[Federal Register Volume 84, Number 211 (Thursday, October 31, 2019)]
[Proposed Rules]
[Pages 58492-58520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23115]
[[Page 58491]]
Vol. 84
Thursday,
No. 211
October 31, 2019
Part III
Federal Deposit Insurance Corporation
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12 CFR Parts 303, 326, 337, et al.
Removal of Transferred OTS Regulations Regarding Certain Regulations
for the Operations of State Savings Associations; Proposed Rule
Federal Register / Vol. 84 , No. 211 / Thursday, October 31, 2019 /
Proposed Rules
[[Page 58492]]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Parts 303, 326, 337, 353, 390
RIN 3064-AF14
Removal of Transferred OTS Regulations Regarding Certain
Regulations for the Operations of State Savings Associations
AGENCY: Federal Deposit Insurance Corporation.
ACTION: Notice of proposed rulemaking.
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SUMMARY: In this notice of proposed rulemaking (NPR), the Federal
Deposit Insurance Corporation (FDIC) proposes to rescind and remove
certain regulations transferred in 2011 to the FDIC from the former
Office of Thrift Supervision pursuant to the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the Dodd-Frank Act). In addition to
the removal of part 390, subpart S, the FDIC proposes to make technical
changes to other parts of the FDIC's regulations so that they may be
applicable on their terms to State savings associations. Following the
removal of the identified regulations, the regulations governing the
operations of State savings associations will be substantially the same
as those for all other FDIC-supervised institutions. The FDIC invites
comments on all aspects of this proposed rulemaking.
DATES: Comments must be received on or before December 2, 2019.
ADDRESSES: You may submit comments by any of the following methods:
FDIC Website: https://www.fdic.gov/regulations/laws/federal/. Follow instructions for submitting comments on the agency
website.
Email: [email protected]. Include RIN 3064-AF14 on the
subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW,
Washington, DC 20429.
Hand Delivery to FDIC: Comments may be hand-delivered to
the guard station at the rear of the 550 17th Street building (located
on F Street) on business days between 7 a.m. and 5 p.m.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Please include your name, affiliation, address, email address, and
telephone number(s) in your comment. All statements received, including
attachments and other supporting materials, are part of the public
record and are subject to public disclosure. You should submit only
information that you wish to make publicly available.
Please note: All comments received will be posted generally
without change to https://www.fdic.gov/regulations/laws/federal/,
including any personal information provided. Paper copies of public
comments may be requested from the Public Information Center by
telephone at 877-275-3342 or 703-562-2200.
FOR FURTHER INFORMATION CONTACT: Karen J. Currie, Senior Examination
Specialist, 202-898-3981, [email protected], Division of Risk Management
Supervision; Cassandra Duhaney, Senior Policy Analyst, 202-898-6804,
Division of Depositor and Consumer Protection; Gregory Feder, Counsel,
202-898-8724; Suzanne Dawley, Counsel, 202-898-6509; or Linda Hubble
Ku, Counsel, 202-898-6634, Legal Division.
SUPPLEMENTARY INFORMATION:
I. Background
A. The Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) \1\ provided for a substantial reorganization of the
regulation of State and Federal savings associations and their holding
companies. Beginning July 21, 2011, the transfer date established by
section 311 of the Dodd-Frank Act,\2\ the powers, duties, and functions
of the former Office of Thrift Supervision (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 advisory materials that had been
issued, made, prescribed, or allowed to become effective by the OTS.\4\
The section provides that if such issuances 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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\1\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
\2\ 12 U.S.C. 5411.
\3\ 12 U.S.C. 5414(b).
\4\ 12 U.S.C. 5414(b).
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The Dodd-Frank Act directed the FDIC and the OCC to consult with
one another and to publish a list of the continued OTS regulations to
be enforced by each respective agency. The list was published by the
FDIC and OCC as a Joint Notice in the Federal Register on July 6,
2011,\5\ and shortly thereafter, the FDIC published its transferred OTS
regulations as new FDIC regulations in 12 CFR parts 390 and 391.\6\
When it republished the transferred OTS regulations, the FDIC noted
that its staff would evaluate the transferred OTS regulations and might
later recommend incorporating the transferred OTS rules into other FDIC
rules, amending them or rescinding them, as appropriate.
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\5\ List of Office of Thrift Supervision Regulations to be
Enforced by the Office of the Comptroller of the Currency and the
Federal Deposit Insurance Corporation Pursuant to the Dodd-Frank
Wall Street Reform and Consumer Protection Act, 76 FR 39246 (Jul. 6,
2011).
\6\ Transfer and Redesignation of Certain Regulations Involving
State Savings Associations Pursuant to the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010, 76 FR 47652 (Aug. 5,
2011).
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Section 312(b)(2)(C) of the Dodd-Frank Act \7\ amended the
definition of ``appropriate Federal banking agency'' contained in
section 3(q) of the Federal Deposit Insurance Act (FDI Act) \8\ to add
State 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 acts as the designated ``appropriate Federal
banking agency'' (or under similar terminology) for State savings
associations, as it does here, the FDIC is authorized to issue, modify,
and rescind regulations involving such associations and for State
nonmember banks and insured branches of foreign banks.
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\7\ 12 U.S.C. 5412(b)(2)(C).
\8\ 12 U.S.C. 1813(q).
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B. 12 CFR Part 390, Subpart S
One of the rules of the former OTS that was transferred to the
FDIC, 12 CFR part 563, governs many of the operations of State savings
associations. The former OTS's rule was transferred to the FDIC with
nominal changes and is now found in the FDIC's rules at part 390,
subpart S, entitled ``State Savings Associations--Operations.'' \9\
Subpart S governs a wide range of operations of State savings
associations, as further discussed below.\10\
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\9\ 12 CFR part 390, subpart S.
\10\ The transferred OTS provision governing the frequency of
safety and soundness examinations of State savings associations, 12
CFR 390.351, was rescinded and removed by the final rule that
amended 12 CFR 337.12 to reflect the authority of the FDIC under
section 4(a) of HOLA to provide for the examination of safe and
sound operation of State savings associations. See Expanded
Examination Cycle for Certain Small Insured Depository Institutions
and U.S. Branches and Agencies of Foreign Banks, 81 FR 90949 (Dec.
16, 2016).
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[[Page 58493]]
II. The Proposal
Section 316(b)(3) of the Dodd-Frank Act in pertinent part, provides
that the regulations of the former OTS, as they apply to State savings
associations, will be enforceable by the FDIC until they are modified,
terminated, set aside, or superseded in accordance with applicable
law.\11\ Consistent with the FDIC's stated intention to evaluate
transferred OTS regulations before taking action on them, the FDIC has
carefully reviewed the provisions of subpart S, and proposes to take
action as described below with respect to certain sections of this
subpart.
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\11\ 12 U.S.C. 5414(b)(3).
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A. Section 390.330--Chartering Documents
Section 390.330 requires a de novo State savings association, prior
to commencing operations, to file its charter and bylaws with the FDIC
for approval. This section also requires a de novo State savings
association to certify to the FDIC that its charter and bylaws are
permissible under all applicable laws, rules, and regulations. In
addition, this section requires each State savings association to make
available to its accountholders a copy of its charter and bylaws,
including amendments thereto, in each office or by request.
Unlike the OCC or state banking supervisors, the FDIC does not
charter insured depository institutions. Thus, as it does with State
nonmember banks, the FDIC proposes to defer to state law as to whether
and how a State savings association should disclose or provide copies
of its organizational documents to interested parties. Consistent with
this position, the FDIC proposes to rescind and remove this section of
Subpart S.
B. Section 390.331--Securities: Statement of Non-Insurance
Section 390.331 requires that every security issued by a State
savings association include in its provisions a clear statement that
the security is not insured by the FDIC. Although the FDIC does not
have an identical companion rule to Sec. 390.331, provisions of the
Federal Deposit Insurance Act (the FDI Act), and the FDIC regulations
clarify (and require FDIC-supervised institutions to clarify) that
securities are not deposits under the FDI Act and are not insured by
the FDIC.
Section 3(l) of the FDI Act defines ``deposit'' for the purposes of
the FDI Act and does not include any securities, regardless of
issuer.\12\ The definition of ``insured deposit'' at section 3(m) of
the FDI Act, also does do not include securities, including those
issued by a State savings association.\13\
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\12\ 12 U.S.C. 1813(l).
\13\ 12 U.S.C. 1813(m).
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Further, part 328 governs the use of the official sign of the FDIC
and prescribes its use by insured depository institutions. It also
provides the official advertising statement that insured depository
institutions must include in their advertisements. For purposes of part
328, the term ``insured depository institution'' includes insured
branches of a foreign depository institution, as well as State savings
associations. In particular, the advertising of non-deposit products
(which includes securities) is governed by Sec. 328.3(e). That section
prohibits an insured depository institution from including the official
advertising statement, or any other statement or symbol which implies
or suggests the existence of Federal deposit insurance, in any
advertisement that relates solely to non-deposit products.
Because Sec. 390.331 largely is redundant to current FDIC rules
and regulations that govern advertising of non-deposit products,
including securities, for all insured depository institutions, the FDIC
proposes to rescind and remove Sec. 390.331.
C. 12 CFR 390.332--Merger, Consolidation, Purchase or Sale of Assets,
or Assumption of Liabilities
Section 390.332 addresses the application requirements for mergers,
consolidations, purchases or sales of assets, and assumptions of
liabilities that apply to State savings associations. The FDIC proposes
to rescind Sec. 390.332 and to amend 12 CFR part 303, subpart D, the
section of the FDIC's regulations governing merger transactions. The
proposed amendments to subpart D would make that section applicable to
any FDIC-supervised institution, including State savings associations,
and would make other conforming changes. The proposed revisions to
subpart D would make subpart D applicable to mergers in which the
resulting institution is a State savings association, while observing
the necessary requirements of the Bank Merger Act and Home Owners' Loan
Act (HOLA).\14\ The FDIC specifically proposes amending Sec.
303.62(a)(1) of the FDIC's regulations to clarify that this section
applies to merger transactions in which the resulting institution is
either an insured State nonmember bank or a State savings association.
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\14\ 12 U.S.C. 1461 et seq.
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HOLA generally provides for a 60-day expedited processing period
for applications involving State or Federal savings associations that
acquire or are acquired by another insured depository institution.\15\
The FDIC proposes to amend Sec. 303.64 of its regulations to reflect
HOLA's expedited statutory processing requirement as it applies to
State savings associations. Specifically, a proposed new paragraph (c)
of section 303.64 would clarify that the FDIC will act on merger
applications submitted by State savings associations within 60 days
after the date of the FDIC's receipt of a substantially complete merger
application, subject to the FDIC's authority to extend such period by
an additional 30 days in cases where material information is
substantially inaccurate or incomplete.\16\ Although the FDIC proposes
to incorporate this 60-day processing requirement with respect to State
savings associations, the FDIC proposes to rescind the provisions of
Sec. 390.332 that deem certain merger applications involving state
savings associations to be automatically approved.\17\ The FDIC does
not consider such provisions to be statutorily required by the HOLA,
and their inclusion in subpart D would be inconsistent with the
treatment of State nonmember banks under subpart D, which clarifies
that merger applications processed under expedited processing are not
deemed to be automatically approved upon the conclusion of the
expedited processing period.\18\ After the proposed amendment to
subpart D and proposed removal and rescission of Sec. 390.332, all
FDIC-supervised institutions would be subject, in substantially the
same manner, to the regulations for merger applications found in part
303, subpart D.
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\15\ 12 U.S.C. 1467a(s)(2).
\16\ 12 U.S.C. 1467a(s)(2)(B).
\17\ See 12 CFR 390.332(f) and (h).
\18\ 12 CFR 303.64(a)(3).
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The FDIC is including a technical amendment to Sec. 303.62(b)(5)
of the FDIC's regulations. Currently, Sec. 303.62(b)(5) provides that
an insured depository institution assuming deposit liabilities of
another insured institution must provide certification of assumption of
deposit liability to the FDIC in accordance with part 307. This
provision no longer accurately reflects the requirements of part 307,
which was amended to clarify that the transferring institution file the
certification, rather than the assuming institution.\19\
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\19\ 71 FR 8789 (Feb. 21, 2006), codified at 12 CFR 307.1 et
seq.
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[[Page 58494]]
D. 12 CFR 390.333--Advertising
Section 390.333 prohibits State savings associations from making
inaccurate representations about services, contracts, investments, or
financial condition in their advertising. It appears that the former
OTS used this regulation sparingly. FDIC staff identified only ten
occasions in which the former OTS cited this provision in guidance
letters and no circumstances in which the former OTS cited the
regulation in an adjudicated enforcement proceeding.
The prohibition of misrepresentations in advertising contained in
Sec. 390.333 is substantially similar to the more general prohibition
of unfair or deceptive acts or practices under section 5(a) of the
Federal Trade Commission Act (Section 5). The FDIC enforces this
provision pursuant to its authority under Section 8 of the FDI Act.\20\
Section 390.333 prohibits advertising and representations that are
inaccurate or that misrepresent a State savings association's services,
contracts, investments, or financial condition. The prohibition
contained in Section 5 is broader than Sec. 390.333 because it
prohibits all ``unfair or deceptive acts or practices in or affecting
commerce,'' and it applies to all FDIC-supervised institutions, not
only State savings associations.\21\ Because the narrower prohibitions
of Sec. 390.333 appear subsumed within the broader prohibitions of
Section 5, the FDIC proposes to rescind and remove Sec. 390.333.
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\20\ 12 U.S.C. 1818.
\21\ 15 U.S.C. 45(a)(1).
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In interpreting Section 5, the Federal Trade Commission (FTC) and
the courts have concluded that an advertisement is not misleading
unless the representation, omission, or practice is material, meaning
that it is likely to affect a consumer's decision regarding a product
or service.\22\ Arguably, then, Sec. 390.333 sets a higher standard
than Section 5 because Sec. 390.333 lacks an explicit materiality
requirement. That is, if Sec. 390.333 is read strictly, an
advertisement could violate that section even if the misrepresentation
in the advertisement is not material. As a practical matter, however,
it is unlikely that the FDIC would cite a violation of Sec. 390.333
for an immaterial misrepresentation. Therefore, the FDIC does not
believe that Sec. 390.333 provides additional meaningful supervisory
or enforcement authority to regulate misrepresentations by State
savings associations. As a result, the FDIC proposes to rescind and
remove Sec. 390.333.
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\22\ FTC Policy Statement on Deception, October 14, 1983
(appended to Cliffdale Assocs., Inc., 103 F.T.C. 110, 174 (1984));
Novartis Corp. v. F.T.C., 223 F.3d 783, 786 (D.C. Cir. 2000); F.T.C.
v. Pantron I Corp., 33 F.3d 1088, 1095 (9th Cir. 1994).
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E. 12 CFR 390.334--Directors, Officers, and Employees
Section 390.334 limits who may serve on the board of directors of a
State savings association by providing that: A majority of the
directors must not be employees of the State savings association or its
affiliates; no more than two directors may come from the same family;
and no more than one director may be an attorney with a particular law
firm.
The FDIC proposes to remove and rescind Sec. 390.334. The FDIC
expects State nonmember banks to comply with the laws and regulations
of their chartering authority regarding the composition of their boards
of directors and will expect State savings associations to do the same.
The provisions of Sec. 390.334 are not statutorily mandated and were
initially adopted in 1976 by the former OTS' precursor, the Federal
Home Loan Bank Board (FHLBB) to increase the independence of boards of
directors of insured institutions.\23\
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\23\ Director Guidelines and Certain Prohibitions and
Disclosures, 41 FR 35812, 35814 (Aug. 24, 1976).
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The FDIC expects State savings associations to comply with the laws
of their chartering authorities regarding the composition of boards of
directors and to look to FDIC-issued guidance for examples of practices
that the FDIC considers consistent with safety-and-soundness standards
or other applicable laws and regulations. For example, the FDIC's
Pocket Guide for Directors contains examples of appropriate conduct by
directors' and boards' conduct.\24\ The FDIC believes that this
Statement of Policy adequately advances the policy objectives of Sec.
390.334. Accordingly, the FDIC proposes to rescind and remove Sec.
390.334.
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\24\ Available at https://www.fdic.gov/regulations/resources/director/pocket/index.html (last updated Dec. 13, 2007). See also
Interagency Guidelines Establishing Standards for Safety and
Soundness, 12 CFR part 364, app. A.
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F. 12 CFR 390.335--Tying Restriction Exception
Section 390.335 is entitled ``Tying restriction exception'' and
refers solely to the regulations issued by the FRB. This section is a
re-designation of the former OTS regulation 12 CFR 563.36. That section
provided for an anti-tying safe harbor for discounts related to a
customer's continued minimum balance in certain eligible products. This
safe harbor was adopted to conform to a similar safe harbor adopted by
the FRB. When the former OTS regulations were transferred to the FDIC,
the FDIC replaced the substantive regulations of Sec. 563.36 with the
following statement: ``For applicable rules, see the regulations issued
by the Board of Governors of the Federal Reserve System.'' This
reflects the fact that section 312(b)(2) of the Dodd-Frank Act
transferred the authority to grant exceptions from the anti-tying
regulations of HOLA to the FRB in consultation with the FDIC or OCC as
appropriate, rather than to the FDIC, upon the dissolution of the
OTS.\25\
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\25\ 12 U.S.C. 5412(b)(2)(A).
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The FDIC proposes rescinding and removing Sec. 390.335 because the
FRB's Regulation LL \26\ sets forth regulatory exceptions to the anti-
tying provisions of HOLA.\27\ The authority to grant such exceptions
rests with the FRB, in consultation with the FDIC, and the FDIC retains
the authority to enforce the anti-tying provisions of HOLA.\28\ The
FDIC, therefore, considers it appropriate to rescind and remove Sec.
