Removal of Transferred OTS Regulations Regarding Certain Subordinate Organizations of State Savings Associations, 8098-8104 [2020-28454]

Download as PDF 8098 Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations Authority: 12 U.S.C. 1819. Subpart Q also issued under 12 U.S.C. 1462; 1462a; 1463; 1464. Subpart W also issued under 12 U.S.C. 1462a; 1463; 1464; 15 U.S.C. 78c; 78l; 78m; 78n; 78p; 78w. SUPPLEMENTARY INFORMATION: Subpart F—[Removed and Reserved] I. Policy Objective 8. Remove and reserve subpart F, consisting of §§ 390.100 through 390.135. The policy objective of the final rule is to simplify the FDIC’s regulations by removing unnecessary regulations and realigning existing regulations in order to improve the public’s understanding of the rules and to improve the ease of the public’s reference to them. Thus, as further detailed in this section, the FDIC is rescinding and removing from the CFR rules entitled Subordinate Organizations (12 CFR part 390, subpart O) applicable to State savings associations.1 Pursuant to subpart O, the FDIC may, at any time, limit a State savings association’s investment in their subordinate organizations, or may limit or refuse to permit any activities of any of these entities for supervisory, legal, or safety and soundness reasons.2 Subpart O includes definitions related to State savings association subsidiaries,3 a requirement for the parent State savings association and its subsidiaries to maintain separate corporate identities,4 a prior notice requirement for a State savings association seeking to establish or acquire a new subsidiary or engage in new activities through an existing subsidiary,5 requirements related to the issuance of securities by a subsidiary,6 and requirements for the exercise of salvage power by a State savings association.7 The FDIC has determined that the requirements for State savings association subordinate organizations set forth in subpart O are substantially similar to requirements of section 28 of the FDI Act and its implementing regulations, 12 CFR part 362 of the FDIC’s Rules and Regulations; and section 37 of the FDI Act.8 Therefore, the FDIC is rescinding and removing subpart O and will apply part 362, subpart C and subpart D, as appropriate, to achieve substantially similar supervisory results for State savings associations and subsidiaries as have been obtained through the application of subpart O. ■ Federal Deposit Insurance Corporation. By order of the Board of Directors. Dated at Washington, DC, on or about December 15, 2020. James P. Sheesley, Assistant Executive Secretary. [FR Doc. 2020–28453 Filed 2–2–21; 8:45 am] BILLING CODE 6714–01–P FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Parts 362 and 390 RIN 3064–AF37 Removal of Transferred OTS Regulations Regarding Certain Subordinate Organizations of State Savings Associations Federal Deposit Insurance Corporation. ACTION: Final rule. AGENCY: The Federal Deposit Insurance Corporation (FDIC) is adopting a final rule to rescind and remove rules from the Code of Federal Regulations (CFR) regulations titled Subordinate Organizations that were transferred to the FDIC from the Office of Thrift Supervision (OTS) on July 21, 2011, in connection with the implementation of Title III of the DoddFrank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) regarding subordinate organizations of State savings associations because the FDIC has determined that the requirements for State savings association subordinate organizations included therein are substantially similar to the requirements for State savings associations and their subsidiaries set forth by certain sections of the Federal Deposit Insurance Act (FDI Act) and its implementing regulations. DATES: The final rule is effective on March 5, 2021. FOR FURTHER INFORMATION CONTACT: Donald Hamm, Special Advisor, (202) 898–3528, dhamm@fdic.gov; or Shelli Coffey, Review Examiner, (312) 382– 7539, scoffey@fdic.gov, Risk Management and Applications, Division jbell on DSKJLSW7X2PROD with RULES2 SUMMARY: VerDate Sep<11>2014 18:20 Feb 02, 2021 Jkt 253001 of Risk Management Supervision; Suzanne Dawley, Counsel, sudawley@ fdic.gov; or Karlyn J. Hunter, Counsel, khunter@fdic.gov, Legal Division. II. Background The Dodd-Frank Act,9 signed into law on July 21, 2010, provided for a substantial reorganization of the regulation of State and Federal savings associations and their holding companies.10 Beginning July 21, 2011, the transfer date established by section 311 of the Dodd-Frank Act,11 the powers, duties, and functions formerly performed by the OTS were divided among the FDIC, as to State savings associations; the Office of the Comptroller of the Currency (OCC), as to Federal savings associations; and the Board of Governors of the Federal Reserve System (FRB), as to savings and loan holding companies. Section 316(b) of the Dodd-Frank Act 12 provides the manner of treatment of all orders, resolutions, determinations, regulations, and advisory materials that had been issued, made, prescribed, or allowed to become effective by the OTS. The section provides that if such materials were in effect on the day before the transfer date, they continue in effect and are enforceable by or against the appropriate successor agency until they are modified, terminated, set aside, or superseded in accordance with applicable law by such successor agency, by any court of competent jurisdiction, or by operation of law. Pursuant to section 316(c) of the Dodd-Frank Act,13 on June 14, 2011, the FDIC’s Board of Directors approved a ‘‘List of OTS Regulations to be Enforced by the OCC and the FDIC Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.’’ This list was published by the FDIC and the OCC as a joint notice in the Federal Register on July 6, 2011.14 Although section 312(b)(2)(B)(i)(II) of the Dodd-Frank Act 15 granted the OCC rulemaking authority relating to both State and Federal savings associations, nothing in the Dodd-Frank Act affected the FDIC’s existing authority to issue regulations under the FDI Act 16 and other laws as the ‘‘appropriate Federal banking agency’’ or under similar statutory terminology. Section 312(c) of the Dodd-Frank Act 17 revised the definition of ‘‘appropriate Federal banking agency’’ contained in section 3(q) of the FDI Act 18 to add State 9 12 1 12 CFR part 390, subpart O. 2 12 CFR 390.250. 3 12 CFR 390.251. 4 12 CFR 390.252. 5 12 CFR 390.253. 6 12 CFR 390.254. 7 12 CFR 390.255. 8 12 U.S.C. 1831e(a); 12 CFR part 362, subparts C and D; 12 U.S.C. 1831n(a). PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 U.S.C. 5301 et seq. U.S.C. 5411. 11 Id. 12 12 U.S.C. 5414(b). 13 12 U.S.C. 5414(c). 14 76 FR 39246 (July 6, 2011). 15 12 U.S.C. 5412(b)(2)(B)(i)(II). 16 12 U.S.C. 1811 et seq. 17 12 U.S.C. 5412(c)(1). 18 12 U.S.C. 1813(q). 10 12 E:\FR\FM\03FER2.SGM 03FER2 Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations savings associations to the list of entities for which the FDIC is designated as the ‘‘appropriate Federal banking agency.’’ As a result, when the FDIC is designated as the ‘‘appropriate Federal banking agency’’ (or under similar terminology) for State savings associations, the FDIC is authorized to issue, modify, and rescind regulations involving such associations. As noted, on July 14, 2011, operating pursuant to this authority, the FDIC’s Board of Directors reissued and redesignated certain transferring regulations of the former OTS. These transferred OTS regulations were published as new FDIC regulations in the Federal Register on August 5, 2011.19 When it republished the transferred OTS regulations as new FDIC regulations, the FDIC specifically noted that its staff would evaluate the transferred OTS rules and might later recommend incorporating the transferred OTS regulations into other FDIC rules, amending them, or rescinding them, as appropriate.20 The final rule adopts, without change, the notice of proposed rulemaking (NPR) published in the Federal Register on October 26, 2020, which received no comments. III. The Proposed Rule jbell on DSKJLSW7X2PROD with RULES2 On October 26, 2020, the FDIC published an NPR regarding the removal of part 390, subpart O (formerly OTS’s 12 CFR part 559),21 which generally addresses subordinate organizations of State savings associations.22 The OTS adopted part 559, titled Subordinate Organizations, in 1996 to update and streamline its regulations and statements of policy concerning subsidiaries and other subordinate organizations in which savings associations have ownership interests (including operating subsidiaries and service corporations) and equity investments (including pass-through investments).23 Part 559 consolidated all OTS regulations affecting thrift subsidiaries in order to make it easier for savings associations to find and use these regulations. The former OTS rule was transferred to the FDIC with only nominal changes and is found in the FDIC’s rules at subpart O, entitled Subordinate Organizations.24 The NPR proposed removing subpart O, because, after careful review and consideration, the FDIC believes it is 19 76 FR 47652 (Aug. 5, 2011). duplicative of substantially similar FDIC statutory and regulatory provisions that produce the same supervisory result for an insured State savings association as subpart O.25 Section 28 of the FDI Act prohibits a State savings association from engaging as principal in any type of activity, or in any activity in an amount, that is not permissible for a Federal savings association unless the FDIC has determined the activity would pose no significant risk to the Deposit Insurance Fund (DIF); and the State savings association is, and continues to be, in compliance with the capital standards set forth in section 5(t) of the Home Owners Loan Act (HOLA).26 Pursuant to section 18(m) of the FDI Act, a State savings association must file a notice with the FDIC prior to establishing, acquiring or engaging in new activities of a subsidiary.27 The NPR proposed using 12 CFR part 362, Activities of Insured State Banks and Insured Savings Associations, to provide a substantially similar process for an insured State savings association, or its subsidiary, to apply for prior consent from the FDIC to engage in certain activities, that are not otherwise prohibited by Federal or State law, while reaching substantially the same result as provided in subpart O without the burden of referring to a duplicative set of regulations. Part 362, which includes subparts C and D, is issued pursuant to several FDIC authorities, including the FDIC’s general rulemaking authority pursuant to section 9(a)(Tenth) and section 28 of the FDI Act, the FDIC’s statutory authority over the activities of State savings associations and subsidiaries, that are substantially similar to the authorizing statutes pursuant to which subpart O was issued. Subpart C of part 362 governs the activities of insured State savings associations and implements section 28(a) of the FDI Act, which restricts and prohibits insured State savings associations and their service corporations from engaging in activities and investments of a type that are not permissible for a Federal savings association and their service corporations. Subpart D of part 362 governs acquiring, establishing, or conducting new activities through a subsidiary by an insured State savings association, and implements section 18(m) of the FDI Act, which requires that prior notice be given to the FDIC 20 Id. 21 12 25 85 22 85 CFR part 390, subpart O. FR 67684 (Oct. 26, 2020). 23 61 FR 66561, 66562 (Dec. 18, 1996). 