\
Because the rule does not contain any new recordkeeping, reporting, or
compliance requirements, we anticipate that it will not impose costs on
OCC-supervised institutions unless they elect to operate as a covered
savings association.\31\ Therefore, the OCC certifies that the final
rule would not have a significant economic impact on a substantial
number of OCC-supervised small entities.
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\30\ We base our estimate of the number of small entities on the
SBA's size thresholds for commercial banks and savings institutions,
and trust companies, which are $550 million and $38.5 million,
respectively. Consistent with the General Principles of Affiliation
13 CFR 121.103(a), we count the assets of affiliated financial
institutions when determining if we should classify an OCC-
supervised institution a small entity. We use December 31, 2017, to
determine size because a ``financial institution's assets are
determined by averaging the assets reported on its four quarterly
financial statements for the preceding year.'' See footnote 8 of the
U.S. Small Business Administration's Table of Size Standards.
\31\ We believe that costs associated with electing to be
treated as a covered savings association will be minimal and that
Federal savings associations will only choose to be treated as a
covered savings associations if the benefits outweigh the costs.
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Unfunded Mandates Reform Act of 1995
The OCC has analyzed the final rule under the factors set forth in
the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1532. Under this
analysis, the OCC considers whether the Federal mandates imposed by the
rule may result in an expenditure of $100 million or more by state,
local, and tribal governments, or by the private sector, in any one
year (adjusted annually for inflation). The rule does not impose new
mandates. Therefore, the OCC concludes that the rule will not result in
an expenditure of $100 million or more annually by state, local, and
tribal governments, or by the private sector. Accordingly, the OCC has
not prepared a written statement to accompany this rule.
Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501 et seq.,
the OCC may not conduct or sponsor, and a person is not required to
respond to, an information collection unless the information collection
displays a valid OMB control number. The OCC has submitted the
information collection requirements imposed by this final rule to OMB
for review, as requested by OMB in its notice of action regarding the
OCC's submission at the proposed rule stage. The OCC received two
comments regarding the information collection.
Two commenters stated that submitting information relating to
existing branches and agencies is unduly burdensome. One commenter
argued that the rule could be interpreted to require Federal savings
associations to submit information on a significant number of branches
and agencies, not just newly established ones. The commenter noted that
many branch applications or notices were submitted prior to the
integration of 12 CFR part 5. The commenter also stated that
applications or notices are generally not required for a Federal
savings association to establish an agency. The commenter believes the
requirement would be unnecessary, would require time and cost that do
not serve a compelling supervisory or regulatory purpose, and would
require a covered savings association to disclose more information than
a Federal savings association or national bank would be required to
provide. The commenter recommended that this requirement be eliminated
or that its scope be clarified. The second commenter stated that the
requirement to provide information on existing branches and agencies is
unnecessary and burdensome, noting that it may be difficult to provide
information on branches that have been operational for a number of
years. The commenter suggested that all branches that are open or
operational or that have received regulatory approval or non-objection
should be presumed to be compliant and documentation should not be
required. Neither commenter believes that the OCC has clearly indicated
why it needs this information. As noted earlier in this preamble, the
final rule does not require Federal savings associations to identify
branches or agencies in a notice of an election. The OCC believes that
it can obtain sufficient information about the branches and agencies of
a prospective covered savings association by reviewing information the
association submits on its nonconforming subsidiaries, assets, or
activities. This information will allow the OCC to monitor covered
savings associations for compliance with the final rule without
imposing any additional burden that could be associated with submitting
information identifying branches and agencies. The OCC has changed the
information collection so that it no longer includes a requirement to
submit information identifying branches and agencies.
Under the information collection, a Federal savings association
seeking to operate as a covered savings association would be required
under Sec. 101.3(a) to submit a notice making an election to the OCC
that: (1) Is signed by a duly authorized officer of the Federal savings
association; and (2) identifies and describes any nonconforming
subsidiaries, assets, or activities that the Federal savings
association operates, holds, or conducts at the time its submits its
notice.