390.335 from the FDIC's rules and regulations.
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\26\ See 12 CFR 238.7.
\27\ 12 U.S.C. 1464(q).
\28\ 12 U.S.C. 1464(d).
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G. 12 CFR 390.336--Employment Contracts
Section 390.336 sets forth requirements with which a State savings
association must comply when entering into an employment contract with
its officers and other employees. This section is a re-designation of
the former OTS regulation 12 CFR 563.39, which relies on the general
statutory authority in HOLA to promulgate regulations concerning the
savings and loan industry.\29\
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\29\ 12 U.S.C. 1464(a).
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The FDIC proposes to rescind and remove Sec. 390.336. State
savings associations are subject to existing statutory authority
regarding employment contracts with institution-affiliated parties. For
instance, section 30 of the FDI Act prohibits an insured depository
institution from entering into a contract with any person for services
or goods if the contract would adversely affect the institution's
safety or soundness.\30\ Further, the FDIC expects that State savings
associations will be guided by the Interagency Guidelines Establishing
Standards for Safety and Soundness (the Interagency Safety and
Soundness Guidelines) prescribed
[[Page 58495]]
pursuant to section 39 of the FDI Act, which apply to all insured
depository institutions, including State savings associations.\31\ In
addition, part 359 of the FDIC's regulations limits and/or prohibits
troubled institutions from paying and making golden parachute and
indemnification payments to an institution-affiliated party.
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\30\ 12 U.S.C. 1831g.
\31\ See 12 U.S.C. 1831p-1(c); 12 CFR part 364, App. A, Sec.
III.
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For the reasons stated above, the FDIC proposes to rescind and
remove Sec. 390.336.
H. 12 CFR 390.337--Transactions With Affiliates
Section 11(a) of HOLA \32\ applies Sections 23A and 23B of the
Federal Reserve Act \33\ to every savings association in the same
manner and to the same extent as if the savings association were a
member bank with two additional restrictions. The first restriction
prohibits State and Federal savings associations from making a loan or
other extension of credit to any affiliate unless the affiliate is
engaged only in activities which the FRB, by regulation, has determined
to be permissible for bank holding companies under section 4(c) of the
Bank Holding Company Act.\34\ The second restriction prohibits State
and Federal savings associations from entering into any transaction for
the purchase or investment in securities issued by the affiliate with
any affiliate other than with respect to the shares of a
subsidiary.\35\
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\32\ 12 U.S.C. 1468(a).
\33\ 12 U.S.C. 371, 371c-1.
\34\ 12 U.S.C. 1468(a)(1)(A), 12 U.S.C. 1843(c).
\35\ 12 U.S.C. 1468(a)(1)(B).
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Similar to section 11 of HOLA, section 18(j) of the FDI Act applies
sections 23A and 23B to every nonmember insured bank as if it were a
member bank.\36\ The scope of the FRB's affiliate transaction
regulation, Regulation W, notes that both the FDI Act and HOLA make
sections 23A and 23B applicable to insured State nonmember banks and
insured savings associations, respectively.\37\
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\36\ 12 U.S.C. 1828(j)(1)(A).
\37\ 12 CFR 223.1(c).
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The OTS adopted 12 CFR 563.41 to implement affiliate transaction
requirements for State and Federal savings associations and, in the
regulation, referenced Regulation W.\38\ This regulation was
redesignated as 12 CFR 390.337 in the transfer of authority for State
savings associations from the OTS to the FDIC. Section 390.337 states
only that State savings associations should ``see the regulations
issued by Board of Governors of the Federal Reserve System'' for the
applicable rules for transactions with affiliates. The FDIC does not
have a regulation comparable to Sec. 390.337 that applies to State
nonmember banks because the FDI Act specifically states that sections
23A and 23B of the Federal Reserve Act apply to State nonmember
banks.\39\ Because HOLA similarly applies sections 23A and 23B of the
Federal Reserve Act to State savings associations \40\ and because the
FRB's Regulation W \41\ addresses the additional restrictions of HOLA
applicable to State and Federal savings associations' transactions with
their affiliates, the FDIC believes there is no need to retain Sec.
390.337.\42\ The FDIC, therefore, proposes to rescind and remove this
section.
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\38\ Id.
\39\ 12 U.S.C. 1828(j)(1)(A).
\40\ 12 U.S.C. 1468(a).
\41\ The FDIC has interpreted the language ``in the same manner
and to the same extent'' to include the application of Regulation W.
\42\ 12 CFR 223.72.
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I. 12 CFR 390.338--Loans by Savings Associations to Their Executive
Officers, Directors and Principal Shareholders
Section 22(g) of the Federal Reserve Act \43\ pertains to
extensions of credit to executive officers of banks, while section
22(h) of the Federal Reserve Act \44\ deals with extensions of credit
by member banks to their to executive officers, directors, and
principal shareholders (or to related interests of those individuals)
(insiders). Section 18(j)(2) of the FDI Act \45\ provides that both
sections 22(g) and (h) of the Federal Reserve Act are applicable to
insured nonmember banks in the same manner and to the same extent as if
they were member banks. Section 11(b) of HOLA provides a similar result
with respect to both State and Federal savings associations.\46\
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\43\ 12 U.S.C. 375a.
\44\ 12 U.S.C. 375b.
\45\ 12 U.S.C. 1828(j)(2).
\46\ 12 U.S.C. 1468(b).
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The OTS implemented insider lending restrictions for savings
associations at 12 CFR 563.43. That section cross-referenced the FRB's
Regulation O,\47\ with some additional modifications. Section 390.338
is the re-designation of 12 CFR 563.43, a transferred OTS regulation,
and the rule merely directs the reader to the regulations issued by the
FRB. Section 337.3 of the FDIC's regulations \48\ implements these
requirements in part by incorporation through reference to Regulation
O, as previously accomplished by the OTS in Sec. 563.43, and also by
imposing direct regulatory requirements on State nonmember banks.
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\47\ 12 CFR part 215.
\48\ 12 CFR 337.3.
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After careful comparison of Sec. 337.3 with Sec. 390.338, the
FDIC has concluded that the transferred OTS rule governing insider
loans is substantively redundant. Therefore, based on the foregoing,
the FDIC proposes to rescind and remove Sec. 390.338, to make minor
conforming changes to Sec. 337.3 to clarify its applicability to State
savings associations, and to make technical amendments to Sec. 337.3,
discussed in further detail below. If the proposal is adopted in final
form, FDIC-supervised institutions--including State savings
associations--will be regulated in a uniform manner. As a result, the
FDIC proposes to rescind and remove Sec. 390.338 in its entirety.
The FDIC also proposes to amend Sec. 337.3 to apply to ``FDIC-
supervised institutions,'' meaning State nonmember banks, State savings
associations, and foreign banks having an insured branch, to conform to
and reflect the scope of the FDIC's current supervisory
responsibilities as the appropriate Federal banking agency for both
State savings associations and State nonmember banks. Finally, the
proposal would make technical corrections and changes to Sec. 337.3.
Section 337.3(a) currently provides that, with the exception of certain
specified sections (namely Sec. Sec. 215.5(b), 215.5(c)(3),
215.5(c)(4), and 215.11), insured nonmember banks are subject to the
restrictions contained in subpart A of Regulation O to the same extent
and to the same manner as if they were member banks. The citations to
Regulation O in Sec. 337.3(a) are no longer accurate, however, because
the FRB amended Regulation O to remove several statutory reporting
requirements relating to insider lending consistent with section 601 of
the Financial Services Regulatory Relief Act of 2006.\49\ A 2006 FRB
rulemaking reflected these statutory amendments.\50\ Shortly after the
FRB made amendments to Regulation O, the FDIC rescinded 12 CFR part
349, the agency's regulations governing reporting on lending by a State
nonmember bank and its correspondent banks to executive officers and
principal shareholders.\51\ In addition to the Regulation O citations
related to rescinded reporting requirements, the FDIC's current
regulation contains an inaccurate reference to the Regulation O
definition
[[Page 58496]]
of ``unimpaired capital and unimpaired surplus'' in footnote 3 of Sec.
337.3(b). The FDIC proposes to correct this error by adding a reference
to the correct Regulation O subsection.
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\49\ Public Law 109-351.
\50\ See 71 FR 71472 (Dec. 11, 2006). See also 72 FR 30470 (June
1, 2007).
\51\ See 71 FR 78337 (Dec. 29, 2006).
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In addition to these proposed changes, the FDIC also is proposing
another technical, conforming change to Sec. 337.3: The elimination of
transitional provisions that are now obsolete. These paragraphs were
added to assist insured nonmember banks in complying with the statutory
lending limits for executive officers of member banks, as required by
the Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA).\52\ To assist insured nonmember banks in making the
transition, the FDIC specifically provided for the handling of loans
made prior to application of the new restrictions, but which were still
outstanding as of that event. These provisions are no longer needed.
The FDIC, therefore, proposes to eliminate them.
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\52\ Public Law 102-242.
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In sum, if the proposal is finalized, oversight of insider loans in
Sec. 337.3 would apply to all FDIC-supervised institutions, including
State savings associations; Sec. 337.3 would reflect technical
amendments; and Sec. 390.338 would be rescinded and removed because it
is largely duplicative of those rules found in Sec. 337.3.
J. 12 CFR 390.339--Pension Plans
Section 390.339 prohibits State savings associations from
sponsoring an employee pension plan which, because of unreasonable
costs or for any other reason, could lead to material financial loss or
damage to the sponsor. It further requires a State savings association
that serves as a pension plan sponsor to retain detailed pension plan
records and actuarial funding reports and to provide advance notice of
a pension plan termination. The FDIC proposes to rescind and remove
Sec. 390.339 because the section is substantially similar to the
existing compensation regulations contained in the Interagency Safety
and Soundness Guidelines.\53\
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\53\ 12 CFR 364, App. A. III.
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The Interagency Safety and Soundness Guidelines apply to all
insured depository institutions, including State savings associations.
Section III of the Interagency Safety and Soundness Guidelines
explicitly prohibits compensation that could lead to material financial
loss as an unsafe and unsound practice. The Interagency Safety and
Soundness Guidelines also address excessive compensation as an unsafe
and unsound practice, taking into account factors such as compensation
history, the institution's financial condition, comparable compensation
practices, the projected costs and benefits of postemployment benefits,
fraudulent or other inappropriate activity, and any other factors the
agencies deem relevant. ``Compensation'' is defined as ``all direct and
indirect payments or benefits, both cash and non-cash, granted to or
for the benefit of any executive officer, employee, director, or
principal shareholder, including but not limited to payments or
benefits derived from an employment contract, compensation or benefit
agreement, fee arrangement, perquisite, stock option plan,
postemployment benefit, or other compensatory arrangement Moreover, the
requirements of the Employee Retirement Security Act of 1974 \54\ and
Internal Revenue Code \55\ and the implementing regulations of the
Pension Benefit Guaranty Corporation, including recordkeeping, would
apply to any pension plan offered by an FDIC-supervised
institution.\56\ On this basis, FDIC staff proposes to rescind and
remove Sec. 390.339.
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\54\ Public Law 93-406, 88 Stat. 829, codified in part at 29
U.S.C. 1001, et seq.
\55\ 26 U.S.C. 1, et seq.
\56\ 29 U.S.C. 1003; 29 CFR 4000, et seq.
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K. 12 CFR 390.340--Offers and Sales of Securities at an Office of a
Savings Association
Section 390.340 generally prohibits the offer or sale of debt or
equity securities issued by a State savings association or an affiliate
of the State savings association at an office of the State savings
association with the exception of equity securities issued in
connection with the State savings association's conversion from mutual
to stock form in a transaction that has been approved by the FDIC or if
the sale is conducted in accordance with the conditions set forth in
Sec. 390.340. This section is a re-designation of former OTS
regulation 12 CFR 563.76.
Section 563.76 was added to the former OTS' regulations in 1992 to
minimize potential customer confusion and to promote understanding of
the nature and risks associated with securities sold at a State savings
association's offices, while still preserving an effective means for a
State savings association to raise capital in the conversion process.
The FDIC does not have a similar regulation but has published the NDIP
Statement of Policy,\57\ which addresses all sales of nondeposit
products (such as annuities, mutual funds, and other securities) by
depository institutions; disclosures and advertising; the setting and
circumstances of sales of securities; qualification and training for
personnel who sell securities; standards for suitability of the
products for customers and sales practices; compensation practices; and
compliance policies and procedures. In addition, the FDIC Statement of
Policy Regarding the Use of Offering Circulars in Connection with
Public Distribution of Bank Securities (Offering Circular Statement of
Policy) addresses sales and distribution of bank securities and
disclosures that should be included in offering circulars for bank
securities to ensure disclosure of material facts to investors.
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\57\ Interagency Statement on Retail Sales of Nondeposit
Investment Products (Feb.15, 1994), https://www.fdic.gov/regulations/laws/rules/5000-4500.html.
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The content requirements in Sec. 390.340 that are designed to
prevent consumer confusion are included in these two Statements of
Policy. It is the FDIC's view that specifically imposing these
requirements on State savings associations through regulation is
unnecessary. According, the FDIC proposes that Sec. 390.340 be
rescinded and removed.
L. 12 CFR 390.341--Inclusion of Subordinate Debt Securities and
Mandatorily Redeemable Preferred Stock as Supplementary Capital
Section 403(b) of the National Housing Act, as amended, provided
that no institution insured by the Federal Savings and Loan Insurance
Corporation (FSLIC) may ``issue securities which guarantee a definite
return or which have a definite maturity except with the specific
approval of the'' FSLIC. Because a number of insured institutions had
applied to the FSLIC for approval of the issuance of various types of
subordinated debt securities to provide a broader base for capital
operations, in 1972, the FHLBB, as the operating head of the FSLIC,
adopted a number of rules to provide for uniform requirements for the
issuance of such securities.\58\ That rule was transferred to the OTS
pursuant to the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA) and codified at 12 CFR 563.81.\59\
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\58\ 37 FR 21179 (Oct. 6, 1972).
\59\ 54 FR 49411.
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In 2007, the OTS adopted a final rule amending 12 CFR 563.81 to
delete several unnecessary or outdated requirements and to conform
certain regulations, such as maturity period requirements and purchaser
restrictions, to the rules issued by the other Federal
[[Page 58497]]
banking agencies. In addition, the rule reconciled conflicting rules,
included appropriate statutory cross-references, and reflected plain
language.
Section 390.341 is the re-designation of Sec. 563.81. Section
390.341 provides application and notice procedures and form and content
requirements for subordinate debt securities and mandatorily redeemable
preferred stock that a State savings association seeks to include in
its tier 2 capital. There is no corresponding requirement applicable to
State nonmember banks. For the following reasons, the FDIC is proposing
to rescind Sec. 390.341.
The FDIC believes that it is not necessary for a State savings
association to apply or provide notice to the FDIC before issuing
subordinate debt securities or mandatorily redeemable preferred stock.
Moreover, many of the form and content requirements in Sec. 390.341
that are designed to prevent consumer confusion are included in the
FDIC's Offering Circular Statement of Policy.\60\ It is the FDIC's view
that specifically imposing these requirements on State savings
associations through a regulation is unnecessary.
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\60\ See 61 FR 46807 (Sept. 5, 1996).
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Section 390.341 also includes a number of criteria that subordinate
debt securities and mandatorily redeemable preferred stock must satisfy
in order to qualify as tier 2 capital. The criteria for inclusion in
tier 2 capital are included in the FDIC's capital rules in 12 CFR part
324.\61\ Accordingly, it is not necessary to specify them separately in
a regulation applicable to State savings associations alone. Therefore,
the FDIC proposes to rescind and remove Sec. 390.341.
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\61\ See 12 CFR 324.20(d)(1).
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M. 12 CFR 390.342-348--Capital Distributions
1. Regulations Governing Capital Distributions
Sections 390.342 through 390.348 govern capital distributions by
State savings associations. Certain of these provisions were adopted by
the OTS to implement statutory prompt corrective action (PCA)
requirements that apply to all insured depository institutions, and
others were adopted by the OTS for supervisory or policy reasons. The
requirements that are statutorily mandated have analogous provisions in
the FDIC's regulations implementing PCA with respect to State nonmember
banks and insured branches of foreign banks. Other regulatory
requirements that the FDIC has adopted with respect to State nonmember
banks, including those related to retirements and reductions in
capital, advance some of the policy objectives that underlay the non-
statutorily mandated provisions that were previously adopted by the
OTS. Therefore, and as more fully explained below, the FDIC proposes to
rescind the provisions of subpart S that govern capital requirements
and to revise the FDIC's regulations related to PCA, as well as those
related to retirements and reductions of capital, so that State savings
associations are subject to the same requirements that govern capital
distributions by State nonmember banks.
2. Other FDIC Regulations
a. 12 CFR 303.203--Applications for Capital Distributions
Part 303 of the FDIC's regulations includes procedures to implement
the filing requirements for capital distributions under section 38 of
the FDI Act.\62\ Section 38 applies to all insured depository
institutions, and, among other things, generally prohibits an insured
depository institution from making a capital distribution if, after
making the distribution, the institution would be undercapitalized.\63\
Section 38 provides an exception to this prohibition that authorizes
the Federal banking agencies to permit certain repurchases,
redemptions, retirements, or other acquisitions of shares or other
ownership interests that are made in connection with the issuance of
additional shares or obligations and that would reduce the
institution's financial obligations or otherwise improve the
institution's financial condition.\64\ Section 38 defines a ``capital
distribution'' to include certain dividends; repurchases, redemptions,
retirements, or other acquisitions of shares or other ownership
interests, including extensions of credit to finance an affiliated
company's acquisition of such shares; and any other transaction that
the Federal banking agencies find to be in substance a distribution of
capital.\65\
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\62\ 12 U.S.C. 1831o; see also 12 CFR 324.405.