24 12 CFR part 390, subpart O. 26 12 VerDate Sep<11>2014 18:20 Feb 02, 2021 Jkt 253001 FR 67684, 67686 (Oct. 26, 2020). U.S.C. 1831e(a), referencing 12 U.S.C. 1463 et seq. 27 12 U.S.C. 1828(m). PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 8099 when an insured savings association establishes or acquires a subsidiary or engages in any new activity in a subsidiary. In doing so it applies the definitions of § 362.2 unless otherwise indicated. The phrase ‘‘activity permissible for a Federal savings association’’ means any activity authorized for a Federal savings association under any statute including HOLA,28 as well as activities recognized as permissible for a Federal savings association in regulations issued by the OCC or in bulletins, orders or written interpretations issued by the OCC, or by the former OTS until modified, terminated, set aside, or superseded by the OCC.29 Rather than restate the rationale for the rescission and removal of each section of subpart O, the reader is referred to the fulsome explanations for the rescission and removal provided in the NPR,30 which the FDIC references here as the basis for finalizing the regulations as proposed. The regulations or statutes that the FDIC expects State savings associations and subsidiaries to refer to after the removal of subpart O are briefly discussed below. A. Section 390.251—Definitions Section 390.251 is a definition section related to subordinate organizations. Included in the definitions section are: Control, GAAP-consolidated subsidiary, lower-tier entity, ownership interest, subordinate organization, and, subsidiary. The control definition is a cross-reference to the removed OTS § 391.41 definition,31 which provided that a controlling shareholder is any person who, directly or indirectly, or acting in concert with one or more persons or companies, or together with members of his or her immediate family, owns, controls, or holds with power to vote 10 percent or more of the voting stock of a company, or controls in any manner the election or appointment of a majority of the company’s board of directors.32 The FDIC proposed to apply the § 362.2(e) control definition which is consistent with the control definition applicable to service companies of Federal savings associations which 28 12 U.S.C. 1463 et seq. CFR 362.9(a). 30 85 FR 67684 (Oct. 26, 2020). 31 The FDIC rescinded the control definition at § 391.41 as part of its 2015 Filing Requirements and Processing Procedures for Changes in Control with respect to State Nonmember Banks and State Savings Associations rulemaking. 80 FR 65889 (Oct. 28, 2015). 32 12 CFR 391.41 (2015). 29 12 E:\FR\FM\03FER2.SGM 03FER2 8100 Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations references the FRB’s 12 CFR part 225, Regulation Y.33 The definition of equity investment in § 362.2(g) is broader than the definition of ownership interest in § 390.251, which means any equity interest in a business organization, limited or general partnership interests, or shares in a limited liability company. Similarly, the definition of subsidiary pursuant to § 362.2(r) is substantially similar to the subsidiary definition in § 390.251. The distinction is that § 362.2(r) defines a subsidiary as ‘‘any company that is owned or controlled directly or indirectly by one or more insured depository institutions,’’ rather than only by a State savings association. Therefore, the State savings associations would refer to those definitions in part 362 after subpart O was removed from the CFR. A separate definition for GAAPconsolidated subsidiary is unnecessary as State savings association reports and financial statements are required to be uniform and consistent with U.S. generally accepted accounting principles (GAAP) pursuant to section 37 of the FDI Act and section 4(b) of HOLA.34 Further, the instructions to the Consolidated Reports of Condition and Income (Call Report) state that the regulatory reporting requirements applicable to the Call Report shall conform to GAAP as set forth in the Financial Accounting Standards Board’s Accounting Standards Codification.35 Because State savings associations have existing statutory directives to use GAAP in reporting and financial statements, eliminating a substantially similar regulation regarding GAAPconsolidated subsidiaries likely would not affect the quality of State savings association reporting and financial statements. jbell on DSKJLSW7X2PROD with RULES2 B. Section 390.252—How must separate corporate entities be maintained? The core eligibility requirements in § 362.4(c) describe corporate separateness in the context of the Statechartered depository institutionsubsidiary. The eligible subsidiary requirements in § 362.4(c)(2)—which are more detailed than eligible subsidiary requirements of § 390.252— are designed specifically for the bank/ subsidiary relationship, and provide for separation between the State-chartered depository institution and its subsidiary 33 12 CFR 5.59(d); 12 CFR part 225; 12 CFR 362.2(e). 34 12 U.S.C. 1831n(a)(2); 12 U.S.C. 1463(b)(2). 35 Instructions for Preparation of Consolidated Reports of Condition and Income, Form FFIEC 031 and 041 https://www.ffiec.gov/pdf/FFIEC_forms/ FFIEC031_FFIEC041_201906_i.pdf. VerDate Sep<11>2014 18:20 Feb 02, 2021 Jkt 253001 to lessen the possibility of piercing the corporate veil; deduction of the Statechartered depository institution investment in the subsidiary to segregate the capital supporting the State-chartered depository institution from the capital supporting the subsidiary; and limitations on the Statechartered depository institution’s investment in the subsidiary and on transactions with the subsidiary to ensure transactions are arms-length.36 The eligible subsidiary requirements are also incorporated into § 362.13. Section 362.13 permits a State savings association that previously filed an application, and obtained the FDIC’s consent to engage in an activity or to acquire or retain an investment in a service corporation engaging as principal in an activity, to continue the activity or retain the investment without seeking the FDIC’s consent, provided the State savings association and the service corporation, if applicable, continue to meet the conditions and restrictions of approval if the insured State savings association and any applicable service corporation meet the requirements of § 362.4(c)(2).37 The provisions of § 362.4(c)(2) that are duplicative of § 390.252 require that an eligible subsidiary: (1) Meet applicable statutory or regulatory capital requirements and have sufficient operating capital for normal obligations that are reasonably foreseeable for a business of its size and character; (2) be physically separate and distinct in its operations from the operations of the state-chartered depository institution; (3) maintain separate accounting and other business records; (4) observe separate business entity formalities; (5) conduct business pursuant to independent policies and procedures designed to inform customers and prospective customers of the subsidiary that the subsidiary is a separate organization from the State-chartered depository institution; and (6) that the State-chartered depository institution is not responsible for, and does not guarantee, the obligations of the subsidiary.38 State savings associations and service corporations that qualify as eligible depository institutions and eligible subsidiaries pursuant to § 362.4(c) maintain separate corporate identities, which should sufficiently insulate State savings associations from the liabilities of subsidiaries. 36 12 CFR 362.4(c). See FIL–97–97. September 23, 1997. 37 12 CFR 362.13. 38 Section 362.4(c)(2)(vii) corresponds to § 390.252(a)(4) and (5). PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 C. Section 390.253—What notices are required to establish or acquire a new subsidiary or engage in new activities through a subsidiary? This section provides that such a notice must contain all of the information required under § 362.15, is subject to FDIC objection, and must be filed at least 30 days prior to the establishment or acquisition of a subsidiary or commencement of a new activity through a subsidiary. The notice requirements of § 362.15 are substantially similar to the transferred OTS notice requirement in § 390.253. The proposal included a technical amendment to remove references to Federal savings association notice requirements in § 362.15. Section 18(m) of the FDI Act, as amended by section 363(7) of the Dodd-Frank Act,39 no longer requires Federal savings associations to provide notice to the FDIC prior to the establishment, or acquisition, of a subsidiary, or prior to commencement of a new activity in a subsidiary controlled by a Federal savings association.40 State savings associations must continue to notify the FDIC at least 30 days prior to establishing or acquiring a subsidiary or prior to commencement of a new activity through a State savings association-controlled subsidiary pursuant to section 18(m) and § 362.15, as described in the NPR.41 D. Section 390.254—How may a subsidiary of a State savings association issue securities? State savings association subsidiaries are permitted to issue securities pursuant to section 28 of the FDI Act because the operating subsidiaries and service corporations of Federal savings associations are permitted to issue securities, subject to regulatory limitations. State savings associations and their subsidiaries are reminded that subsidiary issuances, like other permissible activities, are subject to the same restrictions or conditions imposed on the Federal savings association and must be conducted in the same manner in which an operating subsidiary or service corporation is authorized to issue such securities.42 Accordingly, a State savings association subsidiary should not state or imply that the securities it issues are covered by Federal deposit insurance, or issue any security the payment, maturity, or redemption of which may be accelerated upon the condition that 39 Public Law 111–203, 124 Stat 1376 (2010). U.S.C. 1828(m). 41 85 FR 67684, 67687 (Oct. 26, 2020). 42 85 FR 67684, 67688 (Oct. 26, 2020). 40 12 E:\FR\FM\03FER2.SGM 03FER2 Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations the controlling State savings association is insolvent or has been placed into receivership, and for as long as any securities are outstanding, the controlling State savings association must maintain all records generated through each securities issuance in the ordinary course of business, including but not limited to a copy of the prospectus, offering circular, or similar document concerning such issuance, and make such records available for examination by the FDIC.43 E. Section 390.255—How may a State savings association exercise its salvage power in connection with a service corporation or lower-tier entities? In the NPR, staff proposed that State savings associations apply to the FDIC for prior approval pursuant to § 362.11 before making a contribution or a loan to a lower-tier entity (salvage investment) that exceeds the maximum amount otherwise permitted under law or regulation to exercise its power to salvage the underlying asset to be consistent with State law. The applicant would be required to provide evidence that the State approved any exception over the loans to one borrower (LTOB) limit.44 As discussed in the NPR, these FDIC statutory and regulatory provisions provide a substantially similar process for an insured State savings association, or its subsidiary, to apply for prior consent from the FDIC to engage in certain activities, that are not otherwise prohibited by Federal or State law, while reaching substantially the same result as provided in subpart O without the burden of referring to a duplicative set of regulations.45 The NPR concluded the application of these FDIC statutory and regulatory provisions provide substantially similar results for the FDIC to achieve substantially similar supervisory results for State savings associations and subsidiaries as would be obtained through subpart O.46 IV. Comments The FDIC issued the NPR with a 30day comment period, which closed on November 25, 2020.47 The FDIC received no comments on the NPR. 43 Id. jbell on DSKJLSW7X2PROD with RULES2 44 LTOB limits are established by state law of each chartering authority, and LTOB Limits are not consistent from state to state. Some states allow waivers or modifications, while others do not. Part 362 does not authorize any insured State savings association to make investments or conduct activities that are not authorized or that are prohibited by either Federal or State law. 12 CFR 362.9(c). 45 85 FR 67684, 67686 (Oct. 26, 2020). 