Under Sec. 101.5(a), the OCC may require a covered savings
association to submit a plan to divest, conform, or discontinue a
nonconforming subsidiary, asset, or activity.
A covered savings association may submit a notice to terminate its
election
[[Page 24005]]
to operate as a covered savings association under Sec. 101.6 using
similar procedures to those for an election. In addition, after a
period of five years, a Federal savings association that has terminated
its election to operate as a covered savings association may submit a
notice under Sec. 101.7 to reelect using the same procedures used for
its original election.
Title: Covered Savings Association Notice.
OMB Control No.: 1557-0341.
Frequency of Response: On occasion.
Affected Public: Businesses or other for-profit organizations.
Election, Termination, Reelection:
Estimated Number of Respondents: 295
Estimated Burden per Respondent: 1 hour
Estimated Total Annual Burden: 295 hours
Plan to Divest:
Estimated Number of Respondents: 25
Estimated Burden per Respondent: 2 hours
Estimated Total Annual Burden: 50 hours.
Total Annual Burden: 345 hours
In addition, the OCC will file a nonmaterial change to amend its
Licensing Manual Collection (OMB Control No. 1557-0014) to increase the
respondent count to reflect additional filings from Federal savings
associations.
Comments continue to be invited on:
(a) Whether the collections of information are necessary for the
proper performance of the functions of the OCC, including whether the
information has practical utility;
(b) The accuracy of the OCC's estimates of the burden of the
collections of information;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of the collections on respondents,
including through the use of automated collection techniques or other
forms of information technology; and
(e) Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
Riegle Community Development and Regulatory Improvement Act of 1994
Section 302(a) of the Riegle Community Development and Regulatory
Improvement Act of 1994, 12 U.S.C. 4802(a), (RCDRIA) requires that the
OCC, in determining the effective date and administrative compliance
requirements for new regulations that impose additional reporting,
disclosure, or other requirements on insured depository institutions,
consider, consistent with principles of safety and soundness and the
public interest, any administrative burdens that such regulations would
place on depository institutions, including small depository
institutions, and customers of depository institutions, as well as the
benefits of such regulations. In addition, section 302(b) of RCDRIA, 12
U.S.C. 4802(b), requires new regulations and amendments to regulations
that impose additional reporting, disclosure, or other new requirements
on insured depository institutions generally to take effect on the
first day of a calendar quarter that begins on or after the date on
which the regulations are published in final form. The OCC has
considered the administrative burdens and benefits of the rule in
determining the effective date and administrative compliance
requirements for this rule. The final rule will be effective no earlier
than the first day of the calendar quarter following 30 days from the
date on which the final rule is published in the Federal Register.
Congressional Review Act
Pursuant to the Congressional Review Act, 5 U.S.C. 801 et seq., the
Office of Information and Regulatory Affairs designated this rule as
not a ``major rule,'' as defined by 5 U.S.C. 804(2).
List of Subjects in 12 CFR Part 101
Administrative practice and procedure, Assets, Reporting and
recordkeeping requirements, Savings associations.
0
For the reasons set forth in the preamble, and under the authority of
12 U.S.C. 93a and 5412(b)(2)(B), chapter I of title 12 of the Code of
Federal Regulations is amended by adding part 101 to read as follows:
PART 101--COVERED SAVINGS ASSOCIATIONS
Secs.
101.1 Authority and purposes.
101.2 Definitions and computation of time.
101.3 Procedures.
101.4 Treatment of covered savings associations.
101.5 Nonconforming subsidiaries, assets, and activities.
101.6 Termination.
101.7 Reelection.
101.8 Evasion.
Authority: 12 U.S.C. 93a, 1462a, 1463, 1464, 1464a, and
5412(b)(2)(B).
Sec. 101.1 Authority and purposes.
(a) Authority. This part is issued pursuant to sections 3, 4, 5,
and 5A of the Home Owners' Loan Act (HOLA) (12 U.S.C. 1462a, 1463,
1464, and 1464a), section 5239A of the Revised Statutes (12 U.S.C.