\63\ 12 U.S.C. 1831o(d)(1)(A).
\64\ 12 U.S.C. 1831o(d)(1)(B).
\65\ 12 U.S.C. 1831o(b)(2)(B).
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Section 303.203 implements the above provisions of section 38 by
requiring an insured State nonmember bank and any insured branch of a
foreign bank to submit an application to the FDIC for a capital
distribution if, after having made a capital distribution, the
institution would be undercapitalized, significantly undercapitalized,
or critically undercapitalized.\66\ Section 303.203 sets forth the
filing requirements for proposed capital distributions that are within
the scope of section 38. Specifically, such filings must describe the
nature of the proposal, including the shares or obligations that are
the subject of the proposal, and must include an explanation of how the
proposal would reduce the applicant institution's financial obligations
or otherwise improve its financial condition.\67\ Section 303.203 also
clarifies that if a proposed action also requires an application under
Sec. 303.241, such an application should be filed concurrently with
the application filed pursuant to section 38.\68\
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\66\ 12 CFR 303.203(a).
\67\ 12 CFR 303.203(b).
\68\ Id.
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Although section 38 applies to all insured depository institutions,
Subpart K, including Sec. 303.203, applies by its terms only to State
nonmember banks and insured branches of foreign banks. As discussed
below, the FDIC proposes to rescind the provisions related to capital
distributions by State savings associations in Subpart S and to make
State savings associations subject to the same capital distribution
requirements that apply to State nonmember banks and insured branches
of foreign banks. Accordingly, the FDIC proposes to amend Sec. 303.203
so that it expressly applies to State savings associations. In
addition, the FDIC proposes a corresponding technical change to the
scope section of Subpart K, 12 CFR 303.200, so that it applies to State
savings associations.\69\ As noted, with respect to transactions that
are subject to filing requirements under both section 38 and section
18(i), Sec. 303.203(b) provides that applicants should file such
applications concurrently or as part of the same application. For the
reasons described below, the FDIC proposes replacing the reference to
section 18(i) with a direct reference to Sec. 303.241.
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\69\ The FDIC is also aware that this proposal, as well as other
regulatory developments, would also necessitate certain technical
changes to the FDIC's regulations related to annual independent
audits and reporting requirements, 12 CFR part 363, including Table
1 to Appendix A of Part 363. The FDIC intends to address such
technical changes in a separate notice.
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b. 12 CFR 303.241--Reduce or Retire Capital Stock or Capital Debt
Instruments
Section 303.241 implements section 18(i)(1) of the FDI Act. Section
18(i)(1) generally prohibits an insured State nonmember bank from
reducing the amount or retiring any part of its common or preferred
capital stock or
[[Page 58498]]
retiring any part of its capital notes or debentures, without the prior
consent of the FDIC.\70\ In considering an application to reduce or
retire such instruments, section 18(i)(4) directs the FDIC to consider
various statutory factors, including those related to financial history
and condition, capital adequacy, future earnings prospects, general
character and fitness of management, the convenience and needs of the
community to be served, and consistency with the purposes of the FDI
Act.\71\
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\70\ 12 U.S.C. 1828(i)(1).
\71\ 12 U.S.C. 1828(i)(4).
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Section 303.241 sets forth various requirements related to the
content of filings submitted to the FDIC pursuant to section 18(i)(1),
including, where applicable: The type and amount of the change to the
applicant's capital structure; a schedule detailing the applicant's
present and proposed capital structure; the time period encompassed by
the proposal; certain certifications related to the capital adequacy of
the applicant; the repurchase price of capital instruments and the
basis for establishing fair market value; a statement that the proposal
is available to all holders of a particular class of instruments, and
if not, the details of any restrictions; and the date that the
applicant's board of directors approved the proposal.\72\ Section
303.241 also authorizes the FDIC to seek additional information while
processing applications under section 18(i)(1); permits applications
that are subject to both section 18(i)(1) and section 38 to be filed
concurrently, or as a single application; sets forth expedited
processing procedures for eligible depository institutions, and
provides that applications that qualify for, and are not removed from,
expedited processing will be deemed approved 20 days after receipt of a
substantially complete application; and sets forth standard processing
procedures.\73\
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\72\ 12 CFR 303.241(c).
\73\ 12 CFR 303.241(d)-(g).
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Consistent with section 18(i)(1)'s specific applicability to State
nonmember banks, Sec. 303.241 by its terms applies only to State
nonmember banks. However, the FDIC believes that, consistent with the
FDIC's authority under section 39 of the FDI Act,\74\ it would be a
sound operational standard for the FDIC to consider transactions by
State savings associations that would result in the reduction or
retirement of capital stock or capital debt instruments. Reviewing
proposals by State savings associations to reduce or retire capital
stock or debt instruments would preserve the FDIC's ability to review
such transactions by a State savings association, as currently required
under Sec. 390.345 of the FDIC's regulations. Because section 18(i)(1)
by its terms applies only to State nonmember banks, the FDIC proposes
to amend Sec. 303.241 to clarify that Sec. 303.241 applies to a State
savings association seeking to reduce or retire any part of its common
stock or preferred stock, or capital notes or debentures, as if the
State savings association were a State nonmember bank subject to
section 18(i)(1). Accordingly, in considering such an application by an
insured State savings association, the FDIC would take into
consideration the statutory factors enumerated in section 18(i)(4).\75\
As noted above, Sec. 303.241 permits applications that are subject to
both section 18(i)(1) and section 38 to be filed concurrently, or as a
single application. Because State savings associations are not
technically subject to section 18(i)(1) and would be made subject to
Sec. 303.241 by the proposed rule under the FDIC's section 39
authority, the FDIC proposes to change this provision so that it refers
directly to applications subject to Sec. 303.241, rather than to
section 18(i)(1). Furthermore, to achieve consistency with the filing
procedures set forth in Sec. 303.203, which states that filings
subject to Sec. Sec. 303.203 and 303.241 ``should'' be made
concurrently or as part of the same application, the FDIC proposes to
amend Sec. 303.241 to advise institutions that filings subject to both
Sec. Sec. 303.203 and 303.241 should be filed concurrently or as part
of the same application.
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\74\ 12 U.S.C. 1831p-1.
\75\ The statutory factors of section 18(i)(4) include: (A) The
financial history and condition of the institution; (B) the adequacy
of its capital structure; (C) its future earnings prospects; (D) the
general character and fitness of its management; (E) the convenience
and needs of the community to be served; and (F) whether or not its
corporate powers are consistent with the purposes of [the FDI Act].
12 U.S.C. 1828(i)(4).
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Question 1: Using the authority granted the FDIC as the appropriate
Federal banking agency for State savings associations, is it
appropriate for the FDIC to make Sec. 303.241 applicable to State
savings associations? Would doing so effectively maintain the FDIC's
regulatory consideration of reductions or retirements of capital by
State savings association currently provided for in 12 CFR 390.345?
3. 12 CFR 390.342--Capital Distributions by State Savings Associations
Section 390.342 states that Sec. Sec. 390.342 through 390.348
apply to capital distributions by a State savings association.\76\
Because the FDIC proposes to rescind all of these sections, the FDIC
proposes that Sec. 390.342 be rescinded and removed.
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\76\ 12 CFR 390.342.
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4. 12 CFR 390.343--What is a capital distribution?
Section 390.343 defines a ``capital distribution'' for the purposes
of Sec. Sec. 390.342-348. Section 390.343(a) defines a capital
distribution as a distribution of cash or other property made to a
savings association's owners on account of their ownership, but
excludes dividends consisting of shares or rights to purchase shares,
and also excludes a payment that a mutual State savings association is
required to make under the terms of a deposit instrument and any other
amount paid on deposits that the FDIC determines is not a capital
distribution.\77\ This prong of Sec. 390.343's definition of ``capital
distribution'' is mirrored in section 38's definition of ``capital
distribution.'' \78\
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\77\ 12 CFR 390.343(a)(2).
\78\ FDI Act Sec. 38(b)(2)(B), 12 U.S.C. 1831o(b)(2)(B).
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Section 390.343(b) includes within the definition of ``capital
distribution'' a payment to repurchase, redeem, retire, or otherwise
acquire any of a State savings association's shares or other ownership
interests, any payment to repurchase, redeem, retire, or otherwise
acquire debt instruments included in a savings association's total
capital, and any extension of credit to finance an affiliate's
acquisition of a State savings association's shares or interests.\79\
This prong is also mirrored in section 38, except that section 38's
analogous provision does not expressly extend to debt instruments that
are included in an institution's total capital.
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\79\ 12 CFR 390.343(b).
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Section 390.343(c) further defines ``capital distribution'' to
include any direct or indirect payment of cash or other property to
owners or affiliates made in connection with a corporate restructuring,
including the payment of cash or property to shareholders of another
savings association of its holding company to acquire ownership in that
savings association, other than by a distribution of shares.\80\ This
prong of Sec. 390.343's definition of ``capital distribution'' is not
matched by an analogous prong in section 38. The OTS adopted this
provision pursuant to the
[[Page 58499]]
authority under section 38(b)(2)(B)(iii), which authorizes the Federal
banking agencies to, by order or regulation, consider a transaction
that is in substance a distribution of capital to be deemed a ``capital
distribution'' for the purposes of section 38.\81\ OTS adopted this
provision in order to capture certain corporate restructurings, such as
cash-out mergers, based on the rationale that such transactions are in
substance distributions of capital.\82\
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\80\ 12 CFR 390.343(c).
\81\ 63 FR 1044, 1046 (Jan. 7, 1998).
\82\ Id.
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Section 390.343(d) captures as a ``capital distribution'' any
capital distribution that is charged against a State savings
association's capital accounts if the State savings association would
not be well capitalized following the distribution.\83\ As with
payments made in connection with a corporate restructuring, this
element of Sec. 390.343's regulatory definition is not expressly
addressed in section 38. The OTS adopted this prong in its regulatory
definition of ``capital distribution'' in order to capture
distributions by a savings association's operating subsidiary to
minority shareholders that would affect the capital accounts of the
savings association.\84\
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\83\ 12 CFR 390.343(d).
\84\ 64 FR 2805, 2806 (Jan. 19, 1999).
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Lastly, Sec. 390.343(e) incorporates FDI Act section
38(b)(2)(B)(iii), which authorizes the Federal banking agencies to, by
order or regulation, deem as a ``capital distribution'' any transaction
that the FDIC determines to be in substance a distribution of
capital.\85\
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\85\ 12 CFR 390.343(e), 12 U.S.C. 1831o(b)(2)(B)(iii).
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The FDIC's PCA capital distribution filing procedures, 12 CFR 303,
subpart K, do not adopt a regulatory definition of ``capital
distribution'' specific to subpart K, but instead directly rely on the
statutory definition of ``capital distribution'' found in section
38(b)(2)(B) of the FDI Act. As described above, the regulatory
definition of ``capital distribution'' applicable to State savings
associations found in Sec. 390.343 incorporates all of the elements of
the statutory definition of ``capital distribution.'' In addition,
Sec. 390.343's definition of ``capital distribution'' expressly
extends to certain transactions not specifically addressed in section
38, such as: Repurchases, redemptions, retirements, or other
acquisitions of debt instruments; payments made in connection with
corporate restructurings; or other distributions that would be charged
against a State savings association's capital accounts and that would
cause the association to be less than well capitalized. The FDIC does
not propose to adopt a regulatory definition of ``capital
distribution'' specific to subpart K and proposes to continue to
directly rely on the statutory definition of ``capital distribution''
found in section 38(b)(2)(B). Therefore, the FDIC proposes to rescind
and remove Sec. 390.343.
Question 2: Should the FDIC adopt a regulatory definition of
``capital distribution'' in its PCA regulation, 12 CFR 303.203? In
addition to incorporating the elements of section 38's definition of
``capital distribution,'' should the FDIC exercise its authority under
section 38(b)(2)(B)(iii) to adopt by regulation certain provisions that
are not specifically addressed in the statutory definition of ``capital
distribution,'' such as: Repurchases, redemptions, retirements, or
other acquisitions of debt instruments; payments made in connection
with corporate restructurings; or other distributions that would be
charged against an institution's capital accounts and that would cause
the institution to be less than well capitalized? Should such a
definition apply to all FDIC-supervised institutions?
5. 12 CFR 390.344--Definitions Applicable to Capital Distributions
Section 390.344 adopts additional definitions specifically for the
capital distribution provisions of Sec. Sec. 390.342 through
390.348.\86\ These defined terms include affiliate, capital, net
income, retained net income, and shares. Because the FDIC proposes to
rescind Sec. Sec. 390.342 through 390.348, this definition section
would no longer be necessary. Accordingly, the FDIC proposes to rescind
and remove Sec. 390.344.
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\86\ 12 CFR 390.344.
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6. 12 CFR 390.345--Must I file with the FDIC?
Under Sec. 390.345, a State savings association is required to
file an application for a proposed capital distribution in certain
circumstances, and in others is required to file a notice. An
application is required under Sec. 390.345(a)(1) through (4) in cases
where: (1) A State savings association is not eligible for expedited
processing under Sec. 390.101; (2) the total amount of all capital
distributions by a State savings association for the applicable
calendar year exceeds the association's net income for that year to
date plus retained net income for the preceding two years; (3) a State
savings association would not be at least adequately capitalized
following the distribution; or (4) a State savings association's
proposed capital distribution would violate a prohibition contained in
any applicable statute, regulation, or agreement with the FDIC, or
violate a condition imposed on the State savings association in an
FDIC-approved application or notice.\87\ A notice is required under
Sec. 390.345(b)(1)-(2) in cases where: (1) A State savings association
would not be well capitalized following the distribution; or (2) a
State savings association's proposed capital distribution would reduce
the amount of or retire any part of the association's common or
preferred stock or retire any part of debt instruments included in
capital.\88\
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\87\ 12 CFR 390.345(a).
\88\ 12 CFR 390.345(b).
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The FDIC proposes to make capital distributions by State savings
associations subject to the same requirements that govern capital
distributions by State nonmember banks. As discussed above, the
requirements applicable to State nonmember banks are those imposed by
section 38 of the FDI Act, implemented at Sec. 303.203 of the FDIC's
regulations,\89\ and by FDI Act section 18(i), implemented at Sec.
303.241 of the FDIC's regulations.
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\89\ See 12 CFR 324.405.
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The application requirements of Sec. 303.203 are analogous to
those imposed on State savings associations by Sec. 390.345(a)(3), as
both sections require applications to the FDIC in cases where an
institution would be undercapitalized following a capital distribution,
as mandated by section 38 of the FDI Act. Because section 38 prohibits
capital distributions in cases where an insured depository institution
would be undercapitalized, the substantive requirements of Sec.
390.345(a)(3) would be preserved by making Sec. 303.203 applicable to
State savings associations. Accordingly, the FDIC proposes to rescind
and remove Sec. 390.345(a)(3) and, as noted above, the FDIC also
proposes to amend Sec. 303.241 so that it applies to State savings
associations. This proposal would preserve the regulatory consideration
that is required under section 38 and would provide for consistency of
treatment between State nonmember banks and State savings associations
with respect to capital distributions.
The application requirements of Sec. 303.241 are analogous to the
notice requirements imposed on State savings associations by Sec.
390.345(b)(2), as both sections require regulatory consideration of
transactions that would
[[Page 58500]]
reduce or retire common or preferred stock or capital notes or
debentures. Although Sec. 303.241 implements section 18(i) of the FDI
Act, which applies by its terms only to State nonmember banks, the FDIC
believes that it would be advisable to use its authority under section
39 to maintain a regulatory filing requirement for a capital
distribution by a State savings association that would reduce or retire
the association's capital. Accordingly, the FDIC proposes to rescind
and remove Sec. 390.345(b)(2) and, as noted above, the FDIC also
proposes to amend Sec. 303.241 so that it applies to State savings
associations. Doing so would preserve the regulatory consideration that
applies to reductions or retirements of capital by State savings
associations, and would achieve consistency of treatment between State
nonmember banks and State savings associations with respect to capital
distributions.
The FDIC proposes to rescind and remove Sec. 390.345 in its
entirety, which would effectively eliminate application requirements
for capital distributions in cases where: A State savings association
is not eligible for expedited processing under Sec. 390.101; the total
amount of all capital distributions by a State savings association for
the applicable calendar year exceeds the association's net income for
that year to date plus retained net income for the preceding two years;
and where a State savings association's proposed capital distribution
would violate a prohibition contained in any applicable statute,
regulation, or agreement with the FDIC, or violate a condition imposed
on the State savings association in an FDIC-approved application or
notice. The rescission and removal of Sec. 390.345 would also
effectively eliminate the notice requirements for capital distributions
in cases where a State savings association would not be well
capitalized following the distribution. The FDIC believes that making
Sec. Sec. 303.203 and 303.241 applicable to State savings associations
would preserve adequate regulatory consideration over capital
distributions by State savings associations, and therefore proposes to
rescind and remove Sec. 390.345 in order to achieve consistency of
treatment between State nonmember banks and State savings associations
with respect to capital distributions.\90\
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\90\ State savings associations also may be subject to capital
distribution requirements or restrictions under applicable state law
or as required by the appropriate State supervisor.
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7. 12 CFR 390.346--How do I file with the FDIC?
Section 390.346 provides filing instructions for capital
distributions that are subject to application or notice requirements
under Sec. 390.345, including instructions concerning a filing's
content, schedules, and timing.\91\ Because the FDIC proposes to
rescind and remove Sec. 390.345, these provisions would no longer be
applicable. Therefore, the FDIC proposes to rescind and remove Sec.
390.346. As described above, the FDIC also proposes to make Sec. Sec.
303.203 and 303.241 applicable to State savings associations, and both
of these sections set forth requirements related to the content of
filings. Furthermore, certain rules of general applicability, including
those related to processing, are set forth in subpart A of part 303 of
the FDIC's regulations and would apply to filings made by State savings
associations under Sec. Sec. 303.203 and 303.241.