46 Id. 47 85 FR 67684 (Oct. 26, 2020). VerDate Sep<11>2014 18:20 Feb 02, 2021 Jkt 253001 Consequently, the proposed rule is adopted as final without change, and part 390, subpart O, will be rescinded in its entirety. V. The Final Rule The final rule rescinds and removes subpart O and amends § 362.15 to remove references to Federal savings associations made unnecessary because of the amendment of Section 18(m) of the FDI Act, as amended by section 363(7) of the Dodd-Frank Act which no longer requires Federal savings associations to provide notice to the FDIC prior to the establishment, or acquisition, of a subsidiary, or prior to commencement of a new activity in a subsidiary controlled by a Federal savings association.48 As discussed in the NPR, the FDIC statutory and regulatory provisions applicable to State savings associations and their subsidiaries provide a substantially similar process for an insured State savings association, or its subsidiary, to apply for prior consent from the FDIC to engage in certain activities, that are not otherwise prohibited by Federal or State law, while reaching substantially the same result as provided in subpart O without the burden of referring to a duplicative set of regulations.49 Under the final rule, the application of part 362, which implements section 28 and section 18(m) of the FDI Act, provides State savings associations with substantially similar procedures for notices and applications related to State savings association subsidiaries and investments. Further, section 37 of the FDI Act and section 4(b) of HOLA already require that State savings association reports and financial statements are uniform and consistent with U.S. generally accepted accounting principles (GAAP).50 By applying these FDIC statutory and regulatory provisions to State savings associations and subsidiaries, the FDIC will achieve substantially similar supervisory results for State savings associations and subsidiaries under the final rule as would be obtained through subpart O.51 VI. Expected Effects As of June 30, 2020, the FDIC supervised 3,270 depository 48 Public Law 111–203, 124 Stat. 1376 (2010); 12 U.S.C. 1828(m). 49 Section 28 (12 U.S.C. 1831e(a)), section 18(m) (12 U.S.C. 1828(m)), and section 37 (12 U.S.C. 1831n(a)) of the FDI Act, and section 4(b) of the Home Owners Loan Act (12 U.S.C. 1463(b)), govern the activities of State savings associations and subsidiaries. 50 12 U.S.C. 1831n(a)(2); 12 U.S.C. 1463(b)(2). 51 85 FR 67684 (Oct. 26, 2020). PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 8101 institutions, of which 35 (1.1 percent) are State savings associations.52 The final rule would affect regulations that govern State savings associations. As explained in the NPR, the final rule would remove §§ 390.250, 390.251, 390.252, 390.253, 390.254, and 390.255 of part 390, subpart O, because most of its provisions are duplicative of, or substantially similar to the requirements of section 28 of the FDI Act and its implementing regulations, 12 CFR part 362 of the FDIC’s Rules and Regulations; and section 37 of the FDI Act. Additionally, the final rule amends § 362.15 to remove the references to Federal savings association notice requirements because Federal savings associations are no longer required to provide notice to the FDIC prior to the establishment, or acquisition, of a subsidiary, or prior to commencement of a new activity in a subsidiary controlled by a Federal savings association.53 The FDIC does not believe that the final rule will have substantive effects on State savings associations. By removing duplicative or unnecessary regulations the FDIC believes that the final rule will benefit State savings associations by clarifying regulations and improving the ease of references. VII. Alternatives The FDIC considered alternatives to the final rule but believes that the amendments represent the most appropriate option for covered institutions. As discussed previously, the Dodd-Frank Act transferred certain powers, duties, and functions formerly performed by the OTS to the FDIC. The FDIC’s Board reissued and redesignated certain transferred regulations from the OTS, but noted that it would evaluate them and might later incorporate them into other FDIC regulations, amend them, or rescind them, as appropriate. The FDIC has evaluated the existing regulations relating to certain subordinate organizations of State savings associations. The FDIC considered the alternative of retaining the current regulations, but did not choose to do so because it would be needlessly complex and confusing for its supervised institutions to continue to have substantively similar regulations regarding subordinate organizations of State savings associations located in different locations within the CFR. The FDIC believes it would be unnecessarily burdensome for FDIC-supervised institutions to refer to these separate sets of regulations, and, therefore, is rescinding and removing subpart O and 52 Call 53 12 E:\FR\FM\03FER2.SGM Report data, September 30, 2020. U.S.C. 1828(m). 03FER2 8102 Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations making a technical amendment to § 362.15 to remove references to Federal savings associations to streamline the FDIC’s regulations. VIII. Regulatory Analysis and Procedure A. The Paperwork Reduction Act In accordance with the requirements of the Paperwork Reduction Act of 1995 (PRA), the FDIC may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The final rule rescinds and removes from part 390, subpart O, and makes a technical amendment to § 362.15 to remove references to Federal savings associations to streamline the FDIC’s regulations. The final rule will not create any new or revise any existing collections of information under the PRA. Therefore, no information collection request will be submitted to the OMB for review. B. The Regulatory Flexibility Act The Regulatory Flexibility Act (RFA), requires that, in connection with a final rule, an agency prepare a final regulatory flexibility analysis that describes the impact of a proposed rule on small entities.54 However, a regulatory flexibility analysis is not required if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities, and publishes its certification and a short explanatory statement in the Federal Register together with the rule. The Small Business Administration (SBA) has defined ‘‘small entities’’ to include banking organizations with total assets of less than or equal to $600 million.55 Generally, the FDIC considers a significant effect to be a quantified effect in excess of 5 percent of total annual salaries and benefits per institution, or 2.5 percent of total non-interest expenses. The FDIC believes that effects in excess of these thresholds typically 54 5 U.S.C. 601, et seq. SBA defines a ‘‘small banking organization’’ as one having $600 million or less in assets, where an organization’s ‘‘assets are determined by averaging the assets reported on its four quarterly financial statements for the preceding year.’’ See 13 CFR 121.201 (as amended, by 84 FR 34261, effective August 19, 2019). ‘‘SBA counts the receipts, employees, or other measure of size of the concern whose size is at issue and all of its domestic and foreign affiliates.’’ See 13 CFR 121.103. Following these regulations, the FDIC uses a covered entity’s affiliated and acquired assets, averaged over the preceding four quarters, to determine whether the covered entity is ‘‘small’’ for the purposes of RFA. jbell on DSKJLSW7X2PROD with RULES2 55 The VerDate Sep<11>2014 18:20 Feb 02, 2021 Jkt 253001 represent significant effects for FDICsupervised institutions. For the reasons provided below, the FDIC certifies that the rule will not have a significant economic impact on a substantial number of small banking organizations. As of June 30, 2020, the FDIC supervised 3,270 insured depository institutions, of which 2,548 are considered small banking organizations for the purposes of RFA. The rule primarily affects regulations that govern State savings associations.56 There are 33 State savings associations considered to be small banking organizations for the purposes of the RFA.57 As previously discussed, the rule rescinds part 390, subpart O, because most of its elements are duplicative of, or substantially similar to the requirements of section 28 of the FDI Act and its implementing regulations, 12 CFR part 362 of the FDIC’s Rules and Regulations; and section 37 of the FDI Act. Additionally, the rule would amend certain sections of part 362 to remove the references to Federal savings association notice requirements because Federal savings associations are no longer required to provide notice to the FDIC prior to the establishment, or acquisition, of a subsidiary, or prior to commencement of a new activity in a subsidiary controlled by a Federal savings association.58 The FDIC does not believe that the rule will have substantive effects on small State savings associations. Section 390.250 sets forth the FDIC’s general rulemaking and supervisory authority under the FDI Act, its specific authority under section 18(m) of the FDI Act 59 and subpart O’s application to subordinate organizations of State savings associations. As previously discussed, State savings associations are subject to part 362, subparts C and D, which has the same statutory basis as § 390.350. Therefore, the FDIC believes that the practical application of part 362, subparts C and D, generally achieves the same outcomes for State savings associations as does subpart O. Therefore, the FDIC believes that the rescission of § 390.250 is unlikely to have any substantive effects for small State savings associations or their subordinate organizations. Section 390.251 is a definition section related to subordinate organizations. As previously discussed, the FDIC believes that the definitions of subsidiary and GAAP-consolidated subsidiary are 56 FDIC Call Report, June 30, 2020. substantially similar to and redundant to other statutory and regulatory requirements to which State savings associations are already subject. As previously discussed, State savings associations are already subject to a definition of control in § 362.2(e), a definition that is narrower, however, than the one in § 390.251. Therefore, the rescission of § 390.251 could benefit State savings associations by narrowing the scope of investments in subordinate organizations that may be subject to limitation for supervisory, legal, or safety and soundness reasons asserted by the FDIC. The rescission of the definition of control in § 390.251 could further benefit State savings associations by creating parity with the control definition applicable to service companies of Federal savings associations which references the FRB’s 12 CFR part 225, Regulation Y.60 As previously discussed, State savings associations are already subject to a definition of equity investment in § 362.2(g), a definition that is broader, however, than the one in § 390.251. Therefore, the rescission of § 390.251 is unlikely to pose additional costs for State savings associations because they are already subject to regulations with a substantively similar and broader defined scope of investments in subordinate organizations. Finally, the rescission of § 390.251 would remove definitions of lower-tier entity and second-tier service corporations or service corporation subsidiaries for which there is no corollary in FDIC regulations. However, as previously discussed, the FDIC does not believe that the existence of these defined terms enhance the quality of State savings association supervision. Therefore, the FDIC believes that the rescission of these definitions is unlikely to have any substantive effects on small State savings associations. Section 390.252 requires State savings associations and their subordinate organizations to operate in a manner that demonstrates to the public that they are separate corporate entities because of concerns that a failure to maintain separate corporate existences could potentially result in a court, for equitable reasons, holding the savings association liable for the obligations of the subordinate organization.61 As discussed previously, FDIC-supervised depository institutions, including State savings associations and their subsidiaries, are covered by §§ 362.4(c) and 362.13, which are substantively similar to or broader than the 57 Id. 58 12 59 12 PO 00000 U.S.C. 1828(m). U.S.C. 1828(m). Frm 00022 Fmt 4701 60 12 61 61 Sfmt 4700 E:\FR\FM\03FER2.SGM CFR 5.59(d); 12 CFR part 225. FR 66561, 66567 (Dec. 18, 1996). 