93a), and section 312(b)(2)(B) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (12 U.S.C. 5412(b)(2)(B)).
(b) Purposes. This part establishes standards and procedures for a
Federal savings association to elect to operate as a covered savings
association pursuant to section 5A of the HOLA and clarifies the
requirements for the treatment of covered savings associations. It also
establishes standards and procedures to terminate an election and to
reelect to operate as a covered savings association.
Sec. 101.2 Definitions and computation of time.
(a) Definitions. As used in this part:
(1) Covered savings association means a Federal savings association
that has made an election that is in effect in accordance with Sec.
101.3(b).
(2) Effective date of the election means, with respect to a Federal
savings association, the date on which the Federal savings
association's election to operate as a covered savings association
takes effect pursuant to Sec. 101.3(b).
(3) Nonconforming subsidiary, asset, or activity. (i) With respect
to a covered savings association:
(A) Means any subsidiary, asset, or activity that is not
permissible for a covered savings association or, if permissible, is
being operated, held, or conducted in a manner that exceeds the limit
applicable to a covered savings association; and
(B) Includes an investment in a subsidiary or other entity that is
not permissible for a covered savings association; and
(ii) With respect to a Federal savings association that has
terminated an election to operate as a covered savings association:
(A) Means any subsidiary, asset, or activity that is not
permissible for a Federal savings association or, if permissible, is
being operated, held, or conducted in a manner that exceeds the limit
applicable to a Federal savings association; and
(B) Includes an investment in a subsidiary or other entity that is
not permissible for a Federal savings association.
(4) Similarly located national bank means, with respect to a
covered savings association, a national bank that has its main office
situated in the same location as the home office of the covered savings
association.
(b) Computation of time. The OCC will compute a period of days for
purposes of this part in accordance with 12 CFR 5.12.
[[Page 24006]]
Sec. 101.3 Procedures.
(a) Notice--(1) Submission. A Federal savings association that had
total consolidated assets of $20 billion or less as of December 31,
2017, as reported on the Federal savings association's Consolidated
Reports of Condition and Income for December 31, 2017, may make an
election to operate as a covered savings association by submitting a
notice to the OCC.
(2) Contents. The notice shall:
(i) Be signed by a duly authorized officer of the Federal savings
association; and
(ii) Identify and describe each nonconforming subsidiary, asset, or
activity that the Federal savings association operates, holds, or
conducts at the time it submits the notice, each of which must be
divested, conformed, or discontinued pursuant to Sec. 101.5.
(b) Effective date of the election--(1) In general. An election to
operate as a covered savings association shall take effect on the date
that is 60 days after the date on which the OCC receives the notice
submitted under paragraph (a) of this section.
(2) Earlier notice. Notwithstanding paragraph (b)(1) of this
section, the OCC may notify a Federal savings association in writing
prior to the expiration of 60 days that it is eligible to make an
election, and the election shall take effect on the date the OCC so
notifies the Federal savings association.
Sec. 101.4 Treatment of covered savings associations.
(a) In general--(1) National bank activities. Except as provided in
this section, a covered savings association may engage in any activity
that is permissible for a similarly located national bank to engage in
as part of, or incidental to, the business of banking, or explicitly
authorized by statute for a national bank, subject to the same
authorization, terms, and conditions that would apply to a similarly
located national bank, as determined by the OCC for purposes of this
part.
(2) Treatment as a Federal savings association. A covered savings
association shall continue to comply with the provisions of law that
apply to Federal savings associations for purposes of:
(i) Governance (including incorporation, bylaws, boards of
directors, shareholders, members, and distribution of dividends);
(ii) Consolidation, merger, dissolution, conversion (including
conversion to a stock bank or to another charter), conservatorship, and
receivership;
(iii) Provisions of law applicable only to Federal mutual savings
associations;
(iv) Offers and sales of securities at an office of a Federal
savings association;
(v) Savings bank activities authorized by section 5(i)(4) of HOLA;
(vi) Issuance of subordinated debt securities and mandatorily
redeemable preferred stock;
(vii) Increases in permanent capital of a Federal stock savings
association;
(viii) Rules of practice and procedure in adjudicatory proceedings;
(ix) Rules for investigative proceedings and formal examination
proceedings;
(x) Removals, suspensions, and prohibitions where a crime is
charged or proven;
(xi) Security procedures;
(xii) Maintenance of records and recordkeeping and confirmation
requirements for securities transactions;
(xiii) Accounting and disclosure standards;
(xiv) Nondiscrimination; and
(xv) Advertising.