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\91\ 12 CFR 390.346.
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8. 12 CFR 390.347--May I combine my notice or application with other
notices or applications?
Section 390.347 authorizes a State savings association to combine a
notice or application required under Sec. 390.345 with another related
notice or application.\92\ Because the FDIC proposes rescinding Sec.
390.345, these provisions would no longer be applicable. Therefore, the
FDIC proposes to rescind and remove Sec. 390.347. As noted above, by
making State savings associations subject to Sec. Sec. 303.203 and
303.241, as proposed, State savings associations should file
applications that are subject to both sections as a single filing or
concurrently with other filings.\93\
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\92\ 12 CFR 390.347.
\93\ See 12 CFR 303.203(b) and 12 CFR 303.241(e).
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9. 12 CFR 390.348--Will the FDIC permit my capital distribution?
Section 390.348 sets forth the bases on which the FDIC may deny, in
whole or in part, a notice or application filed under Sec. 390.345.
Section 390.348(a) states that if a State savings association would be
undercapitalized, significantly undercapitalized, or critically
undercapitalized following a capital distribution, the FDIC will
determine if the distribution would be permitted under the exemption
authorized in section 38(d)(1)(B) of the FDI Act.\94\ Section
390.348(b) states that the FDIC may deny a notice or application for a
capital distribution that raises safety and soundness concerns. Section
390.348(c) states that the FDIC may deny a capital distribution if it
would violate a prohibition contained in any statute, regulation, or
condition imposed on the applicant State savings association. Because
the FDIC proposes to rescind and remove Sec. 390.345, these provisions
would no longer be applicable. Furthermore, the statutory exception
that applies to capital distributions subject to section 38 would
continue to apply to capital distributions by State savings
associations that are subject to section 38. In addition, because the
proposal would make reductions or retirements of capital by State
savings associations subject to the application requirements of Sec.
303.241, the FDIC would evaluate such applications in light of the
statutory factors enumerated in section 18(i)(4) of the FDI Act, and
the bases identified in Sec. Sec. 390.348(b) and 390.348(c) would be
preserved insofar as they would be inherent in how the FDIC would
review applications in light of the statutory factors of section
18(i)(4).\95\ For these reasons, the FDIC proposes to rescind and
remove Sec. 390.348 in its entirety.
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\94\ 12 CFR 390.348(a). This statutory exception under section
38(d)(1)(B) authorizes the FDIC to permit a capital distribution
that would otherwise be prohibited by section 38 if such a
distribution is made in connection with the issuance of additional
shares of obligations and would reduce the institution's financial
obligations or otherwise improve the institution's financial
condition. 12 U.S.C. 1831o(d)(1)(B).
\95\ The statutory factors of section 18(i)(4): (A) The
financial history and condition of the institution; (B) the adequacy
of its capital structure; (C) its future earnings prospects; (D) the
general character and fitness of its management; (E) the convenience
and needs of the community to be served; and (F) whether or not its
corporate powers are consistent with the purposes of the FDI Act. 12
U.S.C. 1828(i)(4).
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N. 12 CFR 390.349--Management and Financial Policies
Section 390.349 implements the statutory requirement of section 4
of HOLA. That section requires each State savings association to be
operated in a safe and sound manner and encourages State savings
associations to provide credit for housing safely and soundly.\96\ In
particular, Sec. 390.349 includes explicit safety and soundness
requirements relating to liquidity and compensation to officers,
directors, employees, and consultants. Section 39 of the FDI Act,\97\
requires the Federal banking agencies to prescribe safety and soundness
standards for internal controls, information systems, and internal
audit systems; loan documentation; credit underwriting; interest rate
exposure; asset growth; compensation, fees, and
[[Page 58501]]
benefits; and such other operational and managerial standards as the
agency determines to be appropriate. To this end, the FDIC has adopted
part 364 and the related appendices. Part 364 establishes compensation-
related standards and provides for other safety-and soundness-related
guidelines which apply to all insured State nonmember banks, to state-
licensed insured branches of foreign banks, and to State savings
associations.\98\ As such, the safety and soundness standards in Sec.
390.349 are generally duplicative of the standards implemented through
part 364. To ensure consistent treatment of State nonmember banks and
State savings associations, FDIC staff proposes to eliminate the
distinct safety and soundness requirements for State savings
associations found in Sec. 390.349, because part 364, as amended,
provides consistent safety and soundness standards for both State
nonmember banks and State savings associations. These standards help to
ensure that State savings associations are operated in a safe and sound
manner, enabling them to provide credit for housing safely and soundly.
For these reasons, the FDIC proposes to rescind and remove Sec.
390.349.
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\96\ 12 U.S.C. 1463(a).
\97\ 12 U.S.C. 1831p-1.
\98\ 12 CFR 364.101. In 2015, 12 CFR 364.101 was amended to
apply to both state nonmember banks and state savings associations.
See Removal of Transferred OTS Regulations Regarding Safety and
Soundness Guidelines and Compliance Procedures; Rules on Safety and
Soundness, 80 FR 65903 (Oct. 28, 2015).
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O. 12 CFR 390.350--Examinations and Audits; Appraisals; Establishment
and Maintenance of Records
Section 390.350 contains requirements regarding examinations,
appraisals, establishing and maintaining books and records, and using
data processing services for maintenance of records. The proposed rule
would rescind and remove all of Sec. 390.350. The FDIC believes that
examination and appraisal requirements should be consistent between
State savings associations and State nonmember banks because they are
based on the same or similar statutory authority, as described below.
Section 390.350(a) states that each State savings association and
affiliate will be examined periodically and may be examined anytime by
the FDIC and that appraisals may be required as part of the
examination. Section 337.12 states that the FDIC examines State
nonmember banks pursuant to section 10 of the FDI Act,\99\ State
savings associations pursuant to section 10 of the FDI Act and section
4 of HOLA,\100\ and implements the frequency of examinations specified
by section 10 for insured depository institutions, including State
savings associations. Because the examination requirements of
Sec. Sec. 390.350(a) and 337.12 are similar and both based on section
10 of the FDIA, the FDIC proposes to rescind Sec. 390.350(a).
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\99\ 12 U.S.C. 1820.
\100\ 12 U.S.C. 1463.
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Section 390.350(a) allows the FDIC to require an appraisal during
an examination if it is deemed advisable. Section 390.350(b) permits
the FDIC to select appraisers in connection with an examination,
requires State savings associations to pay for such an appraiser, and
mandates that the FDIC furnish the appraisal report to the State
savings association within 90 days following the filing of the report
to the FDIC. Part 323 of the FDIC's regulations implements Title XI of
FIRREA,\101\ which requires written appraisals in connection with
certain federally related transactions entered into by institutions
regulated by the FDIC. Section 323.3(c), which applies to all FDIC-
supervised institutions, including State savings associations, allows
the FDIC to require an appraisal whenever the agency believes it is
necessary to address safety and soundness concerns, which would include
during an examination. The FDIC believes the appraisal provisions of
Sec. 390.350(a) and (b) are unnecessary because they are duplicative
of the FDIC's reservation of authority found in Sec. 323.3(c), which
allows the FDIC to require an appraisal whenever the agency believes it
is necessary to address safety and soundness concerns.\102\
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\101\ Public Law 101-73, 103 Stat. 183; codified at 12 U.S.C.
3331 et seq.
\102\ Section 390.350(b) contains a cost allocation provision
and a timeframe within which appraisals must be provided. These
provisions are unnecessary because it is unlikely that the FDIC
would purchase an appraisal and seek reimbursement. If the FDIC
determines that an appraisal is needed, it will be made in a
supervisory recommendation in a report of examination and the
response time would be requested in the report transmittal letter or
the request would be made as part of an enforcement action with a
required timeframe.
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Section 390.350(c) requires each State savings association and its
affiliates to establish and maintain such accounting and other records
as will provide an accurate and complete record of all business it
transacts to enable the examination of the State savings association
and its affiliates by the FDIC. The documents, files, and other
material or property comprising said records shall at all times be
available for such examination and audit wherever any of said records,
documents, files, material, or property may be.
State savings associations are already subject to other FDIC
regulations that achieve the purposes of Sec. 390.350(c). For example,
as recognized by Sec. 304.3 of the FDIC's regulations, all insured
depository institutions, including State savings associations, are
required to file quarterly Consolidated Reports of Condition and Income
(Call Reports). Under Sec. 304.3(a), all insured depository
institutions must prepare the Call Report in accordance with the
instructions for the report (Call Report Instructions), which in turn
require the institutions to maintain their business records in a manner
that supports and reconciles to the contents of the Call Report.\103\
In addition, portions of the Call Report also are required to be
prepared in accordance with GAAP.\104\ In addition, all State savings
associations and other FDIC-supervised institutions are subject to 12
CFR part 364 (including its Appendix A).\105\ This part requires FDIC-
supervised institutions to have internal controls and information
systems that are appropriate to their size and the risks posed by their
activities and that provide for, among other things: ``timely and
accurate financial, operational and regulatory reports.'' \106\ Because
accurate and complete business records are the very foundation of
accurate regulatory and financial reporting, State savings associations
must, therefore, maintain accurate and complete records of their
business transactions supporting, and readily reconcilable to, the
associations' regulatory and financial reports. In the event an FDIC-
supervised institution fails to create and maintain the required
internal controls and information systems, the FDIC may require the
institution to submit a safety and
[[Page 58502]]
soundness plan designed to correct the deficiencies and, if necessary,
compel compliance by means of order.\107\
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\103\ See the section entitled ``Preparation of the Reports''
contained in the General Instructions portion of Call Report
Instructions for the FFIEC 031, 041 and 051 Report Forms and the
section entitled ``Preparation of Information to be Reported'' in
the General Instructions portion of the Report of Assets and
Liabilities of U.S. Branches and Agencies of Foreign Banks (FFIEC
002 Report Form).
\104\ 12 U.S.C. 1831(n); See the section entitled
``Applicability of U.S. Generally Accepted Accounting Principles to
Regulatory Reporting Requirements'' contained in the General
Instructions portion of Call Report Instructions for the FFIEC 031,
041 and 051 Report Forms and the section entitled ``Accounting
Basis'' in the General Instructions portion of the FFIEC 002 Report
Form.
\105\ 12 CFR 364.101. Part 364 and its appendices implement
section 39(a) of the FDI Act. 12 U.S.C. 1831p-1. Taken together,
part 364 and Appendix A reflect the FDIC's longstanding expectations
for all prudently managed FDIC-supervised institutions while
generally leaving the specific methods of achieving these objectives
to each institution.
\106\ 12 CFR part 364, App. A, Sec. II.
\107\ See 12 U.S.C. 1831p-1(e); 12 CFR 308.300, et seq.; 12 CFR
part 364, App. A.
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Section 390.350(d) prohibits State savings associations from
transferring the location of any of its general accounting or control
records, or the maintenance thereof, from its home office to a branch
or service office, or from a branch or service office to its home
office or to another branch or service office unless prior to the date
of transfer its board of directors has authorized the transfer by
resolution and notified the appropriate regional director. The FDIC has
not promulgated a similar rule for State nonmember banks. Generally,
state laws or regulations of the state chartering authority provide for
the location of records. The FDIC generally conducts examinations at
the home office of FDIC-supervised institutions and requires that
records be produced upon request in connection with any examination or
investigation under section 10(c) or section 8(n) of the FDI Act. The
removal of Sec. 390.350(d) will provide relief to State savings
association by not having to notify the appropriate regional director
of its intention to relocate records from its home office to a branch
or service office and will provide parity with State nonmember banks
which do not provide the FDIC with prior notification of transferring
records from one location to another.
Section 390.350(e) requires that when a State savings association
maintains any of its records by means of data processing services, it
will notify the appropriate regional director for the region in which
the principal office of such State savings association is located, in
writing, at least 90 days prior to the date on which such maintenance
of records will begin. Section 304.3(d), implementing section 7 of the
Bank Service Company Act,\108\ already requires FDIC-supervised
institutions, including State savings associations, to notify the FDIC
about the existence of a service relationship within thirty days after
the making of the contract or the performance of the service and
provides for the required information either through a letter or FDIC
Form 6120/06 Notification of Performance of Bank Services. The removal
of Sec. 390.350(e) will eliminate conflicting requirements on State
savings associations with respect to Section 7 of the Bank Service
Company Act.
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\108\ 12 U.S.C. 1867.
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For the foregoing reasons, the FDIC proposes to rescind and remove
Sec. 390.350 in its entirety.
P. 12 CFR 390.352--Financial Derivatives
Section 390.352 addresses the permissibility of financial
derivatives transactions, the responsibility of the board of directors
and management of a State savings association with respect to such
transactions, and recordkeeping requirements related to such
transactions. The FDIC proposes to rescind and remove Sec. 390.352 for
the reasons discussed below.
Section 28(a) of the FDI Act,\109\ implemented by part 362 of the
FDIC's regulations,\110\ restricts and prohibits 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 its service corporations. The term ``activities
permissible for a Federal savings association'' means, among other
things, activities recognized as permissible in OCC regulations.\111\
Section 163.172 of the OCC's regulations governs the financial
derivatives activities of Federal savings associations, the
responsibility of the board of directors and management of a Federal
savings association with respect to such transactions, and
recordkeeping requirements related to such transactions.\112\ Because
section 28(a) of the FDI Act and part 362 permit a State savings
association to engage in financial derivatives activities to the same
extent permitted by the OCC with respect to a Federal savings
association, the FDIC proposes to rescind and remove Sec. 390.352.
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\109\ 12 U.S.C. 1831e(a).
\110\ See 12 CFR 362.9-.15.
\111\ See 12 CFR 362.9(a).
\112\ See 12 CFR 163.172.
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Q. 12 CFR 390.353--Interest-Rate-Risk-Management Procedures
Former FHLBB rules 12 CFR 571.3 and 563.17-6, respectively, were
intended to support responsible risk management within the industry, to
facilitate the examination process, and to assess and reduce the impact
of interest rate risk on the former Savings Association Insurance Fund
(SAIF).\113\ The OTS redesignated Sec. 563.17-6 as 12 CFR
563.176.\114\ When the rule was transferred from the former OTS to the
FDIC, the FDIC redesignated it as 12 CFR 390.353.
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\113\ The SAIF provided deposit insurance to depositors of
federally insured savings associations until it was merged into the
Bank Insurance Fund (BIF), which similarly insured depositors of
federally insured banks. The merged fund, the Deposit Insurance Fund
(DIF) became effective on March 31, 2006, consistent with Sec.
2102(a) of the Federal Deposit Insurance Reform Act of 2005. As a
result of this action, both the SAIF and BIF were abolished. See 49
FR 19307 (May 7, 1984) (proposed rule); 49 FR 27295 (July 3, 1984)
(final rule).
\114\ 54 FR 49411 (Nov. 30, 1989).
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Section 390.353 requires the board of directors or a board
committee of a State savings association to develop, implement, and
review policies and procedures for the management of a State savings
association's interest-rate-risk; requires the association's management
to report periodically to the board regarding implementation of the
policy; and requires the association's board of directors to adjust the
policy as necessary, including adjustments to the authorized acceptable
level of interest rate risk. For the reasons below, the FDIC proposes
to rescind and remove Sec. 390.353.
As mentioned above, the Interagency Safety and Soundness
Guidelines, promulgated pursuant to section 39 of the FDI Act, describe
examples of safe and sound practices for State nonmember banks and
State savings associations. The guidelines suggest that an institution
``should manage interest rate risk in a manner that is appropriate to
its size and the complexity of its assets and liabilities''.\115\
Management and the board of directors should be provided reports
regarding interest rate risk that are adequate to assess the level of
risk. There is no reason to have an additional set of similar standards
applicable only to State savings associations.\116\
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\115\ 12 CFR part 364, App. A, Sec. II.E.
\116\ Section 305 of FDICIA required the Federal banking
agencies to revise their risk-based capital standards to take into
account interest rate risk. See 12 U.S.C. 1828 nt.; see also 12 CFR
324.63, Table 10; 12 CFR 324.173, Table 12.
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R. 12 CFR 390.354--Procedures for Monitoring BSA Compliance
Section 390.354 requires State savings associations to establish
and maintain a Bank Secrecy Act (BSA) compliance program and a customer
identification program. Section 390.354 also enumerates the four
pillars required for a BSA compliance program. Similarly, Sec. 326.8
of the FDIC's regulations \117\ requires insured depository
institutions for which the FDIC is the appropriate Federal banking
agency to establish a BSA compliance program to include the same four
pillars and a customer identification program. The proposed rule would
rescind Sec. 390.354 and make technical changes to Sec. 326.8, which
is currently only applicable to insured depository institutions for
which the
[[Page 58503]]
FDIC is the appropriate Federal Banking agency.\118\
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\117\ 12 CFR 326.8, 326.1(a).
\118\ 12 CFR 326.8 is applicable to ``all insured nonmember
banks as defined in 12 CFR 326.1.'' Section 326.1 was revised to
remove the definition of ``insured nonmember bank'' and replace it
with the term ``FDIC-supervised institution'' or ``institution'',
defined to mean any insured depository institution for which the
FDIC is the appropriate Federal banking agency pursuant to section
3(q) of the FDI Act (12 U.S.C. 1813(q). 83 FR 13839, 13842 (April 2,
2018).
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Section 390.354(a) states that the purpose of the regulation is to
require State savings associations to establish and maintain procedures
reasonably designed to assure and monitor compliance with the
requirements of subchapter II of chapter 53 of title 31, United States
Code, and the implementing regulations promulgated thereunder by the
U.S. Department of the Treasury, 31 CFR part 103 (now superseded by 31
CFR chapter X), commonly referred to as the Bank Secrecy Act.