03FER2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations obligations in § 390.252. Therefore, the FDIC believes that the rescission of § 390.252 is unlikely to have any substantive effect on small State savings associations or their subsidiaries. Section 390.253 establishes notification requirements for State savings associations prior to their establishing, acquiring or engaging in new activities of a subsidiary as required under section 18(m) of the FDI Act.62 As discussed previously, State savings associations are already subject to substantively similar requirements in § 362.15. Therefore, the FDIC believes that the rescission of § 390.253 is unlikely to pose any substantive effects on small State savings associations. Section 362.15 established notification requirements for State and Federal savings associations prior to their establishing or acquiring a subsidiary, or conducting any new activity through a subsidiary. As discussed previously, after the Dodd Frank Act amendment of section 18(m) of the FDI Act, Federal savings associations are no longer required to provide notice to the FDIC prior to the establishment, or acquisition, of a subsidiary, or prior to the commencement of a new activity in a subsidiary controlled by a Federal savings association.63 Therefore, the FDIC believes that the rescission of references to Federal savings associations from § 362.15 is unlikely to have any substantive effect on small insured depository institutions in that it is simply consistent with existing law. Section 390.254 permits a State savings association subsidiary to issue, either directly or through a third party intermediary, any securities that its parent State savings association is permitted to issue. As discussed previously, although there is no corollary regulation for FDIC-supervised depository institutions, State savings association subsidiaries are permitted to issue securities pursuant to section 28 of the FDI Act because the operating subsidiaries and service corporations of Federal savings associations are permitted to issue securities, subject to regulatory limitations. Therefore, the FDIC believes that the rescission of § 390.254, if adopted, is unlikely to have any substantive effect on small State savings associations or their subsidiaries. Section 390.255 generally permits a State savings association to notify the FDIC at least 30 days before making a contribution or a loan (including a guarantee of a loan made by any other 62 12 CFR 390.253. See 12 U.S.C. 1828(m)(1). 63 12 U.S.C. 1828(m). VerDate Sep<11>2014 18:20 Feb 02, 2021 Jkt 253001 person) to a lower-tier entity (salvage investment) that exceeds the maximum amount otherwise permitted under law or regulation to exercise its power to salvage the underlying asset (typically, an outstanding loan).64 As discussed previously, State savings associations are currently subject to § 362.11 which requires State savings associations to seek prior approval from the FDIC before making a contribution or a loan to a lower-tier entity (salvage investment) that exceeds the maximum amount otherwise permitted under law or regulation to exercise its power to salvage the underlying asset to be consistent with State law. Therefore, the FDIC believes that the rescission of § 390.255 is unlikely to substantively affect small State savings associations. By removing duplicative or unnecessary regulations, the FDIC believes that the rule will benefit small State savings associations by clarifying regulations and improving the ease of references. C. The Congressional Review Act For purposes of Congressional Review Act, the OMB makes a determination as to whether a final rule constitutes a ‘‘major’’ rule. If a rule is deemed a major rule by the OMB, the Congressional Review Act generally provides that the rule may not take effect until at least 60 days following its publication. The Congressional Review Act defines a ‘‘major rule’’ as any rule that the Administrator of the Office of Information and Regulatory Affairs of the OMB finds has resulted in or is likely to result in: (A) An annual effect on the economy of $100,000,000 or more; (B) a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies or geographic regions, or (C) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreignbased enterprises in domestic and export markets. The OMB has determined that the final rule is not a major rule for purposes of the Congressional Review Act and the FDIC will submit the final rule and other appropriate reports to Congress and the Government Accountability Office for review. 64 Without the salvage power provision, the maximum amount a State savings association would be permitted would be related the LTOB limit, which is equivalent to the applicable state’s legal lending limit. PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 8103 D. Plain Language Section 722 of the Gramm-LeachBliley Act 65 requires each Federal banking agency to use plain language in all of its proposed and final rules published after January 1, 2000. As a Federal banking agency subject to the provisions of this section, the FDIC has sought to present the final rule in a simple and straightforward manner and did not receive any comments on the use of plain language. E. The Economic Growth and Regulatory Paperwork Reduction Act Under section 2222 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA), the FDIC is required to review all of its regulations, at least once every 10 years, in order to identify any outdated or otherwise unnecessary regulations imposed on insured institutions.66 The FDIC, along with the other Federal banking agencies, submitted a Joint Report to Congress on March 21, 2017, (EGRPRA Report) discussing how the review was conducted, what has been done to date to address regulatory burdens, and further measures that will be taken to address issues that were identified. As noted in the EGRPRA Report, the FDIC is continuing to streamline and clarify its regulations through the OTS rule integration process. By removing outdated or unnecessary regulations, such as subpart O, this final rule complements other actions the FDIC has taken, separately and with the other Federal banking agencies, to further the EGRPRA mandate. F. Riegle Community Development and Regulatory Improvement Act of 1994 Pursuant to section 302(a) of the Riegle Community Development and Regulatory Improvement Act (RCDRIA), in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions (IDIs), each Federal banking agency must 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 requires new regulations and amendments to 65 Public Law 106–102, 113 Stat. 1338, 1471 (codified at 12 U.S.C. 4809). 66 Public Law 104–208, 110 Stat. 3009 (1996). E:\FR\FM\03FER2.SGM 03FER2 8104 Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations regulations that impose additional reporting, disclosures, or other new requirements on IDIs 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. Because the final rule does not impose additional reporting, disclosure, or other requirements on IDIs, section 302 of RCDRIA does not apply. List of Subjects 3. The authority citation for part 390 continues to read as follows: ■ Authority: 12 U.S.C. 1819. Subpart Q also issued under 12 U.S.C. 1462; 1462a; 1463; 1464. Subpart W also issued under 12 U.S.C. 1462a; 1463; 1464; 15 U.S.C. 78c; 78l; 78m; 78n; 78p; 78w. Subpart O—[Removed and Reserved] 12 CFR Part 362 4. Remove and reserve subpart O, consisting of §§ 390.250 through 390.255. ■ Administrative practice and procedure, Authority delegations (Government agencies), Bank deposit insurance, Banks, Banking, Investments, Reporting and recordkeeping requirements. 12 CFR Part 390 Administrative practice and procedure, Advertising, Aged, Civil rights, Conflict of interests, Credit, Crime, Equal employment opportunity, Fair housing, Government employees, Individuals with disabilities, Reporting and recordkeeping requirements, Savings associations. Federal Deposit Insurance Corporation. By order of the Board of Directors. Dated at Washington, DC, on December 15, 2020. James P. Sheesley, Assistant Executive Secretary. [FR Doc. 2020–28454 Filed 2–2–21; 8:45 am] BILLING CODE 6714–01–P FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Parts 308 and 390 Authority and Issuance RIN 3064–AF38 For the reasons stated in the preamble, the Federal Deposit Insurance Corporation amends 12 CFR parts 362 and 390 as follows: Removal of Transferred OTS Regulations Regarding Prompt Corrective Action Directives and Conforming Amendments to Other Regulations PART 362—ACTIVITIES OF INSURED STATE BANKS AND INSURED SAVINGS ASSOCIATIONS 1. The authority citation for part 362 continues to read as follows: ■ ■ 2. Revise § 362.15 to read as follows: § 362.15 Acquiring or establishing a subsidiary; conducting new activities through a subsidiary. No state insured savings association may establish or acquire a subsidiary, or conduct any new activity through a subsidiary, unless it files a notice in compliance with § 303.142(c) of this chapter at least 30 days prior to establishment of the subsidiary or commencement of the activity and the FDIC does not object to the notice. This section does not apply to any state savings association that acquired its principal assets from a Federal savings bank that was chartered prior to October 15, 1982, as a savings bank under state law. VerDate Sep<11>2014 18:20 Feb 02, 2021 Jkt 253001 Federal Deposit Insurance Corporation. ACTION: Final rule. AGENCY: The Federal Deposit Insurance Corporation (FDIC) is adopting a final rule to rescind and remove from the Code of Federal Regulations rules entitled ‘‘Prompt Corrective Action’’ that were transferred to the FDIC from the Office of Thrift Supervision (OTS) on July 21, 2011, in connection with the implementation of Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and amend certain sections of existing FDIC regulations governing the issuance and review of orders pursuant to the prompt corrective action provisions of the Federal Deposit Insurance Act to make it clear that such rules apply to all insured depository institutions for which the FDIC is the appropriate Federal banking agency. DATES: The final rule is effective on March 5, 2021. FOR FURTHER INFORMATION CONTACT: Robert Watkins, Review Examiner, RoWatkins@FDIC.gov, Division of Risk PO 00000 Frm 00024 Fmt 4701 Management Supervision, (202) 898– 3865; Seth Rosebrock, Assistant General Counsel, Legal Division, (202) 898– 6609, srosebrock@FDIC.gov; or Kristine Schmidt, Counsel, Legal Division, (202) 898–6686, krschmidt@fdic.gov. SUPPLEMENTARY INFORMATION: I. Policy Objective The policy objective of the rule is to remove unnecessary and duplicative regulations in order to simplify them and improve the public’s understanding of them. Part 390, subpart Y, outlines administrative procedures related to prompt corrective action that are equivalent to procedures outlined in part 308, subpart Q, of the FDIC’s existing regulations. Thus, the FDIC is rescinding the regulations in part 390, subpart Y, and reserving the subpart for future use. In addition, the FDIC is amending certain sections of part 308, subpart Q, of the FDIC’s existing regulations on the issuance and review of orders pursuant to the prompt corrective action provisions of the Federal Deposit Insurance Act to make it clear that part 308, subpart Q, applies to all insured depository institutions for which the FDIC is the appropriate Federal banking agency. II. Background SUMMARY: Authority: 12 U.S.C. 1816, 1818, 1819(a)(Tenth), 1828(j), 1828(m), 1828a, 1831a, 1831e, 1831w, 1843(l). jbell on DSKJLSW7X2PROD with RULES2 PART 390—REGULATIONS TRANSFERRED FROM THE OFFICE OF THRIFT SUPERVISION Sfmt 4700 Part 390, subpart Y, was included in the regulations that were transferred to the FDIC from the Office of Thrift Supervision (OTS) on July 21, 2011, in connection with the implementation of applicable provisions of title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).1 A. The Dodd-Frank Act As of July 21, 2011, the transfer date established by section 311 of the DoddFrank Act,2 the powers, duties, and functions formerly performed by the OTS were divided among the FDIC, as to State savings associations, the Office of the Comptroller of the Currency (OCC), as to Federal savings associations, and the Board of Governors of the Federal Reserve System (FRB), as to savings and loan holding companies. Section 316(b) of the Dodd-Frank Act 3 provides the manner of treatment for all orders, resolutions, determinations, regulations, and other advisory materials that had been issued, made, prescribed, or allowed to become effective by the OTS. 1 Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376 (2010) (codified at 12 U.S.C. 5301 et seq.). 2 Codified at 12 U.S.C. 5411. 3 Codified at 12 U.S.C. 5414(b). E:\FR\FM\03FER2.SGM 03FER2