(b) Existing branches. A covered savings association may continue
to operate any branch or agency that the covered savings association
operated on the effective date of the election.
(c) Assets greater than $20 billion. A covered savings association
may continue to operate as a covered savings association if, after the
effective date of the election, it has total consolidated assets
greater than $20 billion.
Sec. 101.5 Nonconforming subsidiaries, assets, and activities.
(a) Divestiture, conformance, or discontinuation. A covered savings
association shall divest, conform, or discontinue a nonconforming
subsidiary, asset, or activity at the earliest time that prudent
judgment dictates but not later than two years after the effective date
of the election. The OCC may require a covered savings association to
submit a plan to divest, conform, or discontinue a nonconforming
subsidiary, asset, or activity.
(b) Extension. The OCC may grant a covered savings association
extensions of not more than two years each up to a maximum of eight
years if the OCC determines that:
(1) The covered savings association has made a good faith effort to
divest, conform, or discontinue the nonconforming subsidiary, asset, or
activity;
(2) Divestiture, conformance, or discontinuation would have a
material adverse financial effect on the covered savings association;
and
(3) Retention or continuation of the nonconforming subsidiary,
asset, or activity is consistent with the safe and sound operation of
the covered savings association.
(c) Applicable law. Until a covered savings association divests,
conforms, or discontinues a nonconforming subsidiary, asset, or
activity, the nonconforming subsidiary, asset, or activity shall
continue to be subject to the same provisions of law that applied to
the nonconforming subsidiary, asset, or activity on the day before the
effective date of the election, including any amendments to those
provisions of law.
Sec. 101.6 Termination.
(a) Termination. A covered savings association may terminate its
election to operate as a covered savings association, after an
appropriate period of time as determined by the OCC, by submitting a
notice to the OCC.
(b) Procedures. A covered savings association wishing to terminate
its election shall comply with, and shall be subject to, the provisions
of Sec. Sec. 101.2, 101.3, and 101.5, except that:
(1) The provisions of Sec. Sec. 101.3 and 101.5 shall be applied
by substituting ``covered savings association'' for ``Federal savings
association'' and ``Federal savings association'' for ``covered savings
association'' each place those terms appear in those sections;
(2) Section 101.3(a)(1) shall not apply; and
(3) Sections 101.3 and 101.5 shall be applied by substituting
``effective date of the termination'' for ``effective date of the
election.''
(c) Applicable law. On and after the effective date of the
termination, a Federal savings association that has terminated its
election to operate as a covered savings association shall be subject
to the same provisions of law as a Federal savings association that has
not made an election under this part.
Sec. 101.7 Reelection.
(a) Reelection. A Federal savings association that has terminated
its election to operate as a covered savings association may submit a
notice to reelect to operate as a covered savings association, if at
least five years have elapsed since the effective date of the
termination. Upon determining that good cause exists, the OCC may
permit a Federal savings association to reelect to operate as a covered
savings association prior to the expiration of the five-year period.
(b) Procedures and treatment. A Federal savings association
reelecting to operate as a covered savings association shall comply
with, and shall be subject
[[Page 24007]]
to, the provisions of this part as if it were making an election for
the first time.
Sec. 101.8 Evasion.
The OCC may disapprove any notice submitted pursuant to this part
if the OCC determines that the notice is made for the purpose of
evading Sec. 101.5, including as that section applies to a covered
savings association terminating an election.
Dated: May 20, 2019.
Joseph M. Otting,
Comptroller of the Currency.
[FR Doc. 2019-10902 Filed 5-23-19; 8:45 am]
BILLING CODE 4810-33-P