Similarly, Sec. 326.8(a) requires that all insured depository
institutions for which the FDIC is the appropriate Federal banking
agency establish and maintain procedures reasonably designed to assure
and monitor their compliance with the same laws and regulations.
Section 390.354(b) discusses the establishment of a BSA compliance
program. Subparagraph (b)(1) states that State savings association
shall develop and provide for the continued administration of a program
reasonably designed to assure and monitor compliance with the
recordkeeping and reporting requirements of the BSA. The compliance
program must be written, approved by the State savings association's
board of directors, and reflected in the minutes of the State savings
association. Subparagraph (b)(2) states that each State savings
association is subject to the requirements of 31 U.S.C. 5318(l) and its
implementing regulations, which require the implementation of a
customer identification program. Similarly, Sec. 326.8(b)(1) requires
that all insured depository institutions for which the FDIC is the
appropriate Federal banking agency have a written BSA compliance
program, approved by the board of directors, and reflected in the board
minutes. Section 326.8(b)(2) also requires all insured depository
institutions for which the FDIC is the appropriate Federal banking
agency to have a customer identification program.
Section 390.354(c) states that a BSA compliance program shall:
Provide for a system of internal controls; provide for independent
testing; designate individual(s) responsible for BSA compliance; and
provide training. Like Sec. 390.354, Sec. 326.8(c) requires that all
insured depository institutions for which the FDIC is the appropriate
Federal banking agency have these same BSA compliance program
components.
Effective May 2, 2018, the FDIC amended Sec. Sec. 326.0-326.4
\119\ and rescinded the corresponding OTS regulations.\120\ As of this
date, the recently amended Sec. 326.1 \121\ defines both ``FDIC-
supervised insured depository institution'' and ``institution'' as any
insured depository institution for which the FDIC is the appropriate
Federal banking agency pursuant to 12 U.S.C. 1813(q)(2).
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\119\ 12 CFR 326.0-326.4
\120\ 83 FR at 13842-3.
\121\ 12 CFR 326.1 (2019).
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The proposed rule would amend Sec. 326.8 to include both insured
State savings associations and State nonmember banks for all of Sec.
326.8 by replacing the terms ``insured nonmember bank'' and ``bank''
currently in Sec. 326.8 with the term ``FDIC supervised institution''
or ``institution.'' Having made the technical amendment to Sec. 326.8,
Sec. 390.354 will be duplicative and the FDIC proposes to rescind and
remove Sec. 390.354.\122\
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\122\ The FDIC also proposes to amend the definition in 12 CFR
326.1 to apply to all entities for which the FDIC is the appropriate
Federal banking agency pursuant to section 3(q) of the FDI Act. This
revision would clarify that foreign banks having a State-chartered
insured branch are also subject to part 326 of the FDIC's
regulations. This change is not substantive because the term
``insured depository institution'' already includes insured
branches. See 12 U.S.C. 1813(a)(1), (c)(2), and (s)(3).
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S. 12 CFR 390.355--Suspicious Activity Reports and Other Reports and
Statements
In order to streamline FDIC regulations and reduce regulatory
burden, the FDIC proposes to rescind and remove Sec. 390.355 because
it is unnecessary, redundant, and duplicative. In addition, the FDIC
proposes to make conforming changes to Sec. Sec. 353.1 and 353.3 to
make part 353 of the FDIC's regulations applicable to all FDIC-
supervised institutions.
Section 390.355 requires State savings associations and service
corporations to make certain reports. Specifically, subsection 390.355
(a) requires State savings associations to make periodic reports to the
FDIC in such a manner and on such forms as the FDIC may prescribe.
Subsection 390.355(b) prohibits State savings associations from making
false or misleading statements or omissions. Subsection 390.355(c)
requires a State Savings association maintaining bond insurance
coverage to promptly notify its carrier and file a proof of loss
concerning any covered losses more than twice the deductible amount.
Subsection 390.355(d) requires State savings associations to file a
Suspicious Activity Report (``SAR'') when they detect a known or
suspected violation of Federal law or a suspicious transaction related
to a money laundering activity or a violation of law or regulation.
Subsection 390.355(e) requires State savings associations within the
jurisdiction of a Federal Home Loan Bank (FHLB) to provide data from
the Consolidated Reports of Condition or Income (Call Report) upon the
request of the FHLB.
1. Sec. 390.355(a) Periodic Reports
Section 390.355(a) requires State savings associations to make such
periodic or other reports to the FDIC in the manner and on the forms
the FDIC requires. The FDIC may provide that reports filed for other
purposes may also satisfy requirements imposed under Sec. 390.355.
There are a number of Federal statutes that require reporting by
State savings associations. For example, section 5 of HOLA requires
``each association to make reports of conditions to the appropriate
Federal banking agency which shall be in a form prescribed by the
appropriate Federal banking agency . . . .'' and sets forth the type of
information such reports shall contain.\123\ Section 7(a)(3) of the FDI
Act requires all insured depository institutions to make four annual
reports of condition to their appropriate Federal banking agency.\124\
In addition, section 36 of the FDI Act \125\ and the FDIC's
implementing regulations at part 363 \126\ require insured depository
institutions above a specified asset threshold to have annual
independent audits and to submit annual reports and audited financial
statements to the FDIC. Section 37 of the FDI Act requires financial
statements, capital standards, and other reports provided to the FDIC
to be prepared in a manner consistent with generally accepted
accounting procedures.\127\ Finally, The Interagency Policy Statement
on External Audit Programs of Banks and Savings
[[Page 58504]]
Associations \128\ provides unified interagency guidance regarding
independent external auditing programs of insured depository
institutions that community banks and savings associations that do not
have to comply with part 363 (because they do not meet the size
threshold) or that are not otherwise subject to audit requirements by
order, agreement, statute, or FDIC regulations.
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\123\ 12 U.S.C. 1464(v)(1). Although 12 U.S.C. 1464 is titled
``Federal savings associations'', section 1464(v) describes the
reporting obligations of ``[e]ach association'' and refers to the
requirements of the ``appropriate Federal banking agency'' rather
than only the OCC. The FDIC is the appropriate Federal banking
agency for State savings associations. 12 U.S.C. 1813(q).
\124\ 12 U.S.C. 1817(a)(3).
\125\ 12 U.S.C. 1831m.
\126\ 12 CFR part 363.
\127\ 12 U.S.C. 1831n.
\128\ See FIL-96-99 (Oct. 25, 1999); 64 FR 57094 (Oct. 22,
1999).
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For these reasons, Sec. 390.355(a) is not necessary and the FDIC
proposes that it be rescinded and removed.
2. Sec. 390.355(b) False or Misleading Statements or Omissions
Section 390.355(b) prohibits State savings associations from making
false or misleading statements or omissions to the FDIC and to auditors
of State savings associations.
By statute, whoever makes any materially false, fictitious, or
fraudulent statement or representation in a matter involving the
executive branch of the U.S. government, is subject to imprisonment for
up to five years.\129\
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\129\ 18 U.S.C. 1001(a)(2) (up to 8 years if the offense
involves terrorism).
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In addition, the OCC has promulgated a rule on this topic
applicable to all savings associations, Federal or State. The Dodd-
Frank Act provided the OCC with rulemaking authority relating to both
State and Federal savings associations.\130\ On August 9, 2011, the OCC
published in the Federal Register a final rule that contained a
provision, 12 CFR 163.180(b), that is substantially similar to Sec.
390.355(b) and that applies to both State and Federal savings
associations.\131\ It prohibits all savings associations from knowingly
making false or misleading statements to their ``appropriate Federal
banking agency'' and to those auditing the institution.\132\ The OCC's
prohibition at Sec. 163.180(b) effectively prohibits a State savings
association from making false or misleading statements to the FDIC or
to any party auditing or preparing or reviewing its financial
statements. Because the prohibition contained in the OCC's regulation
is applicable to all savings associations and is substantially similar
to the rule found at Sec. 390.355(b), and enforceable by the FDIC
pursuant to section 8 of the FDI Act,\133\ the FDIC has concluded that
Sec. 390.355(b) is duplicative and unnecessary, and the FDIC proposes
to rescind and remove this section.
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\130\ See 12 U.S.C. 5412(b)(2)(B)(i)(II).
\131\ 76 FR 49047 (Aug. 9, 2011).
\132\ The FDIC is the ``appropriate Federal banking agency'' for
any State savings association. See 12 U.S.C. 1813(q).
\133\ 12 U.S.C. 1818.
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3. Sec. 390.355(c) Notifications of Loss and Reports of Increase in
Deductible Amount of Bond
Subsection 390.355(c) requires a State Savings association
maintaining bond insurance coverage to promptly notify its carrier and
file a proof of loss concerning any covered losses more than twice the
deductible amount. The FDIC generally requires fidelity bond insurance
for insured depository institutions and considers whether fidelity bond
insurance is in place when analyzing the general character and fitness
of the management of a de novo financial institution applying for
deposit insurance.\134\ However, the FDIC does not otherwise impose a
reporting requirement such as the one contained in Sec.
390.355(c).\135\ Staff was unable to find a provision of State law or
in the regulations of any Federal banking agency containing a
prescriptive filing requirement such as that contained in Sec.
390.355(c).
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\134\ See 12 U.S.C. 1816; FDIC Statement of Policy on
Applications for Deposit Insurance, 63 FR 44756 (Aug. 20, 1998),
amended at 67 FR 79278 (Dec. 27, 2002), available at https://www.fdic.gov/regulations/laws/rules/5000-3000.html.
\135\ See Statement of Policy on Applications for Deposit
Insurance, supra note 134 (``An insured depository institution
should maintain sufficient fidelity bond coverage on its active
officers and employees to conform with generally accepted industry
practices. Primary coverage of no less than $1 million is ordinarily
expected. Approval of the application may be conditioned upon
acquisition of adequate fidelity coverage prior to opening for
business.'').
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Therefore, on the basis of parity and reduction of the regulatory
burden for State savings associations, the FDIC proposes to rescind and
remove Sec. 390.355(c).
4. Sec. 390.355(d) Suspicious Activity Reports
Subsection 563.180(d) was transferred to the FDIC and redesignated
as subsection 390.355(d). The section, which regulates SARs, was
enacted in concert with the other Federal banking agencies, including
the OCC,\136\ the FRB,\137\ and the FDIC,\138\ as well as the Financial
Crimes Enforcement Network (FinCEN).\139\ These entities issued
substantially similar proposals, which became effective on April 1,
1996. The purpose of the OTS's regulation was to revise its rule on the
reporting of known or suspected criminal conduct and suspicious
activities by the savings associations under its supervision. The final
rule developed a single form, the SAR, for reporting known or suspected
Federal criminal law violations and transactions that an institution
suspects involve money laundering or violates the BSA.
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\136\ Minimum Security Devices and Procedures, Reports of
Suspicious Activities, and Bank Secrecy Act Compliance Program, 61
FR 4332 (Feb. 5, 1996).
\137\ Membership of State Banking Institutions in the Federal
Reserve System; International Banking Operations; Bank Holding
Companies and Change in Control; Reports of Suspicious Activities
Under Bank Secrecy Act, 61 FR 4338 (Feb. 5, 1996).
\138\ Suspicious Activity Reports, 61 FR 6095 (Feb. 16, 1996).
\139\ Amendment to the Bank Secrecy Act Regulations; Requirement
to Report Suspicious Transactions, 61 FR 4326 (Feb. 5, 1996).
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Paragraph (1) of Sec. 390.355(d) states that the purpose and scope
of the subsection is to ensure that State savings associations and
service corporations file a SAR when they detect a known or suspected
violation of Federal law or a suspicious transaction related to a money
laundering activity or a violation of the BSA. Similarly, Sec. 353.1
of the FDIC regulations states that its purpose is to ensure that all
insured State nonmember banks file a SAR pursuant to the same laws and
regulations.
Paragraph (2) of subsection 390.355(d) is a definition section
similar to the definitional section contained in Sec. 353.2 of the
FDIC's regulations.
Paragraph (3) of subsection 390.355(d) enumerates the four
instances when a State savings association must file a SAR with FinCEN:
(1) Insider abuse involving any amount; (2) violations aggregating
$5,000 or more where a suspect can be identified; (3) violations
aggregating $25,000 or more regardless of potential suspects; and (4)
transactions aggregating $5,000 or more that involve potential money
laundering or violations of the Bank Secrecy Act. Similarly, Sec.
353.3 of the FDIC's regulations requires State nonmember banks to file
SARs with FinCEN in the same four instances.
Paragraph (4) of subsection 390.355(d) is reserved.
Paragraph (5) of subsection 390.355(d) states the time by which a
State savings association is required to file a SAR in various
circumstances after the date of initial detection of facts that may
constitute a basis for filing a SAR. Similarly, Sec. 353.3(b) requires
State nonmember banks to file SARs with FinCEN within the same time
limits.
Paragraph (6) of subsection 390.355(d) encourages State savings
associations to file a copy of the SAR with state and local law
enforcement agencies where appropriate. Similarly, Sec. 353.3(c)
encourages State nonmember banks to file a copy of the SAR with state
and local law enforcement agencies where appropriate.
Paragraph (7) of subsection 390.355(d) indicates that a State
savings association
[[Page 58505]]
need not file a SAR for a robbery or burglary committed or attempted
that is reported to appropriate law enforcement authorities. Similarly,
Sec. 353.3(d) directs that State nonmember banks need not file a SAR
for a robbery or burglary committed or attempted that is reported to
appropriate law enforcement authorities.
Paragraph (8) of subsection 390.355(d) states that a State savings
association shall maintain a copy of any SAR filed along with
supporting documentation for five years and shall make the supporting
documentation available to appropriate law enforcement agencies upon
request. Similarly, Sec. 353.3(e) directs a State nonmember banks to
maintain a copy of any SAR filed and supporting documentation for five
years and to make supporting documentation available to appropriate law
enforcement agencies upon request.
Paragraph (9) of subsection 390.355(d) states that the management
of a State savings association shall promptly notify its board of
directors, or a committee of directors or executive officers designated
by the board of directors to receive notice of a SAR filing. Similarly,
Sec. 353.3(f) directs that State nonmember banks shall promptly notify
its board of directors, or a committee thereof, to receive notice of a
SAR filing.
Paragraph (9) of subsection 390.355(d) also states that if the
subject of the SAR is a director or executive officer, the State
savings association may not notify the suspect, pursuant to 31 U.S.C.
5318(g)(2), but shall notify all directors who are not suspects. In
this circumstance, Sec. 353.3 does not have analogous language;
however, the FDIC relies on 31 U.S.C. 5813(g)(2) to achieve the same
purpose. That section states:
Reporting of suspicious transactions . . . (2) Notification
prohibited (A) In general. If a financial institution or any
director, officer, employee, or agent of any financial institution,
voluntarily or pursuant to this section or any other authority,
reports a suspicious transaction to a government agency (i) neither
the financial institution, director, officer, employee, or agent of
such institution (whether or not any such person is still employed
by the institution), nor any other current or former director,
officer, or employee of, or contractor for, the financial
institution or other reporting person, may notify any person
involved in the transaction that the transaction has been reported.
. . .
Paragraph (10) of subsection 390.355(d) states that a State savings
association's failure to file a SAR in accordance with this section may
subject the State savings association, its directors, officers,
employees, agents, or other institution-affiliated parties to
supervisory action. In this circumstance, Sec. 353.3 does not have
analogous language. Although Sec. 353.3 does not explicitly provide a
remedy for failure to file a SAR, the FDIC has enforcement authority
for violations of law or regulation.\140\ Therefore, the FDIC is
proposing to remove subsection 390.355(d)(10) in its entirety because
it is unnecessary.
---------------------------------------------------------------------------
\140\ See 12 U.S.C. 1818.
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Paragraph (11) of subsection 390.355(d) states that a State savings
association may obtain SARs and the instructions from the appropriate
FDIC region as defined in Sec. 303.2 of the FDIC's regulations. In
this circumstance, Sec. 353.3 does not have analogous language.
However, FDIC-supervised institutions can obtain SAR forms
electronically. Specifically, 31 CFR 1010.306(e) states:
Forms to be used in making the reports required by Sec.
1010.311, Sec. 1010.313, Sec. 1010.350, Sec. 1020.315, Sec.
1021.311, or Sec. 1021.313 of this chapter may be obtained from BSA
E-Filing System. Forms to be used in making the reports required by
Sec. 1010.340 may be obtained from the U.S. Customs and Boarder
Protection or FinCEN.
Since the OTS's rule went into effect, FinCEN converted to the BSA E-
Filing System for filing SARs for all financial institutions.\141\ This
provision of the transferred OTS rule is now obsolete as forms are no
longer available from FDIC regions.
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\141\ See https://bsaefiling.fincen.treas.gov/main.html.
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Paragraph (12) of subsection 390.355(d) states that SARs are
confidential and any institution or person subpoenaed or otherwise
requested to disclose a SAR or the information contained in a SAR shall
decline to produce the SAR or to provide any information that would
disclose that a SAR has been prepared or filed, citing this paragraph
(d), applicable law (e.g., 31 U.S.C. 5318(g)), or both, and shall
notify the FDIC. Similarly, Sec. 353.3(g) directs that State nonmember
banks maintain the confidentiality of SARs, decline to disclose a SAR
or the information contained in a SAR or information concerning the
existence of a SAR, and notify the FDIC.
Paragraph (13) of subsection 390.355(d) states that the safe harbor
provision of 31 U.S.C. 5318(g), which exempts any financial institution
that makes a disclosure of any possible violation of law or regulation
from liability under any law or regulation of the United States, or any
constitution, law or regulation of any state or political subdivision,
covers all reports of suspected or known criminal violations and
suspicious activities to law enforcement and financial institution
supervisory authorities, including supporting documentation, regardless
of whether such reports are filed pursuant to this paragraph (d), or
are filed on a voluntary basis. Similarly, Sec. 353.3(h) contains
similar safe harbor language.