Agencies

[Federal Register Volume 86, Number 21 (Wednesday, February 3, 2021)]
[Rules and Regulations]
[Pages 8098-8104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28454]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 362 and 390

RIN 3064-AF37


Removal of Transferred OTS Regulations Regarding Certain 
Subordinate Organizations of State Savings Associations

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is adopting a 
final rule to rescind and remove rules from the Code of Federal 
Regulations (CFR) regulations titled Subordinate Organizations that 
were transferred to the FDIC from the Office of Thrift Supervision 
(OTS) on July 21, 2011, in connection with the implementation of Title 
III of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) regarding subordinate organizations of State savings 
associations because the FDIC has determined that the requirements for 
State savings association subordinate organizations included therein 
are substantially similar to the requirements for State savings 
associations and their subsidiaries set forth by certain sections of 
the Federal Deposit Insurance Act (FDI Act) and its implementing 
regulations.

DATES: The final rule is effective on March 5, 2021.

FOR FURTHER INFORMATION CONTACT: Donald Hamm, Special Advisor, (202) 
898-3528, [email protected]; or Shelli Coffey, Review Examiner, (312) 382-
7539, [email protected], Risk Management and Applications, Division of 
Risk Management Supervision; Suzanne Dawley, Counsel, 
[email protected]; or Karlyn J. Hunter, Counsel, [email protected], 
Legal Division.

SUPPLEMENTARY INFORMATION:

I. Policy Objective

    The policy objective of the final rule is to simplify the FDIC's 
regulations by removing unnecessary regulations and realigning existing 
regulations in order to improve the public's understanding of the rules 
and to improve the ease of the public's reference to them. Thus, as 
further detailed in this section, the FDIC is rescinding and removing 
from the CFR rules entitled Subordinate Organizations (12 CFR part 390, 
subpart O) applicable to State savings associations.\1\ Pursuant to 
subpart O, the FDIC may, at any time, limit a State savings 
association's investment in their subordinate organizations, or may 
limit or refuse to permit any activities of any of these entities for 
supervisory, legal, or safety and soundness reasons.\2\
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    \1\ 12 CFR part 390, subpart O.
    \2\ 12 CFR 390.250.
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    Subpart O includes definitions related to State savings association 
subsidiaries,\3\ a requirement for the parent State savings association 
and its subsidiaries to maintain separate corporate identities,\4\ a 
prior notice requirement for a State savings association seeking to 
establish or acquire a new subsidiary or engage in new activities 
through an existing subsidiary,\5\ requirements related to the issuance 
of securities by a subsidiary,\6\ and requirements for the exercise of 
salvage power by a State savings association.\7\
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    \3\ 12 CFR 390.251.
    \4\ 12 CFR 390.252.
    \5\ 12 CFR 390.253.
    \6\ 12 CFR 390.254.
    \7\ 12 CFR 390.255.
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    The FDIC has determined that the requirements for State savings 
association subordinate organizations set forth in subpart O are 
substantially similar to requirements of section 28 of the FDI Act and 
its implementing regulations, 12 CFR part 362 of the FDIC's Rules and 
Regulations; and section 37 of the FDI Act.\8\ Therefore, the FDIC is 
rescinding and removing subpart O and will apply part 362, subpart C 
and subpart D, as appropriate, to achieve substantially similar 
supervisory results for State savings associations and subsidiaries as 
have been obtained through the application of subpart O.
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    \8\ 12 U.S.C. 1831e(a); 12 CFR part 362, subparts C and D; 12 
U.S.C. 1831n(a).
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II. Background

    The Dodd-Frank Act,\9\ signed into law on July 21, 2010, provided 
for a substantial reorganization of the regulation of State and Federal 
savings associations and their holding companies.\10\ Beginning July 
21, 2011, the transfer date established by section 311 of the Dodd-
Frank Act,\11\ the powers, duties, and functions formerly performed by 
the OTS were divided among the FDIC, as to State savings associations; 
the Office of the Comptroller of the Currency (OCC), as to Federal 
savings associations; and the Board of Governors of the Federal Reserve 
System (FRB), as to savings and loan holding companies. Section 316(b) 
of the Dodd-Frank Act \12\ provides the manner of treatment of all 
orders, resolutions, determinations, regulations, and advisory 
materials that had been issued, made, prescribed, or allowed to become 
effective by the OTS. The section provides that if such materials were 
in effect on the day before the transfer date, they continue in effect 
and are enforceable by or against the appropriate successor agency 
until they are modified, terminated, set aside, or superseded in 
accordance with applicable law by such successor agency, by any court 
of competent jurisdiction, or by operation of law.
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    \9\ 12 U.S.C. 5301 et seq.
    \10\ 12 U.S.C. 5411.
    \11\ Id.
    \12\ 12 U.S.C. 5414(b).
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    Pursuant to section 316(c) of the Dodd-Frank Act,\13\ on June 14, 
2011, the FDIC's Board of Directors approved a ``List of OTS 
Regulations to be Enforced by the OCC and the FDIC Pursuant to the 
Dodd-Frank Wall Street Reform and Consumer Protection Act.'' This list 
was published by the FDIC and the OCC as a joint notice in the Federal 
Register on July 6, 2011.\14\
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    \13\ 12 U.S.C. 5414(c).
    \14\ 76 FR 39246 (July 6, 2011).
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    Although section 312(b)(2)(B)(i)(II) of the Dodd-Frank Act \15\ 
granted the OCC rulemaking authority relating to both State and Federal 
savings associations, nothing in the Dodd-Frank Act affected the FDIC's 
existing authority to issue regulations under the FDI Act \16\ and 
other laws as the ``appropriate Federal banking agency'' or under 
similar statutory terminology. Section 312(c) of the Dodd-Frank Act 
\17\ revised the definition of ``appropriate Federal banking agency'' 
contained in section 3(q) of the FDI Act \18\ to add State

[[Page 8099]]

savings associations to the list of entities for which the FDIC is 
designated as the ``appropriate Federal banking agency.'' As a result, 
when the FDIC is designated as the ``appropriate Federal banking 
agency'' (or under similar terminology) for State savings associations, 
the FDIC is authorized to issue, modify, and rescind regulations 
involving such associations.
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    \15\ 12 U.S.C. 5412(b)(2)(B)(i)(II).
    \16\ 12 U.S.C. 1811 et seq.
    \17\ 12 U.S.C. 5412(c)(1).
    \18\ 12 U.S.C. 1813(q).
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    As noted, on July 14, 2011, operating pursuant to this authority, 
the FDIC's Board of Directors reissued and re-designated certain 
transferring regulations of the former OTS. These transferred OTS 
regulations were published as new FDIC regulations in the Federal 
Register on August 5, 2011.\19\ When it republished the transferred OTS 
regulations as new FDIC regulations, the FDIC specifically noted that 
its staff would evaluate the transferred OTS rules and might later 
recommend incorporating the transferred OTS regulations into other FDIC 
rules, amending them, or rescinding them, as appropriate.\20\
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    \19\ 76 FR 47652 (Aug. 5, 2011).
    \20\ Id.
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    The final rule adopts, without change, the notice of proposed 
rulemaking (NPR) published in the Federal Register on October 26, 2020, 
which received no comments.

III. The Proposed Rule

    On October 26, 2020, the FDIC published an NPR regarding the 
removal of part 390, subpart O (formerly OTS's 12 CFR part 559),\21\ 
which generally addresses subordinate organizations of State savings 
associations.\22\ The OTS adopted part 559, titled Subordinate 
Organizations, in 1996 to update and streamline its regulations and 
statements of policy concerning subsidiaries and other subordinate 
organizations in which savings associations have ownership interests 
(including operating subsidiaries and service corporations) and equity 
investments (including pass-through investments).\23\ Part 559 
consolidated all OTS regulations affecting thrift subsidiaries in order 
to make it easier for savings associations to find and use these 
regulations. The former OTS rule was transferred to the FDIC with only 
nominal changes and is found in the FDIC's rules at subpart O, entitled 
Subordinate Organizations.\24\
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    \21\ 12 CFR part 390, subpart O.
    \22\ 85 FR 67684 (Oct. 26, 2020).
    \23\ 61 FR 66561, 66562 (Dec. 18, 1996).
    \24\ 12 CFR part 390, subpart O.
---------------------------------------------------------------------------

    The NPR proposed removing subpart O, because, after careful review 
and consideration, the FDIC believes it is duplicative of substantially 
similar FDIC statutory and regulatory provisions that produce the same 
supervisory result for an insured State savings association as subpart 
O.\25\
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    \25\ 85 FR 67684, 67686 (Oct. 26, 2020).
---------------------------------------------------------------------------

    Section 28 of the FDI Act prohibits a State savings association 
from engaging as principal in any type of activity, or in any activity 
in an amount, that is not permissible for a Federal savings association 
unless the FDIC has determined the activity would pose no significant 
risk to the Deposit Insurance Fund (DIF); and the State savings 
association is, and continues to be, in compliance with the capital 
standards set forth in section 5(t) of the Home Owners Loan Act 
(HOLA).\26\ Pursuant to section 18(m) of the FDI Act, a State savings 
association must file a notice with the FDIC prior to establishing, 
acquiring or engaging in new activities of a subsidiary.\27\
---------------------------------------------------------------------------

    \26\ 12 U.S.C. 1831e(a), referencing 12 U.S.C. 1463 et seq.
    \27\ 12 U.S.C. 1828(m).
---------------------------------------------------------------------------

    The NPR proposed using 12 CFR part 362, Activities of Insured State 
Banks and Insured Savings Associations, to provide a substantially 
similar process for an insured State savings association, or its 
subsidiary, to apply for prior consent from the FDIC to engage in 
certain activities, that are not otherwise prohibited by Federal or 
State law, while reaching substantially the same result as provided in 
subpart O without the burden of referring to a duplicative set of 
regulations. Part 362, which includes subparts C and D, is issued 
pursuant to several FDIC authorities, including the FDIC's general 
rulemaking authority pursuant to section 9(a)(Tenth) and section 28 of 
the FDI Act, the FDIC's statutory authority over the activities of 
State savings associations and subsidiaries, that are substantially 
similar to the authorizing statutes pursuant to which subpart O was 
issued.
    Subpart C of part 362 governs the activities of insured State 
savings associations and implements section 28(a) of the FDI Act, which 
restricts and prohibits insured State savings associations and their 
service corporations from engaging in activities and investments of a 
type that are not permissible for a Federal savings association and 
their service corporations. Subpart D of part 362 governs acquiring, 
establishing, or conducting new activities through a subsidiary by an 
insured State savings association, and implements section 18(m) of the 
FDI Act, which requires that prior notice be given to the FDIC when an 
insured savings association establishes or acquires a subsidiary or 
engages in any new activity in a subsidiary. In doing so it applies the 
definitions of Sec.  362.2 unless otherwise indicated. The phrase 
``activity permissible for a Federal savings association'' means any 
activity authorized for a Federal savings association under any statute 
including HOLA,\28\ as well as activities recognized as permissible for 
a Federal savings association in regulations issued by the OCC or in 
bulletins, orders or written interpretations issued by the OCC, or by 
the former OTS until modified, terminated, set aside, or superseded by 
the OCC.\29\
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    \28\ 12 U.S.C. 1463 et seq.
    \29\ 12 CFR 362.9(a).
---------------------------------------------------------------------------

    Rather than restate the rationale for the rescission and removal of 
each section of subpart O, the reader is referred to the fulsome 
explanations for the rescission and removal provided in the NPR,\30\ 
which the FDIC references here as the basis for finalizing the 
regulations as proposed. The regulations or statutes that the FDIC 
expects State savings associations and subsidiaries to refer to after 
the removal of subpart O are briefly discussed below.
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    \30\ 85 FR 67684 (Oct. 26, 2020).
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A. Section 390.251--Definitions

    Section 390.251 is a definition section related to subordinate 
organizations. Included in the definitions section are: Control, GAAP-
consolidated subsidiary, lower-tier entity, ownership interest, 
subordinate organization, and, subsidiary. The control definition is a 
cross-reference to the removed OTS Sec.  391.41 definition,\31\ which 
provided that a controlling shareholder is any person who, directly or 
indirectly, or acting in concert with one or more persons or companies, 
or together with members of his or her immediate family, owns, 
controls, or holds with power to vote 10 percent or more of the voting 
stock of a company, or controls in any manner the election or 
appointment of a majority of the company's board of directors.\32\ The 
FDIC proposed to apply the Sec.  362.2(e) control definition which is 
consistent with the control definition applicable to service companies 
of Federal savings associations which

[[Page 8100]]

references the FRB's 12 CFR part 225, Regulation Y.\33\
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    \31\ The FDIC rescinded the control definition at Sec.  391.41 
as part of its 2015 Filing Requirements and Processing Procedures 
for Changes in Control with respect to State Nonmember Banks and 
State Savings Associations rulemaking. 80 FR 65889 (Oct. 28, 2015).
    \32\ 12 CFR 391.41 (2015).
    \33\ 12 CFR 5.59(d); 12 CFR part 225; 12 CFR 362.2(e).
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    The definition of equity investment in Sec.  362.2(g) is broader 
than the definition of ownership interest in Sec.  390.251, which means 
any equity interest in a business organization, limited or general 
partnership interests, or shares in a limited liability company. 
Similarly, the definition of subsidiary pursuant to Sec.  362.2(r) is 
substantially similar to the subsidiary definition in Sec.  390.251. 
The distinction is that Sec.  362.2(r) defines a subsidiary as ``any 
company that is owned or controlled directly or indirectly by one or 
more insured depository institutions,'' rather than only by a State 
savings association. Therefore, the State savings associations would 
refer to those definitions in part 362 after subpart O was removed from 
the CFR.
    A separate definition for GAAP-consolidated subsidiary is 
unnecessary as State savings association reports and financial 
statements are required to be uniform and consistent with U.S. 
generally accepted accounting principles (GAAP) pursuant to section 37 
of the FDI Act and section 4(b) of HOLA.\34\ Further, the instructions 
to the Consolidated Reports of Condition and Income (Call Report) state 
that the regulatory reporting requirements applicable to the Call 
Report shall conform to GAAP as set forth in the Financial Accounting 
Standards Board's Accounting Standards Codification.\35\ Because State 
savings associations have existing statutory directives to use GAAP in 
reporting and financial statements, eliminating a substantially similar 
regulation regarding GAAP-consolidated subsidiaries likely would not 
affect the quality of State savings association reporting and financial 
statements.
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    \34\ 12 U.S.C. 1831n(a)(2); 12 U.S.C. 1463(b)(2).
    \35\ Instructions for Preparation of Consolidated Reports of 
Condition and Income, Form FFIEC 031 and 041 https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_FFIEC041_201906_i.pdf.
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B. Section 390.252--How must separate corporate entities be maintained?

    The core eligibility requirements in Sec.  362.4(c) describe 
corporate separateness in the context of the State-chartered depository 
institution-subsidiary. The eligible subsidiary requirements in Sec.  
362.4(c)(2)--which are more detailed than eligible subsidiary 
requirements of Sec.  390.252--are designed specifically for the bank/
subsidiary relationship, and provide for separation between the State-
chartered depository institution and its subsidiary to lessen the 
possibility of piercing the corporate veil; deduction of the State-
chartered depository institution investment in the subsidiary to 
segregate the capital supporting the State-chartered depository 
institution from the capital supporting the subsidiary; and limitations 
on the State-chartered depository institution's investment in the 
subsidiary and on transactions with the subsidiary to ensure 
transactions are arms-length.\36\ The eligible subsidiary requirements 
are also incorporated into Sec.  362.13. Section 362.13 permits a State 
savings association that previously filed an application, and obtained 
the FDIC's consent to engage in an activity or to acquire or retain an 
investment in a service corporation engaging as principal in an 
activity, to continue the activity or retain the investment without 
seeking the FDIC's consent, provided the State savings association and 
the service corporation, if applicable, continue to meet the conditions 
and restrictions of approval if the insured State savings association 
and any applicable service corporation meet the requirements of Sec.  
362.4(c)(2).\37\
---------------------------------------------------------------------------

    \36\ 12 CFR 362.4(c). See FIL-97-97. September 23, 1997.
    \37\ 12 CFR 362.13.
---------------------------------------------------------------------------

    The provisions of Sec.  362.4(c)(2) that are duplicative of Sec.  
390.252 require that an eligible subsidiary: (1) Meet applicable 
statutory or regulatory capital requirements and have sufficient 
operating capital for normal obligations that are reasonably 
foreseeable for a business of its size and character; (2) be physically 
separate and distinct in its operations from the operations of the 
state-chartered depository institution; (3) maintain separate 
accounting and other business records; (4) observe separate business 
entity formalities; (5) conduct business pursuant to independent 
policies and procedures designed to inform customers and prospective 
customers of the subsidiary that the subsidiary is a separate 
organization from the State-chartered depository institution; and (6) 
that the State-chartered depository institution is not responsible for, 
and does not guarantee, the obligations of the subsidiary.\38\
---------------------------------------------------------------------------

    \38\ Section 362.4(c)(2)(vii) corresponds to Sec.  390.252(a)(4) 
and (5).
---------------------------------------------------------------------------

    State savings associations and service corporations that qualify as 
eligible depository institutions and eligible subsidiaries pursuant to 
Sec.  362.4(c) maintain separate corporate identities, which should 
sufficiently insulate State savings associations from the liabilities 
of subsidiaries.

C. Section 390.253--What notices are required to establish or acquire a 
new subsidiary or engage in new activities through a subsidiary?

    This section provides that such a notice must contain all of the 
information required under Sec.  362.15, is subject to FDIC objection, 
and must be filed at least 30 days prior to the establishment or 
acquisition of a subsidiary or commencement of a new activity through a 
subsidiary. The notice requirements of Sec.  362.15 are substantially 
similar to the transferred OTS notice requirement in Sec.  390.253.
    The proposal included a technical amendment to remove references to 
Federal savings association notice requirements in Sec.  362.15. 
Section 18(m) of the FDI Act, as amended by section 363(7) of the Dodd-
Frank Act,\39\ no longer requires Federal savings associations to 
provide notice to the FDIC prior to the establishment, or acquisition, 
of a subsidiary, or prior to commencement of a new activity in a 
subsidiary controlled by a Federal savings association.\40\ State 
savings associations must continue to notify the FDIC at least 30 days 
prior to establishing or acquiring a subsidiary or prior to 
commencement of a new activity through a State savings association-
controlled subsidiary pursuant to section 18(m) and Sec.  362.15, as 
described in the NPR.\41\
---------------------------------------------------------------------------

    \39\ Public Law 111-203, 124 Stat 1376 (2010).
    \40\ 12 U.S.C. 1828(m).
    \41\ 85 FR 67684, 67687 (Oct. 26, 2020).
---------------------------------------------------------------------------

D. Section 390.254--How may a subsidiary of a State savings association 
issue securities?

    State savings association subsidiaries are permitted to issue 
securities pursuant to section 28 of the FDI Act because the operating 
subsidiaries and service corporations of Federal savings associations 
are permitted to issue securities, subject to regulatory limitations. 
State savings associations and their subsidiaries are reminded that 
subsidiary issuances, like other permissible activities, are subject to 
the same restrictions or conditions imposed on the Federal savings 
association and must be conducted in the same manner in which an 
operating subsidiary or service corporation is authorized to issue such 
securities.\42\
---------------------------------------------------------------------------

    \42\ 85 FR 67684, 67688 (Oct. 26, 2020).
---------------------------------------------------------------------------

    Accordingly, a State savings association subsidiary should not 
state or imply that the securities it issues are covered by Federal 
deposit insurance, or issue any security the payment, maturity, or 
redemption of which may be accelerated upon the condition that

[[Page 8101]]

the controlling State savings association is insolvent or has been 
placed into receivership, and for as long as any securities are 
outstanding, the controlling State savings association must maintain 
all records generated through each securities issuance in the ordinary 
course of business, including but not limited to a copy of the 
prospectus, offering circular, or similar document concerning such 
issuance, and make such records available for examination by the 
FDIC.\43\
---------------------------------------------------------------------------

    \43\ Id.
---------------------------------------------------------------------------

E. Section 390.255--How may a State savings association exercise its 
salvage power in connection with a service corporation or lower-tier 
entities?