For the above-stated reasons, the FDIC proposes to rescind and
remove Sec. 390.355(d).
5. Sec. 390.355(e) Adjustable-Rate Mortgage Indices
Section 390.355(e) requires State savings associations within the
jurisdiction of a FHLB to provide data from the Call Report upon the
request of the FHLB. The FDIC is required under section 402(e)(3) of
FIRREA ``to take such action as may be required as may be necessary to
assure that the indexes prepared by the . . . Federal home loan banks
immediately prior to the enactment of this subsection and used to
calculate the interest rate on adjustable rate mortgage instruments
continue to be available.'' \142\ As noted above, the Dodd-Frank Act
provided the OCC with rulemaking authority relating to both State and
Federal savings associations.\143\ On August 9, 2011, the OCC published
in the Federal Register a final rule that contained a provision, 12 CFR
163.180(e), which is substantially similar to Sec. 390.355(e) and that
applies to both State and Federal savings associations.\144\ It
requires all savings associations within the jurisdiction of that FHLB
to report specified data items for the FHLB to use in calculating and
publishing an adjustable-rate mortgage index.\145\
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\142\ See 12 U.S.C. 1437 nt.
\143\ See 12 U.S.C. 5412(b)(2)(B)(i)(II).
\144\ 76 FR 49047 (Aug. 9, 2011).
\145\ 12 CFR 163.180(e).
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Because the provision contained in the OCC's regulation is
applicable to all savings associations and is substantially similar to
the rule found at Sec. 390.355(e), the FDIC has concluded that 3Sec.
90.355(e) is duplicative and unnecessary, and the FDIC proposes to
rescind and remove this section.
6. Amendments to Other Rules
The proposed rule would amend FDIC Sec. Sec. 353.1 and 353.3 to
include both insured State savings associations and State nonmember
banks by replacing the terms ``insured nonmember banks'' and ``bank''
currently in the regulation with the term ``FDIC-supervised
institution.'' With these amendments, Sec. 390.355 is unnecessary and,
for the reasons stated
[[Page 58506]]
above, the FDIC proposes to rescind and remove Sec. 390.355 in its
entirety.
T. 12 CFR 390.356--Bonds for Directors, Officers, Employees and Agents;
Form of and Amount of Bonds
Section 390.356 requires fidelity bond coverage for directors,
officers, employees, and agents of State savings associations. The FDIC
proposes to rescind and remove Sec. 390.356, to conform requirements
for State savings associations with requirements for State nonmember
banks, and to reduce regulatory burden. State savings associations may,
however, consult FDIC guidance concerning best practices regarding
fidelity bond coverage.\146\
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\146\ See, e.g., Risk Management Manual of Examination Policies
Sec. 4.4 (Fidelity and Other Indemnity Protection), available at
https://www.fdic.gov/regulations/safety/manual/section4-4.pdf..
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Section 390.356(a) requires each State savings association to
maintain fidelity bond coverage for those directors, officers,
employees, and agents who have control over or access to cash,
securities, or other property of the State savings association. Section
390.356(b) requires the management of each State savings association to
determine the amount of fidelity bond coverage that would be considered
safe and sound, commensurate with its assessment of the association's
potential risk exposure. Additionally, paragraph (b) requires the State
savings association's board of directors to approve the management's
determination. Section 390.356(c) provides that the State savings
association may maintain bond coverage through riders, endorsements, or
supplements, beyond that provided by the insurance underwriting
industry's standard forms if the State savings association's board
determines that additional coverage is warranted. Section 390.356(d)
provides that the State savings association's board of directors must
approve the State savings association's fidelity bond coverage, review
such coverage annually, and document its review and approval in board
meeting minutes.
Neither the FDI Act nor the FDIC's regulations for State nonmember
banks contain similar prescriptive language concerning fidelity bonds
that would be applicable to State savings associations. Section 18(e)
of the FDI Act authorizes, but does not mandate, that the FDIC require
an insured depository institution to ``provide protection and indemnity
against burglary, defalcation, and other similar insurable losses.''
\147\ The FDIC generally requires fidelity bond insurance for insured
depository institutions and considers whether fidelity bond insurance
is in place when analyzing the general character and fitness of the
management of a de novo financial institution applying for deposit
insurance.\148\ However, other than expressing general guidelines
regarding the appropriate level of insurance coverage, the FDIC does
not otherwise impose requirements such as the ones contained in Sec.
390.356.\149\ There are no other relevant provisions concerning
fidelity bond coverage or the use of fidelity bond proceeds. And, there
is no analogous statutory or regulatory language for State nonmember
banks that mirrors Sec. 390.356. Therefore, for supervisory
consistency between State nonmember banks and State savings
associations, and to reduce regulatory burden, the FDIC proposes that
Sec. 390.356 be rescinded and removed.
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\147\ See 12 U.S.C. 1828(e).
\148\ See 12 U.S.C. 1816; Statement of Policy on Applications
for Deposit Insurance, supra note 134.
\149\ See Statement of Policy on Applications for Deposit
Insurance, supra note 134. Generally, an order granting Federal
deposit insurance would include fidelity coverage as a condition,
but would not specify an amount. See also Resolution Seal No.
071098, B(2)(a)(iii) and (d) (Dec. 3, 2002); Memorandum to the Board
regarding Delegations of Authority, Ex. 1, Delegations of Authority:
Notices and Filings, subpart B, n. B-1 6(11) (Nov. 25, 2002),
available at https://www.fdic.gov/regulations/laws/matrix/exhibit1.html.
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U. 12 CFR 390.357--Bonds for Agents
Section 390.357,\150\ provides that, in lieu of a bond for
directors, officers, employees, and agents of State savings
associations referenced in Sec. 390.356, the State savings
association's board may approve a bond for its agents. This bond must
be twice the average monthly collections of such agent, and the agent
is required to settle its account with the State savings association at
least monthly.
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\150\ 12 CFR 390.357.
---------------------------------------------------------------------------
Similar to Sec. 390.356, there are not analogous statutory or
regulatory requirements for State nonmember banks that resemble Sec.
390.357. Neither sections 18(e) or 18(k) of the FDI Act nor Sec. Sec.
326.2 or 326.3 of FDIC's regulations require or provide for bond
coverage. State savings associations may, however, consult FDIC
guidance concerning best practices regarding fidelity bond
coverage.\151\ Therefore, in the interest of consistency between State
nonmember banks and State savings associations, and to reduce
regulatory burden, the FDIC proposes that Sec. 390.357 be rescinded
and removed.\152\
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\151\ See, e.g., Risk Management Manual of Examination Policies
Sec. 4.4, supra note 146.
\152\ State savings associations may, however, consult FDIC
guidance concerning best practices regarding fidelity bond coverage.
See Risk Management Manual of Examination Policies Sec. 4.4, supra
note 146.
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V. 390.358 Conflicts of Interest
12 CFR 390.358 is the re-designation of the transferred OTS
regulation prohibiting persons including directors, officers, or
employees of State savings associations, or others who have power to
direct its management or policies or who otherwise owe a fiduciary duty
to a State savings association from advancing personal or business
interests, or those of others, at the expense of the State savings
association. The section also prescribes how these individuals should
interact with the board of directors of a State savings association if
they have an interest in a matter or transaction requiring board
consideration.
While section 8(e) of the FDI Act \153\ authorizes enforcement
actions against directors and officers who breach their fiduciary
duties to the depository institution, the existence and scope of a
fiduciary duty generally is a matter of state law. The FDIC proposes to
rescind and remove Sec. 390.358 because such conduct is governed by
either statutory or common law.\154\
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\153\ 12 U.S.C. 1818(e).
\154\ See, e.g., 12 U.S.C. 1821(k); Atherton v. FDIC, 519 U.S.
213 (1997); CO Rev Stat Sec. 7-108-401 and Sec. 11-41-134 (2017);
IN Code Sec. 23-1-35-1; Sec. 28-10-1-3; Sec. 28-13-11-1 (2018);
LA Rev Stat Sec. 6:291; Sec. 12:1-830 (2018); MO Rev. Stat Title
XXIV Sec. 369.109; NH Rev Stat Sec. 293-A:8.30 (2018); NJ 17:9A-
250; NY Banking Law Sec. 398-B (2018); Ohio Rev. Code 1701.59,
.641, 1105.11; PA Consol. Stat, Title 15, Sec. 512; SC Code Sec.
34-28-440 (2018); WI Stat Sec. 180.0828; Sec. 215.525 (2018).
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W. 390.359 Corporate Opportunity
Section 390.359 is the re-designation of the OTS regulation
prohibiting persons, including directors and officers or others who
have power to direct its management or policies or who otherwise owe a
fiduciary duty to a State savings association from taking advantage of
corporate opportunities belonging to the State savings association.
Such conduct is governed by either statutory or common law.\155\ While
section 8(e) of the FDI Act \156\ authorizes enforcement actions
against directors and officers who breach their fiduciary duties to the
depository institution, the existence and scope of a fiduciary duty
generally is a matter of state law. The FDIC proposes to rescind and
remove Sec. 390.358 because such conduct is governed by either
statutory or common law.
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\155\ See supra note 154.
\156\ 12 U.S.C. 1818(e).
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[[Page 58507]]
X. 12 CFR 390.360-.368--Change of Director or Senior Executive Officer
Section 914 of FIRREA added section 32 of the FDI Act.\157\ Section
32 requires certain insured depository institutions and insured
depository institution holding companies to furnish the appropriate
Federal banking agency with at least 30 days' notice prior to adding
any individual to the board of directors or employing any individual as
a senior executive officer. Section 32 was amended on September 30,
1996, by the Economic Growth and Regulatory Paperwork Reduction Act of
1996 (EGRPRA).\158\ Section 209 of the EGRPRA changed the circumstances
under which a notice must be filed and also permitted the appropriate
Federal banking agency no more than 90 days to issue a notice of
disapproval of the proposed addition of a director or employment of a
senior executive officer. On September 25, 1998, the OTS, then the
appropriate Federal banking agency for all savings associations, issued
a final rule relating to the changes made to section 32 by EGRPRA and
added implementing regulations which replaced 12 CFR 574.9 with
Sec. Sec. 563.550 through 563.590. These regulations were transferred
then to the FDIC, as the appropriate Federal banking agency for State
savings associations. The implementing regulations are now found at
Sec. Sec. 390.360 through 390.368.\159\
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\157\ 12 U.S.C. 1831i.
\158\ Public Law 104-208, 110 Stat. 3009, Sept. 30, 1996.
\159\ 63 FR 51272 (Sept. 25, 1998).
---------------------------------------------------------------------------
Subpart F of part 303 of the FDIC's regulations imposes similar
notice filing requirements on insured State nonmember banks. After
careful review, for the reasons described below, the FDIC proposes to
amend subpart F of part 303 so that it applies to State savings
associations as well as State nonmember banks and to rescind and remove
Sec. Sec. 390.360 through 390.368 as unnecessary and duplicative. The
FDIC believes that the section 32 of the FDI Act and the proposed
amendments to subpart F of part 303 sufficiently address the
circumstances and requirements for both State nonmember banks and State
savings associations to provide advance notification to the FDIC before
appointing or employing directors and senior executive officers.
1. 12 CFR 390.360--Change of Director or Senior Executive Officer
Section 390.360 is an introductory section. It describes the
statutory basis for and the content and purpose of the remaining
Sec. Sec. 390.361 through 390.368. The content of this section is
substantively identical to Sec. 303.100. Therefore, the FDIC proposes
that Sec. 390.360 be rescinded and removed.
2. 12 CFR 390.361--Applicable Definitions
Section 390.361 provides definitions of certain terms that apply to
Sec. Sec. 390.360 through 390.368. This section defines the terms
director, senior executive officer and troubled condition. Section
303.101 provides substantively similar definitions for the same three
terms. The FDIC does not believe Sec. 390.361 is necessary in light of
Sec. 303.101, and for this reason, the FDIC proposes to rescind and
remove Sec. 390.361.
3. 12 CFR 390.362--Who must give prior notice?
Section 390.362 outlines the conditions under which prior
notification must be given to the FDIC. Paragraph (a) requires a State
savings association to provide notice prior to adding or replacing
board members or senior executive officers if it: (1) Does not comply
with all minimum capital requirements; (2) is in troubled condition; or
(3) if it has been notified by the FDIC that a notice is required.
These three conditions are substantively identical to those contained
in Sec. 303.102, which pertains to State nonmember banks. When part
303, subpart F is amended to apply to State savings associations,
paragraph (a) will become unnecessary and duplicative.
Paragraph (b) allows an individual seeking election to the board of
directors of a State savings association, without a nomination by the
institution's management, to submit an after-the-fact notice to the
FDIC within seven days of being elected. Section 303.102(c)(2) contains
a similar regulation with the requirement that a notice must be
submitted within two business days after election. Thus paragraph (b)
is duplicative and unnecessary. For foregoing reasons, the FDIC
proposes to rescind and remove Sec. 390.362.
4. 12 CFR 390.363--What procedures govern the filing of my notice?
Section 390.363 references the procedures found in Sec. Sec.
390.103 through 390.110 as governing the filing of a notice to the
FDIC. Again, these sections are substantively similar to the procedural
rules found in subpart A of part 303. Because subpart A of part 303
governs general procedures for submitting filings, including notices,
to the FDIC, Sec. 390.363 is unnecessary and duplicative. For this
reason and because maintaining alternative procedures for State savings
associations and State nonmember banks would be confusing and
burdensome, the FDIC proposes to rescind and remove Sec. 390.363.
5. 12 CFR 390.364--What information must I include in my notice?
Section 390.364 establishes the required content for prior notices
filed pursuant to section 32 of the FDI Act. Paragraph (a) requires the
submission of certain biographical information, a set of fingerprints
and any other information that the FDIC requires. Paragraph (d)(1) of
Sec. 303.102 requires substantively similar information.\160\
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\160\ Section 303.102(d)(1) does not specifically contain a
fingerprinting requirement, but does provide that ``[t]he FDIC may
require additional information.'' In practice, the FDIC obtains
fingerprints to facilitate background checks performed in connection
with applications and notices submitted to the FDIC, including:
Applications for Federal deposit insurance, notices of acquisition
of control, requests for participation in the banking industry by
individuals with certain criminal convictions, and notices to
replace board members or senior management in certain institutions
See FIL-21-2018, Electronic Fingerprinting for Background Checks
Related to Applications (Apr. 17, 2018). Thus, the FDIC is
clarifying that fingerprints may be required in connection with the
filings noted above.
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Paragraph (b) of Sec. 390.364 allows the FDIC to modify the
requirements listed in paragraph (a), similar to paragraph (d)(2) of
Sec. 303.102. Amending Sec. 303.102 to also apply to State savings
associations will make Sec. 390.364 unnecessary and duplicative. For
this reason, the FDIC proposes to rescind and remove Sec. 390.364.
6. 12 CFR 390.365--What procedures govern the FDIC's review of my
notice for completeness?
Section 390.365 outlines the procedures and timelines the FDIC will
follow in reviewing a notice of change of director or senior officer.
Paragraph (a) states that the FDIC will notify the applicant in writing
of the date on which the FDIC received a complete notice. This
provision is substantively similar to paragraph (a) of Sec. 303.103.
Paragraph (b) of Sec. 390.365 states that an applicant may be asked to
provide additional information before an application is deemed
complete, and failure to provide such information may cause the notice
filing to be deemed withdrawn. This provision is substantively similar
to Sec. 303.11. If subpart F of part 303 is amended to apply to State
savings associations, Sec. 390.365 will become duplicative and
unnecessary. For this reason, the FDIC proposes to rescind and remove
Sec. 390.365.
[[Page 58508]]
7. 12 CFR 390.366--What standards and procedures will govern the FDIC
review of the substance of my notice?
Section 390.366 outlines the standards and procedures under which a
notice of change of director or senior officer will be reviewed by the
FDIC. This section is substantively identical to paragraph (c) of Sec.
303.103. If subpart F of part 303 is amended to apply to State savings
associations, Sec. 390.366 will become duplicative and unnecessary.
For this reason, the FDIC proposes to rescind and remove Sec. 390.366.
8. 12 CFR 390.367--When may a proposed director or senior executive
officer begin service?
Section 390.367 establishes the conditions and timelines for a
proposed director or senior executive officer to begin service.
Paragraph (a) establishes that a director or senior executive officer
may begin service 30 days after the FDIC receives all required
information, unless the FDIC has disapproved the notice or the FDIC has
extended its review period. Paragraph (b) establishes that a director
or senior executive officer may begin service any time after the FDIC
provides notice that it will not disapprove the notice. Both of these
paragraphs are substantively similar to the conditions and timelines
established under paragraphs (a) and (b) of Sec. 303.103. If subpart F
of part 303 is amended to apply to State savings associations, Sec.
390.367 will become duplicative and unnecessary. For this reason, the
FDIC proposes to rescind and remove Sec. 390.367.
9. 12 CFR 390.368--When will the FDIC waive the prior notice
requirement?
Section 390.398 outlines the conditions under which the FDIC may
waive the prior notification requirement. Paragraph (a) establishes
that the FDIC may provide a waiver of prior notice if it issues a
written finding that a delay would (1) threaten the safety or soundness
of the institution, (2) not be in the public interest, or (3) that
extraordinary circumstances exist to justify a waiver. Paragraph (b)
allows for an automatic waiver under certain circumstances for
directors elected without the nomination of management. Paragraph (c)
allows for the FDIC to subsequently deny a notice filed after a waiver
within 30 days. Paragraph (c) of Sec. 303.102 provides for
substantively identical criteria for the waiver of prior notice for
State nonmember banks. If subpart F of part 303 is amended to apply to
State savings associations, Sec. 390.368 will become duplicative and
unnecessary. For this reason, the FDIC proposes to rescind and remove
Sec. 390.368.