    In the NPR, staff proposed that State savings associations apply to 
the FDIC for prior approval pursuant to Sec.  362.11 before making a 
contribution or a loan to a lower-tier entity (salvage investment) that 
exceeds the maximum amount otherwise permitted under law or regulation 
to exercise its power to salvage the underlying asset to be consistent 
with State law. The applicant would be required to provide evidence 
that the State approved any exception over the loans to one borrower 
(LTOB) limit.\44\
---------------------------------------------------------------------------

    \44\ LTOB limits are established by state law of each chartering 
authority, and LTOB Limits are not consistent from state to state. 
Some states allow waivers or modifications, while others do not. 
Part 362 does not authorize any insured State savings association to 
make investments or conduct activities that are not authorized or 
that are prohibited by either Federal or State law. 12 CFR 362.9(c).
---------------------------------------------------------------------------

    As discussed in the NPR, these FDIC statutory and regulatory 
provisions provide a substantially similar process for an insured State 
savings association, or its subsidiary, to apply for prior consent from 
the FDIC to engage in certain activities, that are not otherwise 
prohibited by Federal or State law, while reaching substantially the 
same result as provided in subpart O without the burden of referring to 
a duplicative set of regulations.\45\ The NPR concluded the application 
of these FDIC statutory and regulatory provisions provide substantially 
similar results for the FDIC to achieve substantially similar 
supervisory results for State savings associations and subsidiaries as 
would be obtained through subpart O.\46\
---------------------------------------------------------------------------

    \45\ 85 FR 67684, 67686 (Oct. 26, 2020).
    \46\ Id.
---------------------------------------------------------------------------

IV. Comments

    The FDIC issued the NPR with a 30-day comment period, which closed 
on November 25, 2020.\47\ The FDIC received no comments on the NPR. 
Consequently, the proposed rule is adopted as final without change, and 
part 390, subpart O, will be rescinded in its entirety.
---------------------------------------------------------------------------

    \47\ 85 FR 67684 (Oct. 26, 2020).
---------------------------------------------------------------------------

V. The Final Rule

    The final rule rescinds and removes subpart O and amends Sec.  
362.15 to remove references to Federal savings associations made 
unnecessary because of the amendment of Section 18(m) of the FDI Act, 
as amended by section 363(7) of the Dodd-Frank Act which no longer 
requires Federal savings associations to provide notice to the FDIC 
prior to the establishment, or acquisition, of a subsidiary, or prior 
to commencement of a new activity in a subsidiary controlled by a 
Federal savings association.\48\
---------------------------------------------------------------------------

    \48\ Public Law 111-203, 124 Stat. 1376 (2010); 12 U.S.C. 
1828(m).
---------------------------------------------------------------------------

    As discussed in the NPR, the FDIC statutory and regulatory 
provisions applicable to State savings associations and their 
subsidiaries provide a substantially similar process for an insured 
State savings association, or its subsidiary, to apply for prior 
consent from the FDIC to engage in certain activities, that are not 
otherwise prohibited by Federal or State law, while reaching 
substantially the same result as provided in subpart O without the 
burden of referring to a duplicative set of regulations.\49\ Under the 
final rule, the application of part 362, which implements section 28 
and section 18(m) of the FDI Act, provides State savings associations 
with substantially similar procedures for notices and applications 
related to State savings association subsidiaries and investments. 
Further, section 37 of the FDI Act and section 4(b) of HOLA already 
require that State savings association reports and financial statements 
are uniform and consistent with U.S. generally accepted accounting 
principles (GAAP).\50\ By applying these FDIC statutory and regulatory 
provisions to State savings associations and subsidiaries, the FDIC 
will achieve substantially similar supervisory results for State 
savings associations and subsidiaries under the final rule as would be 
obtained through subpart O.\51\
---------------------------------------------------------------------------

    \49\ Section 28 (12 U.S.C. 1831e(a)), section 18(m) (12 U.S.C. 
1828(m)), and section 37 (12 U.S.C. 1831n(a)) of the FDI Act, and 
section 4(b) of the Home Owners Loan Act (12 U.S.C. 1463(b)), govern 
the activities of State savings associations and subsidiaries.
    \50\ 12 U.S.C. 1831n(a)(2); 12 U.S.C. 1463(b)(2).
    \51\ 85 FR 67684 (Oct. 26, 2020).
---------------------------------------------------------------------------

VI. Expected Effects

    As of June 30, 2020, the FDIC supervised 3,270 depository 
institutions, of which 35 (1.1 percent) are State savings 
associations.\52\ The final rule would affect regulations that govern 
State savings associations. As explained in the NPR, the final rule 
would remove Sec. Sec.  390.250, 390.251, 390.252, 390.253, 390.254, 
and 390.255 of part 390, subpart O, because most of its provisions are 
duplicative of, or substantially similar to the requirements of section 
28 of the FDI Act and its implementing regulations, 12 CFR part 362 of 
the FDIC's Rules and Regulations; and section 37 of the FDI Act. 
Additionally, the final rule amends Sec.  362.15 to remove the 
references to Federal savings association notice requirements because 
Federal savings associations are no longer required to provide notice 
to the FDIC prior to the establishment, or acquisition, of a 
subsidiary, or prior to commencement of a new activity in a subsidiary 
controlled by a Federal savings association.\53\ The FDIC does not 
believe that the final rule will have substantive effects on State 
savings associations. By removing duplicative or unnecessary 
regulations the FDIC believes that the final rule will benefit State 
savings associations by clarifying regulations and improving the ease 
of references.
---------------------------------------------------------------------------

    \52\ Call Report data, September 30, 2020.
    \53\ 12 U.S.C. 1828(m).
---------------------------------------------------------------------------

VII. Alternatives

    The FDIC considered alternatives to the final rule but believes 
that the amendments represent the most appropriate option for covered 
institutions. As discussed previously, the Dodd-Frank Act transferred 
certain powers, duties, and functions formerly performed by the OTS to 
the FDIC. The FDIC's Board reissued and redesignated certain 
transferred regulations from the OTS, but noted that it would evaluate 
them and might later incorporate them into other FDIC regulations, 
amend them, or rescind them, as appropriate. The FDIC has evaluated the 
existing regulations relating to certain subordinate organizations of 
State savings associations. The FDIC considered the alternative of 
retaining the current regulations, but did not choose to do so because 
it would be needlessly complex and confusing for its supervised 
institutions to continue to have substantively similar regulations 
regarding subordinate organizations of State savings associations 
located in different locations within the CFR. The FDIC believes it 
would be unnecessarily burdensome for FDIC-supervised institutions to 
refer to these separate sets of regulations, and, therefore, is 
rescinding and removing subpart O and

[[Page 8102]]

making a technical amendment to Sec.  362.15 to remove references to 
Federal savings associations to streamline the FDIC's regulations.

VIII. Regulatory Analysis and Procedure

A. The Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (PRA), the FDIC may not conduct or sponsor, and the respondent 
is not required to respond to, an information collection unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number. The final rule rescinds and removes from part 390, 
subpart O, and makes a technical amendment to Sec.  362.15 to remove 
references to Federal savings associations to streamline the FDIC's 
regulations. The final rule will not create any new or revise any 
existing collections of information under the PRA. Therefore, no 
information collection request will be submitted to the OMB for review.

B. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), requires that, in connection 
with a final rule, an agency prepare a final regulatory flexibility 
analysis that describes the impact of a proposed rule on small 
entities.\54\ However, a regulatory flexibility analysis is not 
required if the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities, 
and publishes its certification and a short explanatory statement in 
the Federal Register together with the rule. The Small Business 
Administration (SBA) has defined ``small entities'' to include banking 
organizations with total assets of less than or equal to $600 
million.\55\ Generally, the FDIC considers a significant effect to be a 
quantified effect in excess of 5 percent of total annual salaries and 
benefits per institution, or 2.5 percent of total non-interest 
expenses. The FDIC believes that effects in excess of these thresholds 
typically represent significant effects for FDIC-supervised 
institutions. For the reasons provided below, the FDIC certifies that 
the rule will not have a significant economic impact on a substantial 
number of small banking organizations.
---------------------------------------------------------------------------

    \54\ 5 U.S.C. 601, et seq.
    \55\ The SBA defines a ``small banking organization'' as one 
having $600 million or less in assets, where an organization's 
``assets are determined by averaging the assets reported on its four 
quarterly financial statements for the preceding year.'' See 13 CFR 
121.201 (as amended, by 84 FR 34261, effective August 19, 2019). 
``SBA counts the receipts, employees, or other measure of size of 
the concern whose size is at issue and all of its domestic and 
foreign affiliates.'' See 13 CFR 121.103. Following these 
regulations, the FDIC uses a covered entity's affiliated and 
acquired assets, averaged over the preceding four quarters, to 
determine whether the covered entity is ``small'' for the purposes 
of RFA.
---------------------------------------------------------------------------

    As of June 30, 2020, the FDIC supervised 3,270 insured depository 
institutions, of which 2,548 are considered small banking organizations 
for the purposes of RFA. The rule primarily affects regulations that 
govern State savings associations.\56\ There are 33 State savings 
associations considered to be small banking organizations for the 
purposes of the RFA.\57\
---------------------------------------------------------------------------

    \56\ FDIC Call Report, June 30, 2020.
    \57\ Id.
---------------------------------------------------------------------------

    As previously discussed, the rule rescinds part 390, subpart O, 
because most of its elements are duplicative of, or substantially 
similar to the requirements of section 28 of the FDI Act and its 
implementing regulations, 12 CFR part 362 of the FDIC's Rules and 
Regulations; and section 37 of the FDI Act.
    Additionally, the rule would amend certain sections of part 362 to 
remove the references to Federal savings association notice 
requirements because Federal savings associations are no longer 
required to provide notice to the FDIC prior to the establishment, or 
acquisition, of a subsidiary, or prior to commencement of a new 
activity in a subsidiary controlled by a Federal savings 
association.\58\ The FDIC does not believe that the rule will have 
substantive effects on small State savings associations.
---------------------------------------------------------------------------

    \58\ 12 U.S.C. 1828(m).
---------------------------------------------------------------------------

    Section 390.250 sets forth the FDIC's general rulemaking and 
supervisory authority under the FDI Act, its specific authority under 
section 18(m) of the FDI Act \59\ and subpart O's application to 
subordinate organizations of State savings associations. As previously 
discussed, State savings associations are subject to part 362, subparts 
C and D, which has the same statutory basis as Sec.  390.350. 
Therefore, the FDIC believes that the practical application of part 
362, subparts C and D, generally achieves the same outcomes for State 
savings associations as does subpart O. Therefore, the FDIC believes 
that the rescission of Sec.  390.250 is unlikely to have any 
substantive effects for small State savings associations or their 
subordinate organizations.
---------------------------------------------------------------------------

    \59\ 12 U.S.C. 1828(m).
---------------------------------------------------------------------------

    Section 390.251 is a definition section related to subordinate 
organizations. As previously discussed, the FDIC believes that the 
definitions of subsidiary and GAAP-consolidated subsidiary are 
substantially similar to and redundant to other statutory and 
regulatory requirements to which State savings associations are already 
subject. As previously discussed, State savings associations are 
already subject to a definition of control in Sec.  362.2(e), a 
definition that is narrower, however, than the one in Sec.  390.251. 
Therefore, the rescission of Sec.  390.251 could benefit State savings 
associations by narrowing the scope of investments in subordinate 
organizations that may be subject to limitation for supervisory, legal, 
or safety and soundness reasons asserted by the FDIC. The rescission of 
the definition of control in Sec.  390.251 could further benefit State 
savings associations by creating parity with the control definition 
applicable to service companies of Federal savings associations which 
references the FRB's 12 CFR part 225, Regulation Y.\60\ As previously 
discussed, State savings associations are already subject to a 
definition of equity investment in Sec.  362.2(g), a definition that is 
broader, however, than the one in Sec.  390.251. Therefore, the 
rescission of Sec.  390.251 is unlikely to pose additional costs for 
State savings associations because they are already subject to 
regulations with a substantively similar and broader defined scope of 
investments in subordinate organizations. Finally, the rescission of 
Sec.  390.251 would remove definitions of lower-tier entity and second-
tier service corporations or service corporation subsidiaries for which 
there is no corollary in FDIC regulations. However, as previously 
discussed, the FDIC does not believe that the existence of these 
defined terms enhance the quality of State savings association 
supervision. Therefore, the FDIC believes that the rescission of these 
definitions is unlikely to have any substantive effects on small State 
savings associations.
---------------------------------------------------------------------------

    \60\ 12 CFR 5.59(d); 12 CFR part 225.
---------------------------------------------------------------------------

    Section 390.252 requires State savings associations and their 
subordinate organizations to operate in a manner that demonstrates to 
the public that they are separate corporate entities because of 
concerns that a failure to maintain separate corporate existences could 
potentially result in a court, for equitable reasons, holding the 
savings association liable for the obligations of the subordinate 
organization.\61\ As discussed previously, FDIC-supervised depository 
institutions, including State savings associations and their 
subsidiaries, are covered by Sec. Sec.  362.4(c) and 362.13, which are 
substantively similar to or broader than the

[[Page 8103]]

obligations in Sec.  390.252. Therefore, the FDIC believes that the 
rescission of Sec.  390.252 is unlikely to have any substantive effect 
on small State savings associations or their subsidiaries.
---------------------------------------------------------------------------

    \61\ 61 FR 66561, 66567 (Dec. 18, 1996).
---------------------------------------------------------------------------

    Section 390.253 establishes notification requirements for State 
savings associations prior to their establishing, acquiring or engaging 
in new activities of a subsidiary as required under section 18(m) of 
the FDI Act.\62\ As discussed previously, State savings associations 
are already subject to substantively similar requirements in Sec.  
362.15. Therefore, the FDIC believes that the rescission of Sec.  
390.253 is unlikely to pose any substantive effects on small State 
savings associations.
---------------------------------------------------------------------------

    \62\ 12 CFR 390.253. See 12 U.S.C. 1828(m)(1).
---------------------------------------------------------------------------

    Section 362.15 established notification requirements for State and 
Federal savings associations prior to their establishing or acquiring a 
subsidiary, or conducting any new activity through a subsidiary. As 
discussed previously, after the Dodd Frank Act amendment of section 
18(m) of the FDI Act, Federal savings associations are no longer 
required to provide notice to the FDIC prior to the establishment, or 
acquisition, of a subsidiary, or prior to the commencement of a new 
activity in a subsidiary controlled by a Federal savings 
association.\63\ Therefore, the FDIC believes that the rescission of 
references to Federal savings associations from Sec.  362.15 is 
unlikely to have any substantive effect on small insured depository 
institutions in that it is simply consistent with existing law.
---------------------------------------------------------------------------

    \63\ 12 U.S.C. 1828(m).
---------------------------------------------------------------------------

    Section 390.254 permits a State savings association subsidiary to 
issue, either directly or through a third party intermediary, any 
securities that its parent State savings association is permitted to 
issue. As discussed previously, although there is no corollary 
regulation for FDIC-supervised depository institutions, State savings 
association subsidiaries are permitted to issue securities pursuant to 
section 28 of the FDI Act because the operating subsidiaries and 
service corporations of Federal savings associations are permitted to 
issue securities, subject to regulatory limitations. Therefore, the 
FDIC believes that the rescission of Sec.  390.254, if adopted, is 
unlikely to have any substantive effect on small State savings 
associations or their subsidiaries.
    Section 390.255 generally permits a State savings association to 
notify the FDIC at least 30 days before making a contribution or a loan 
(including a guarantee of a loan made by any other person) to a lower-
tier entity (salvage investment) that exceeds the maximum amount 
otherwise permitted under law or regulation to exercise its power to 
salvage the underlying asset (typically, an outstanding loan).\64\ As 
discussed previously, State savings associations are currently subject 
to Sec.  362.11 which requires State savings associations to seek prior 
approval from the FDIC before making a contribution or a loan to a 
lower-tier entity (salvage investment) that exceeds the maximum amount 
otherwise permitted under law or regulation to exercise its power to 
salvage the underlying asset to be consistent with State law. 
Therefore, the FDIC believes that the rescission of Sec.  390.255 is 
unlikely to substantively affect small State savings associations.
---------------------------------------------------------------------------

    \64\ Without the salvage power provision, the maximum amount a 
State savings association would be permitted would be related the 
LTOB limit, which is equivalent to the applicable state's legal 
lending limit.
---------------------------------------------------------------------------

    By removing duplicative or unnecessary regulations, the FDIC 
believes that the rule will benefit small State savings associations by 
clarifying regulations and improving the ease of references.

C. The Congressional Review Act

    For purposes of Congressional Review Act, the OMB makes a 
determination as to whether a final rule constitutes a ``major'' rule. 
If a rule is deemed a major rule by the OMB, the Congressional Review 
Act generally provides that the rule may not take effect until at least 
60 days following its publication.
    The Congressional Review Act defines a ``major rule'' as any rule 
that the Administrator of the Office of Information and Regulatory 
Affairs of the OMB finds has resulted in or is likely to result in: (A) 
An annual effect on the economy of $100,000,000 or more; (B) a major 
increase in costs or prices for consumers, individual industries, 
Federal, State, or local government agencies or geographic regions, or 
(C) significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic and 
export markets.
    The OMB has determined that the final rule is not a major rule for 
purposes of the Congressional Review Act and the FDIC will submit the 
final rule and other appropriate reports to Congress and the Government 
Accountability Office for review.

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \65\ requires each 
Federal banking agency to use plain language in all of its proposed and 
final rules published after January 1, 2000. As a Federal banking 
agency subject to the provisions of this section, the FDIC has sought 
to present the final rule in a simple and straightforward manner and 
did not receive any comments on the use of plain language.
---------------------------------------------------------------------------

    \65\ Public Law 106-102, 113 Stat. 1338, 1471 (codified at 12 
U.S.C. 4809).
---------------------------------------------------------------------------

E. The Economic Growth and Regulatory Paperwork Reduction Act

    Under section 2222 of the Economic Growth and Regulatory Paperwork 
Reduction Act of 1996 (EGRPRA), the FDIC is required to review all of 
its regulations, at least once every 10 years, in order to identify any 
outdated or otherwise unnecessary regulations imposed on insured 
institutions.\66\ The FDIC, along with the other Federal banking 
agencies, submitted a Joint Report to Congress on March 21, 2017, 
(EGRPRA Report) discussing how the review was conducted, what has been 
done to date to address regulatory burdens, and further measures that 
will be taken to address issues that were identified. As noted in the 
EGRPRA Report, the FDIC is continuing to streamline and clarify its 
regulations through the OTS rule integration process. By removing 
outdated or unnecessary regulations, such as subpart O, this final rule 
complements other actions the FDIC has taken, separately and with the 
other Federal banking agencies, to further the EGRPRA mandate.
---------------------------------------------------------------------------

    \66\ Public Law 104-208, 110 Stat. 3009 (1996).
---------------------------------------------------------------------------

F. Riegle Community Development and Regulatory Improvement Act of 1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act (RCDRIA), in determining the effective date 
and administrative compliance requirements for new regulations that 
impose additional reporting, disclosure, or other requirements on 
insured depository institutions (IDIs), each Federal banking agency 
must 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 
requires new regulations and amendments to

[[Page 8104]]

regulations that impose additional reporting, disclosures, or other new 
requirements on IDIs 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.
    Because the final rule does not impose additional reporting, 
disclosure, or other requirements on IDIs, section 302 of RCDRIA does 
not apply.

List of Subjects

12 CFR Part 362

    Administrative practice and procedure, Authority delegations 
(Government agencies), Bank deposit insurance, Banks, Banking, 
Investments, Reporting and recordkeeping requirements.

12 CFR Part 390

    Administrative practice and procedure, Advertising, Aged, Civil 
rights, Conflict of interests, Credit, Crime, Equal employment 
opportunity, Fair housing, Government employees, Individuals with 
disabilities, Reporting and recordkeeping requirements, Savings 
associations.

Authority and Issuance

    For the reasons stated in the preamble, the Federal Deposit 
Insurance Corporation amends 12 CFR parts 362 and 390 as follows:

PART 362--ACTIVITIES OF INSURED STATE BANKS AND INSURED SAVINGS 
ASSOCIATIONS

0
1. The authority citation for part 362 continues to read as follows:

    Authority: 12 U.S.C. 1816, 1818, 1819(a)(Tenth), 1828(j), 
1828(m), 1828a, 1831a, 1831e, 1831w, 1843(l).


0
2. Revise Sec.  362.15 to read as follows:


Sec.  362.15  Acquiring or establishing a subsidiary; conducting new 
activities through a subsidiary.

    No state insured savings association may establish or acquire a 
subsidiary, or conduct any new activity through a subsidiary, unless it 
files a notice in compliance with Sec.  303.142(c) of this chapter at 
least 30 days prior to establishment of the subsidiary or commencement 
of the activity and the FDIC does not object to the notice. This 
section does not apply to any state savings association that acquired 
its principal assets from a Federal savings bank that was chartered 
prior to October 15, 1982, as a savings bank under state law.

PART 390--REGULATIONS TRANSFERRED FROM THE OFFICE OF THRIFT 
SUPERVISION

0
3. The authority citation for part 390 continues to read as follows:

    Authority:  12 U.S.C. 1819.
    Subpart Q also issued under 12 U.S.C. 1462; 1462a; 1463; 1464.
    Subpart W also issued under 12 U.S.C. 1462a; 1463; 1464; 15 
U.S.C. 78c; 78l; 78m; 78n; 78p; 78w.

Subpart O--[Removed and Reserved]

0
4. Remove and reserve subpart O, consisting of Sec. Sec.  390.250 
through 390.255.

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on December 15, 2020.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2020-28454 Filed 2-2-21; 8:45 am]
BILLING CODE 6714-01-P


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