III. Request for Comments
The FDIC invites comments on all aspects of this proposed
rulemaking, and specifically requests comments on the following:
Question 3: What impact, positive or negative, can you foresee in
the FDIC's proposal to rescind certain provisions of Subpart S? Please
substantiate your response.
Written comments must be received by the FDIC no later than
December 2, 2019.
IV. Regulatory Analysis and Procedure
A. The Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
(PRA),\161\ 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.
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\161\ 44 U.S.C. 3501, et seq.
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The proposed rule would rescind and remove from the FDIC's
regulations part 390, subpart S. The proposed rule will not create any
new or revise any existing information collections pursuant to 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 notice of proposed rulemaking, an agency prepare and make
available for public comment an initial regulatory flexibility analysis
that describes the impact of the proposed rule on small entities.\162\
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.\163\
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 noninterest 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 proposed rule, if adopted
in final form, would not have a significant economic impact on a
substantial number of small banking organizations. Accordingly, a
regulatory flexibility analysis is not required.
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\162\ 5 U.S.C. 601, et seq.
\163\ The SBA defines a small banking organization as having
$600 million or less in assets, where ``a financial institution'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 FDIC-supervised institution is ``small'' for
the purposes of RFA.
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As of June 30, 2019, the FDIC supervised 3,424 insured depository
institutions, of which 2,665 are considered small banking organizations
for the purposes of RFA. The proposed rule primarily affects
regulations that govern State savings associations. There are 36 State
savings associations considered to be small banking organizations for
the purposes of the RFA.\164\
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\164\ Based on data from the June 30, 2019, Call Report and
Report of Assets and Liabilities of U.S. Branches and Agencies of
Foreign Banks.
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As discussed previously in the SUPPLEMENTARY INFORMATION section,
Sec. 390.330 requires a de novo State savings association, prior to
commencing operations, to file its charter and bylaws with the FDIC for
certification. The FDIC does not charter depository institutions,
therefore the certification authority outlined in Sec. 390.330 does
not conform with the FDIC's general authority. The OCC or State banking
supervisors do charter depository institutions and therefore, may have
similar charter and bylaw certification requirements for de novo
savings associations. If the OCC or a State banking supervisor does not
have similar charter and bylaw certification requirements for de novo
savings associations, this aspect of the proposed rule could reduce
recordkeeping and reporting requirements for future de novo savings
associations. However, an analysis of de novo activity for savings
associations shows that there has been only one in the last eleven
years. The proposed rule would also eliminate the federal requirement
for a state savings association to make available to its
accountholders, on request, a copy of its bylaws. The nature of the
requirements contained in Sec. 390.330 are typically addressed by
state law. Depending on the state, elimination of this section could
result in a small reduction in expenses. Therefore, this aspect of the
[[Page 58509]]
proposed rule is unlikely to pose significant effects on a substantial
number of small, FDIC-supervised state savings associations.
As discussed previously in the SUPPLEMENTARY INFORMATION section,
Sec. 390.331 requires that every security issued by a State savings
association include in its provisions a clear statement that the
security is not insured by the FDIC. Although, the FDIC does not have a
companion rule that requires state nonmember institutions to clearly
state that a security is not insured by the FDIC, provisions of the FDI
Act, FDIC regulations, and Statements of Policy clarify that securities
are not insured by the FDIC. Moreover, the FDIC has issued two
Statements of Policy, one regarding the sale of nondeposit investment
products and one regarding the use of offering circulars, that are
intended to prevent confusion on the part of customers and investors
regarding these matters. Therefore, rescission of Sec. 390.331 would
not substantively change deposit insurance coverage for state savings
associations, or security disclosure practices. This aspect of the
proposed rule is unlikely to pose significant effects on small, FDIC-
supervised state savings associations.
As discussed previously in the SUPPLEMENTARY INFORMATION section,
Sec. 390.332 addresses the application requirements for mergers,
consolidations, purchases or sales of assets, and assumptions of
liabilities that apply to State savings associations. The FDIC proposes
to rescind Sec. 390.332 and to amend 12 CFR part 303, subpart D, the
section of the FDIC's regulations governing merger transactions. The
proposed amendments to subpart D would make that section applicable to
any FDIC-supervised institution, including State savings associations,
and would make other conforming changes. Because the proposed changes
would not affect the application requirements and application content
this aspect of the proposed rule is unlikely to pose any effects on
small, FDIC-supervised state savings associations.
As discussed previously in the SUPPLEMENTARY INFORMATION section,
Sec. 390.333 prohibits State savings associations from making
inaccurate representations about services, contracts, investments, or
financial condition in their advertising. The prohibition of
misrepresentations in advertising contained in Sec. 390.333 is
substantially similar to the more general prohibition of unfair or
deceptive acts or practices under section 5(a) of the Federal Trade
Commission Act (section 5). The FDIC enforces this provision pursuant
to its authority under section 8 of the FDI Act.\165\ The prohibition
contained in section 5 is broader than Sec. 390.333 because it
prohibits all ``unfair or deceptive acts or practices in or affecting
commerce,'' and it applies to all FDIC-supervised institutions, not
only State savings associations.\166\ Because the narrower prohibitions
of Sec. 390.333 appear subsumed within the broader prohibitions of
Section 5, the FDIC believes that this aspect of the proposed rule will
not have any substantive effect on small, FDIC-supervised state savings
associations.
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\165\ 12 U.S.C. 1818.
\166\ 15 U.S.C. 45(a)(1).
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As discussed previously in the SUPPLEMENTARY INFORMATION section,
Sec. 390.334 limits who may serve on the board of directors of a State
savings association by providing that: A majority of the directors must
not be employees of the State savings association or its affiliates; no
more than two directors may come from the same family; and no more than
one director may be an attorney with a particular law firm. This aspect
of the proposed rule could reduce compliance requirements on small,
FDIC-supervised state savings associations by enabling them to make
changes to the composition of their board of directors if they so
choose. Such a reduction of compliance requirements could benefit
covered entities by enabling them to choose a board that best executes
the fiduciary powers of the board of directors, and more effectively
supports the financial health of the institution. However, rescinding
Sec. 390.334 also potentially reduces the independence of boards of
directors for small State savings associations thereby increasing risks
to safety and soundness. The FDIC believes that the potential risks to
safety and soundness for small FDIC-insured state savings associations
that might result from rescinding Sec. 390.334 is ameliorated by
periodic examinations of safety and soundness risk in management for
covered institutions. Therefore, the FDIC believes that this aspect of
the proposed rule will not have any significant effects on small, FDIC-
supervised state savings associations.
As discussed previously in the SUPPLEMENTARY INFORMATION section,
Sec. 390.335 is entitled ``Tying restriction exception'' and refers
solely to the regulations issued by the FRB. Section 312(b)(2) of the
Dodd-Frank Act transferred the authority to grant exceptions from the
anti-tying regulations of HOLA to the FRB, rather than to the FDIC,
upon the dissolution of the OTS.\167\ Therefore, rescinding Sec.
390.335 would align the FDIC's regulations with the FDIC's general
authority. Additionally, because the FRB maintains the authority to
grant exceptions from the anti-tying regulations for Federal and State
savings associations, this aspect of the proposed rule will have no
substantive effect on small, FDIC-supervised state savings
associations.
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\167\ 12 U.S.C. 5412(b)(2)(A).
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As discussed previously in the SUPPLEMENTARY INFORMATION section,
Sec. 390.336 sets forth requirements with which a State savings
association must comply when entering into an employment contract with
its officers and other employees. Although there are no similar
regulations for FDIC-supervised institutions, existing statutes,
guidelines, and regulations have a similar effect on FDIC-supervised
institutions, including State savings associations. Therefore, removal
of Sec. 390.336 is unlikely to have any substantive effect on small,
FDIC-supervised State savings associations.
As discussed previously in the Supplementary Information section,
Sec. 390.337 states only that State savings associations should ``see
the regulations issued by Board of Governors of the Federal Reserve
System'' for the applicable rules for transactions with affiliates.
Because HOLA applies sections 23A and 23B of the Federal Reserve Act to
State savings associations \168\ and because the FRB's Regulation
W\169\ addresses the additional restrictions of HOLA applicable to
State and Federal savings associations' transactions with their
affiliates, the FDIC believes that this aspect of the proposed rule
will not have any substantive effects on small, FDIC-supervised
institutions.
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\168\ 12 U.S.C. 1468(a).
\169\ The FDIC has interpreted the language ``in the same manner
and to the same extent'' to include the application of Regulation W.
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As discussed previously in the Supplementary Information section,
Sec. 390.338 cross-referenced the FRB's Regulation O,\170\ with some
additional modifications. Section 337.3 of the FDIC's regulations
reference Regulation O to impose similar direct regulatory requirements
on State nonmember banks. The FDIC proposes to rescind and remove Sec.
390.338, to make minor conforming changes to Sec. 337.3 to clarify its
applicability to State savings associations, and to make technical
amendments to Sec. 337.3. Therefore, this aspect of the proposed rule
is unlikely
[[Page 58510]]
to have any effect on small, FDIC-supervised institutions.
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\170\ 12 CFR part 215.
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As discussed previously in the Supplementary Information section,
Sec. 390.339 prohibits State savings associations from sponsoring an
employee pension plan which, because of unreasonable costs or for any
other reason, could lead to material financial loss or damage to the
sponsor. The section further requires a State savings association that
serves as a pension plan sponsor to retain detailed pension plan
records and actuarial funding reports and to provide advance notice of
a pension plan termination. The Interagency Safety and Soundness
Guidelines explicitly identify compensation that could lead to material
financial loss as an unsafe and unsound practice. Additionally,
regulations on recordkeeping by the Pension Benefit Guaranty
Corporation would apply to any pension plan offered by an FDIC-
supervised institution.\171\ Because FDIC-supervised institutions,
including State savings associations, will continue to be subject to
the Interagency Safety and Soundness Guidelines, as well as PBCG
regulations, rescinding Sec. 390.339 is unlikely to substantively
effect small, FDIC-supervised institutions.
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\171\ Public Law 109-280, 120 Stat. 780, 29 U.S.C. 1301 et seq.
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As discussed previously in the Supplementary Information section,
Sec. 390.340 generally prohibits the offer or sale of debt or equity
securities issued by a State savings association or an affiliate of the
State savings association at an office of the State savings association
with the exception of equity securities issued in connection with the
State savings association's conversion from mutual to stock form in a
transaction that has been approved by the FDIC or if the sale is
conducted in accordance with the conditions set forth in Sec. 390.340.
The NDIP Statement of Policy \172\ provides guidelines for all sales of
nondeposit products (such as annuities, mutual funds, and other
securities) by depository institutions, including State savings
associations. Additionally, the Offering Circular Statement of Policy
provides guidelines for sales and distribution of bank securities.
Therefore, the FDIC believes that rescission of Sec. 390.340 will not
substantively change the offer or sale of debt or equity securities
issued by a State savings associations or their subsidiaries.
Therefore, this aspect of the proposed rule is unlikely to pose
significant effects on small, FDIC-supervised state savings
associations.
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\172\ See supra note 12.
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As discussed previously in the Supplementary Information section,
Sec. 390.341 provides application and notice procedures and form and
content requirements for subordinate debt securities and mandatorily
redeemable preferred stock that a State savings association seeks to
include in its tier 2 capital. There is no corresponding requirement
applicable to State nonmember banks. Many of the form and content
requirements in Sec. 390.341 that are designed to prevent consumer
confusion are included in the FDIC's Offering Circular Statement of
Policy which covers FDIC-supervised institutions, including State
savings associations. Small FDIC-supervised institutions, including
State savings associations, are governed by the criteria for inclusion
in tier 2 capital are included in the FDIC's capital rules in 12 CFR
part 324.\173\ Therefore, this aspect of the proposed rule is unlikely
to pose significant effects on small, FDIC-supervised state savings
associations.
---------------------------------------------------------------------------
\173\ See 12 CFR 324.20(d)(1).
---------------------------------------------------------------------------
As discussed previously in the Supplementary Information section,
Sec. 390.342 states that Sec. Sec. 390.342 through 390.348 apply to
capital distributions by a State savings association.\174\ Because the
proposed rule would rescind Sec. Sec. 390.342 through 390.348, and
would amend other FDIC regulations to make them applicable to State
savings associations, the removal of Sec. 390.342 will not have any
substantive effects on small, FDIC-supervised state savings
associations.
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\174\ 12 CFR 390.342.
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As discussed previously in the Supplementary Information section,
Sec. 390.343 defines a ``capital distribution'' for the purposes of
Sec. Sec. 390.342-348. Section 38 of the FDI Act \175\ applies to all
insured depository institutions, and, among other things, generally
prohibits an insured depository institution from making a capital
distribution if, after making the distribution, the institution would
be undercapitalized. Section also 38 defines a ``capital distribution''
to include certain dividends; repurchases, redemptions, retirements, or
other acquisitions of shares or other ownership interests, including
extensions of credit to finance an affiliated company's acquisition of
such shares; and any other transaction that the Federal banking
agencies find to be in substance a distribution of capital.\176\ Part
303 of the FDIC's regulations implements the PCA provisions of section
38 for insured State nonmember banks and insured branches of foreign
banks. The proposed rule would amend Sec. 303.203 so that it expressly
applies to State savings associations. The requirements of Sec. Sec.
390.343(a) and (b) are substantively similar to requirements in section
38 and the current, analogous FDIC regulations at Sec. 303.203.
Section 390.343(e) incorporates FDI Act section 38(b)(2)(B)(iii), which
authorizes the Federal banking agencies to, by order or regulation,
deem as a ``capital distribution'' any transaction that the FDIC
determines to be in substance a distribution of capital.\177\
Therefore, the proposed rule's rescission of these elements and
amendments to Sec. 303.203 will have no effects on small, FDIC-
supervised state savings associations.
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\175\ 12 U.S.C. 1831o.
\176\ 12 U.S.C. 1831o(b)(2)(B).
\177\ 12 CFR 390.343(e), 12 U.S.C. 1831o(b)(2)(B)(iii).
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Section 390.343(c) further defines ``capital distribution'' to
include any direct or indirect payment of cash or other property to
owners or affiliates made in connection with a corporate restructuring,
including the payment of cash or property to shareholders of another
savings association of its holding company to acquire ownership in that
savings association, other than by a distribution of shares.\178\ This
prong of Sec. 390.343's definition of ``capital distribution'' is not
matched by an analogous prong in section 38. Additionally, Sec.
390.343(d) captures as a ``capital distribution'' any capital
distribution that is charged against a State savings association's
capital accounts if the State savings association would not be well
capitalized following the distribution.\179\ As with payments made in
connection with a corporate restructuring, this element of Sec.
390.343's regulatory definition is not expressly addressed in section
38. The proposed rule would rescind these requirements for small, FDIC-
supervised state savings associations. The FDIC believes that this
aspect of the proposed rule is unlikely to substantively effect small,
FDIC-supervised institutions. Additionally, the FDIC believes that
small, FDIC-supervised savings association would benefit from the
establishment of equal treatment of capital distributions for State
nonmember banks and State savings associations. However, it is
difficult to estimate these effects because it depends on the financial
condition of, and future decisions of
[[Page 58511]]
senior management at, small FDIC-supervised savings associations.
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\178\ 12 CFR 390.343(c).
\179\ 12 CFR 390.343(d).
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As discussed previously in the Supplementary Information section,
Sec. 390.344 adopts additional definitions specifically for the
capital distribution provisions of Sec. Sec. 390.342 through
390.348.\180\ Section 38 of the FDI Act \181\ applies to all insured
depository institutions, and, among other things, generally prohibits
an insured depository institution from making a capital distribution
if, after making the distribution, the institution would be
undercapitalized. Section 38 also defines a ``capital distribution'' to
include certain dividends; repurchases, redemptions, retirements, or
other acquisitions of shares or other ownership interests, including
extensions of credit to finance an affiliated company's acquisition of
such shares; and any other transaction that the Federal banking
agencies find to be in substance a distribution of capital.\182\ Part
303 of the FDIC's regulations implements the PCA provisions of section
38 for insured state nonmember banks and insured branches of foreign
banks, and definitions of terms for capital distribution provisions are
contained in the FDIC's capital rules. The proposed rule would amend
Sec. 303.203 so that it expressly applies to State savings
associations. Therefore, the rescinding Sec. 390.344 is unlikely to
have any substantive effects on small, FDIC-supervised state savings
associations.
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\180\ 12 CFR 390.344.
\181\ 12 U.S.C. 1831o.
\182\ 12 U.S.C. 1831o(b)(2)(B).
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As discussed previously in the Supplementary Information section,
Sec. 390.345 establishes that a State savings association is required
to file an application for a proposed capital distribution in certain
circumstances, and in others is required to file a notice. The
application requirements of Sec. 303.203 are analogous to those
imposed on State savings associations by Sec. 390.345(a)(3), as both
sections require applications to the FDIC in cases where an institution
would be undercapitalized following a capital distribution, as mandated
by section 38 of the FDI Act. Because section 38 prohibits capital
distributions in cases where an insured depository institution would be
undercapitalized, the substantive requirements of Sec. 390.345(a)(3)
would be preserved by making Sec. 303.203 applicable to State savings
associations. The application requirements of Sec. 303.241 are
analogous to the notice requirements imposed on State savings
associations by Sec. 390.345(b)(2), as both sections require
regulatory consideration of transactions that would reduce or retire
common or preferred stock or capital notes or debentures. Accordingly,
the FDIC proposes to rescind Sec. Sec. 390.345(a)(3) and 390.345(b)(2)
and, as noted above, the FDIC also proposes to amend Sec. 303.241 so
that it applies to State savings associations.
The FDIC proposes to rescind the entirety of Sec. 390.345, which
would effectively eliminate application requirements for capital
distributions in cases where: A State savings association is not
eligible for expedited processing under Sec. 390.101; the total amount
of all capital distributions by a State savings association for the
applicable calendar year exceeds the association's net income for that
year to date plus retained net income for the preceding two years; and
where a State savings association's proposed capital distribution would
violate a prohibition contained in any applicable statute, regulation,
or agreement with the FDIC, or violate a condition imposed on the State
savings association in an FDIC-approved application or notice. The
rescission of Sec. 390.345 would also effectively eliminate the notice
requirements for capital distributions in cases where a State savings
association would not be well capitalized following the distribution.
The prompt corrective action provisions of section 38 of the FDI Act,
however, which apply to all insured institutions, would address such
situations. This aspect of the proposed rule is expected to reduce
compliance costs for small, FDIC-supervised state savings associations.
Although reducing notice requirements for these capital distribution
activities could potentially increase the frequency of this activity
for small, FDIC-supervised state savings associations, the FDIC
believes such effects are likely to be relatively small. However, it is
difficult to estimate these effects because it depends on the financial
condition of, and future decisions of senior management at, small,
FDIC-supervised savings associations. Additionally, the FDIC believes
that small, FDIC-supervised savings association would benefit from the
establishment of equal treatment for application and notification
requirements of capital distributions for State nonmember banks and
State savings associations.
As discussed previously in the Supplementary Information section,
Sec. 390.346 provides filing instructions for capital distributions
that are subject to application or notice requirements under Sec.
390.345, including instructions concerning a filing's content,
schedules, and timing.\183\ Because the FDIC proposes rescinding Sec.
390.345, these provisions would no longer be applicable. Therefore, the
FDIC proposes to rescind Sec. 390.346. As described above, the FDIC
also proposes to make Sec. Sec. 303.203 and 303.241 applicable to
State savings associations, and both of these sections set forth
requirements related to the content of filings. Furthermore, certain
rules of general applicability, including those related to processing,
are set forth in subpart A of part 303 of the FDIC's regulations and
would apply to filings made by State savings associations under
Sec. Sec. 303.203 and 303.241. Based on this information, the FDIC
believes that this aspect of the proposed rule is unlikely to have any
effect on small, FDIC-supervised State savings associations.
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\183\ 12 CFR 390.346.
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As discussed previously in the Supplementary Information section,
Sec. 390.347 authorizes a State savings association to combine a
notice or application required under Sec. 390.345 with another related
notice or application.\184\ Because the FDIC proposes rescinding Sec.
390.345, these provisions would no longer be applicable. Therefore, the
FDIC proposes to rescind Sec. 390.347. As noted above, by making State
savings associations subject to Sec. Sec. 303.203 and 303.241, as
proposed, State savings associations would be permitted to file
applications that are subject to both sections as a single filing or
concurrently with other filings.\185\ Therefore, the FDIC believes that
this aspect of the proposed rule is unlikely to have any effect on
small, FDIC-supervised state savings associations.
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\184\ 12 CFR 390.347.
\185\ See 12 CFR 303.203(b) and 12 CFR 303.241(e).
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As discussed previously in the Supplementary Information section,
Sec. 390.348 sets forth the bases on which the FDIC may deny, in whole
or in part, a notice or application filed under Sec. 390.345. Because
the FDIC proposes to rescind Sec. 390.345, these provisions would no
longer be applicable. Furthermore, the statutory exception that applies
to capital distributions subject to section 38 of the FDI Act would
continue to apply to capital distributions by State savings
associations that are subject to section 38. In addition, because the
proposal would make reductions or retirements of capital by State
savings associations subject to the application requirements of Sec.
303.241, the FDIC would evaluate such applications in light of the
[[Page 58512]]
statutory factors enumerated in section 18(i)(4) of the FDI Act, and
the bases identified in Sec. Sec. 390.348(b) and 390.348(c) would be
preserved insofar as they would be inherent in how the FDIC would
review applications in light of the statutory factors of section
18(i)(4).\186\ Therefore, the FDIC believes that this aspect of the
proposed rule is unlikely to have any effect on small FDIC-supervised
State savings associations.
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\186\ The statutory factors of section 18(i)(4): (A) The
financial history and condition of the institution; (B) the adequacy
of its capital structure; (C) its future earnings prospects; (D) the
general character and fitness of its management; (E) the convenience
and needs of the community to be served; and (F) whether or not its
corporate powers are consistent with the purposes of the FDI Act. 12
U.S.C. 1828(i)(4).
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As discussed previously in the Supplementary Information section,
Sec. 390.349 implements the statutory requirement of section 4 of the
HOLA. That section requires each State savings association to be
operated in a safe and sound manner and encourages State savings
associations to provide credit for housing safely and soundly.\187\ In
particular, Sec. 390.349 includes explicit safety and soundness
requirements relating to liquidity and compensation to officers,
directors, employees, and consultants. Section 39 of the FDI Act \188\
requires the Federal banking agencies to prescribe safety and soundness
standards for internal controls, information systems, and internal
audit systems; loan documentation; credit underwriting; interest rate
exposure; asset growth; compensation, fees, and benefits; and such
other operational and managerial standards as the agency determines to
be appropriate. To this end, the FDIC has adopted part 364 and the
related appendices. Part 364 establishes compensation-related standards
and provides for other safety- and soundness-related guidelines which
apply to all insured State nonmember banks, to state-licensed insured
branches of foreign banks, and to State savings associations.\189\ As
such, the safety and soundness standards in Sec. 390.349 are generally
duplicative of the standards implemented through part 364. Part 364, as
amended, provides consistent safety and soundness standards for both
State nonmember banks and State savings associations. Therefore, the
FDIC believes that this aspect of the proposed rule will have no
substantive effects on small, FDIC-supervised institutions.
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\187\ 12 U.S.C. 1463(a).
\188\ 12 U.S.C. 1831p-1.
\189\ 12 CFR 364.101. In 2015, 12 CFR 364.101 was amended to
apply to both state nonmember banks and state savings associations.
See Removal of Transferred OTS Regulations Regarding Safety and
Soundness Guidelines and Compliance Procedures; Rules on Safety and
Soundness, 80 FR 65903 (Oct. 28, 2015).
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As discussed previously in the Supplementary Information section,
Sec. 390.350 contains requirements regarding examinations, appraisals,
establishing and maintaining books and records, and using data
processing services for maintenance of records. The proposed rule would
rescind paragraphs (a), pertaining to examinations and audits, and (b),
pertaining to appraisals. Section 390.350(a) states that each State
savings association and affiliate will be examined periodically and may
be examined anytime by the FDIC and that appraisals may be required as
part of the examination. Section 337.12 states that the FDIC examines
State nonmember banks pursuant to section 10 of the FDI Act,\190\ State
savings associations pursuant to section 10 of the FDI Act and section
4 of HOLA,\191\ and implements the frequency of examinations specified
by section 10 for insured depository institutions, including State
savings associations. Section 390.350(b) permits the FDIC to select
appraisers in connection with an examination, requires State savings
associations to pay for such an appraiser, and mandates that the FDIC
furnish the appraisal report to the State savings association within 90
days following the filing of the report to the FDIC. Part 323 of the
FDIC's regulations implements Title XI of FIRREA,\192\ which requires
written appraisals in connection with certain federally related
transactions entered into by institutions regulated by the FDIC.
Section 323.3(c), which applies to all FDIC-supervised institutions,
including State savings associations, allows the FDIC to require an
appraisal whenever the agency believes it is necessary to address
safety and soundness concerns, which would include during an
examination.
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\190\ 12 U.S.C. 1820.
\191\ 12 U.S.C. 1463.
\192\ Public Law 101-73, 103 Stat. 183; codified at 12 U.S.C.
3331 et seq.
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Section 390.350(c) requires each State savings association and its
affiliates to establish and maintain such accounting and other records
as will provide an accurate and complete record of all business it
transacts to enable the examination of the State savings association
and its affiliates by the FDIC. The documents, files, and other
material or property comprising said records shall at all times be
available for such examination and audit wherever any of said records,
documents, files, material, or property may be.
State savings associations are already subject to other FDIC
regulations that achieve the purposes of Sec. 390.350(c). For example,
as recognized by Sec. 304.3 of the FDIC's regulations, all insured
depository institutions, including State savings associations, are
required to file quarterly Consolidated Reports of Condition and Income
(Call Reports).
Section 390.350(d) prohibits State savings associations from
transferring the location of any of its general accounting or control
records, or the maintenance thereof, from its home office to a branch
or service office, or from a branch or service office to its home
office or to another branch or service office unless prior to the date
of transfer its board of directors has authorized the transfer by
resolution and notified the appropriate regional director. The FDIC has
not promulgated a similar rule for State nonmember banks. The removal
of Sec. 390.350(d) will provide relief to State savings association by
not having to notify the appropriate regional director of its intention
to relocate records from its home office to a branch or service office
and will provide parity with State nonmember banks which do not provide
the FDIC with prior notification of transferring records from one
location to another.
Section 390.350(e) requires that when a State savings association
maintains any of its records by means of data processing services, it
will notify the appropriate regional director for the region in which
the principal office of such State savings association is located, in
writing, at least 90 days prior to the date on which such maintenance
of records will begin. Section 304.3(d), implementing section 7 of the
Bank Service Company Act,\193\ already requires FDIC-supervised
institutions, including State savings associations, to notify the FDIC
about the existence of a service relationship within thirty days after
the making of the contract or the performance of the service and
provides for the required information either through a letter or FDIC
Form 6120/06 Notification of Performance of Bank Services. Therefore,
the FDIC believes that rescinding Sec. 390.350 is unlikely to have any
substantive effects on small, FDIC-supervised state savings
associations.
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\193\ 12 U.S.C. 1867.
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As discussed previously in the Supplementary Information section,
Sec. 390.352 addresses the permissibility of financial derivatives
transactions, the responsibility of the board of directors
[[Page 58513]]
and management of a State savings association with respect to such
transactions, and recordkeeping requirements related to such
transactions. Section 28(a) of the FDI Act,\194\ implemented by Part
362 of the FDIC's regulations,\195\ restricts and prohibits 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 its service corporations. The term
``activities permissible for a Federal savings association'' means,
among other things, activities recognized as permissible in OCC
regulations.\196\ Section 163.172 of the OCC's regulations governs the
financial derivatives activities of Federal savings associations, the
responsibility of the board of directors and management of a Federal
savings association with respect to such transactions, and
recordkeeping requirements related to such transactions.\197\ Because
section 28(a) of the FDI Act and part 362 establish requirements that
are duplicative of 390.352, the FDIC believes that rescinding Sec.
390.352 is unlikely to have any effect on small, FDIC-supervised state
savings associations.
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\194\ 12 U.S.C. 1831e(a).
\195\ See 12 CFR 362.9-.15.
\196\ See 12 CFR 362.9(a).
\197\ See 12 CFR 163.172.
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As discussed previously in the Supplementary Information section,
Sec. 390.353 requires the board of directors or a board committee of a
State savings association to develop, implement, and review policies
and procedures for the management of a State savings association's
interest-rate-risk; requires the association's management to report
periodically to the board regarding implementation of the policy; and
requires the association's board of directors to adjust the policy as
necessary, including adjustments to the authorized acceptable level of
interest rate risk. As mentioned above, the Interagency Safety and
Soundness Guidelines, promulgated pursuant to section 39 of the FDI
Act, describe examples of safe and sound practices for State nonmember
banks and State savings associations. The Guidelines provide that an
institution ``should manage interest rate risk in a manner that is
appropriate to its size and the complexity of its assets and
liabilities''.\198\ Management and the board of directors should be
provided reports regarding interest rate risk that are adequate to
assess the level of risk. Because the requirements outlined in Sec.
390.353 are similar to the safety and soundness practices outlined in
established Guidelines that already apply to small, FDIC-supervised
state savings associations, the FDIC believes that this aspect of the
proposed rule is unlikely to have any substantive effects on small,
FDIC-supervised state savings associations.
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\198\ 12 CFR part 364, App. A, Sec. II.E.
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As discussed previously in the Supplementary Information section,
Sec. 390.354 requires State savings associations to establish and
maintain a BSA compliance program and a customer identification
program. Section 390.354 also enumerates the four pillars required for
a BSA compliance program. Similarly, Sec. 326.8 of the FDIC's
regulations \199\ requires insured depository institutions for which
the FDIC is the appropriate Federal banking agency to establish a BSA
compliance program to include the same four pillars and a customer
identification program. The proposed rule would rescind Sec. 390.354
and make technical changes to Sec. 326.8, which is currently only
applicable to insured depository institutions for which the FDIC is the
appropriate Federal banking agency.\200\ Because the amended Sec.
326.8 would be duplicative of Sec. 390.354 the FDIC believes that this
aspect of the proposed rule is unlikely to have any effect on small,
FDIC-supervised state savings associations.
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\199\ 12 CFR 326.8, 326.1(a).
\200\ 12 CFR 326.8 is applicable to ``all insured nonmember
banks as defined in 12 CFR 326.1.'' Section 326.1 was revised to
remove the definition of ``insured nonmember bank'' and replace it
with the term ``FDIC-supervised institution'' or ``institution'',
defined to mean any insured depository institution for which the
FDIC is the appropriate Federal banking agency pursuant to section
3(q) of the FDI Act (12 U.S.C. 1813(q). 83 FR 13839, 13842 (April 2,
2018).
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As discussed previously in the Supplementary Information section,
Sec. 390.355 requires State savings associations and service
corporations to make certain reports. Subsection 390.355 (a) requires
State savings associations to make periodic reports to the FDIC in such
a manner and on such forms as the FDIC may prescribe. Statutory
authorities enable the FDIC to require reports be filed by small, FDIC-
supervised state savings associations.
Subsection 390.355(b) prohibits State savings associations from
making false or misleading statements or omissions to the FDIC and to
auditors of State savings associations. The Dodd-Frank Act provided the
OCC with rulemaking authority relating to both State and Federal
savings associations.\201\ On August 9, 2011, the OCC published in the
Federal Register a final rule that contained a provision, 12 CFR
163.180(b), that is substantially similar to Sec. 390.355(b) and that
applies to both State and Federal savings associations.\202\ It
prohibits all savings associations from knowingly making false or
misleading statements to their ``appropriate Federal banking agency''
and to those auditing the institution.\203\ The OCC's prohibition at
Sec. 163.180(b) effectively prohibits a State savings association from
making false or misleading statements to the FDIC or to any party
auditing or preparing or reviewing its financial statements. Therefore,
the FDIC believes that rescinding this subsection will have no effect
on small, FDIC-supervised state savings associations.
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\201\ See 12 U.S.C. 5412(b)(2)(B)(i)(II).
\202\ 76 FR 49047 (Aug. 9, 2011).
\203\ The FDIC is the ``appropriate Federal banking agency'' for
any State savings association. See 12 U.S.C. 1813(q).
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Subsection 390.355(c) requires a State Savings association
maintaining bond insurance coverage to promptly notify its carrier and
file a proof of loss concerning any covered losses more than twice the
deductible amount. The FDIC generally requires fidelity bond insurance
for insured depository institutions and considers whether fidelity bond
insurance is in place when analyzing the general character and fitness
of the management of a de novo financial institution applying for
deposit insurance.\204\ However, the FDIC does not otherwise impose a
reporting requirement such as the one contained in Sec.
390.355(c).\205\ This aspect of the proposed rule potentially reduces
reporting requirements on small, FDIC-supervised state savings
associations. The FDIC believes that these potential effects are likely
to be relatively small. However, it is difficult to estimate these
effects because it depends on the financial condition of, and future
decisions of senior management at, small, FDIC-supervised savings
associations.
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\204\ See 12 U.S.C. 1816; FDIC Statement of Policy on
Applications for Deposit Insurance, 63 FR 44756 (Aug. 20, 1998),
amended at 67 FR 79278 (Dec. 27, 2002), available at https://www.fdic.gov/regulations/laws/rules/5000-3000.html.
\205\ Id. (``An insured depository institution should maintain
sufficient fidelity bond coverage on its active officers and
employees to conform with generally accepted industry practices.
Primary coverage of no less than $1 million is ordinarily expected.
Approval of the application may be conditioned upon acquisition of
adequate fidelity coverage prior to opening for business.'').
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Subsection Sec. 390.355(d) regulates SARs for state savings
associations, was enacted in concert with the other Federal banking
agencies, including the
[[Page 58514]]
OCC,\206\ the FRB,\207\ and the FDIC,\208\ as well as the Financial
Crimes Enforcement Network (FinCEN).\209\ These entities issued
substantially similar proposals, which became effective on April 1,
1996. As mentioned earlier, paragraphs (1)-(8), (12), and (13) of Sec.
390.355(d) mirror Sec. 353.3 for state nonmember banks. The
notification requirements for board of directors, or a committee of
directors or executive officers of state savings associations outlined
paragraph (9) of subsection 390.355(d) also mirror notifications
requirements in Sec. 353.3. Paragraph (9) of subsection 390.355(d)
also states that if the subject of the SAR is a director or executive
officer, the State savings association may not notify the suspect,
pursuant to 31 U.S.C. 5318(g)(2), but shall notify all directors who
are not suspects. In this circumstance, Sec. 353.3 does not have
analogous language; however, the FDIC relies on 31 U.S.C. 5813(g)(2) to
achieve the same purpose. Paragraph (10) of subsection 390.355(d)
states that a State savings association's failure to file a SAR in
accordance with this section may subject the State savings association,
its directors, officers, employees, agents, or other institution-
affiliated parties to supervisory action. In this circumstance, Sec.
353.3 does not have analogous language. Although Sec. 353.3 does not
explicitly provide a remedy for failure to file a SAR, the FDIC has
enforcement authority for violations of law or regulation.\210\
Therefore, the FDIC proposes to rescind subsection 390.355(d)(10) in
its entirety because it is unnecessary. Paragraph (11) of subsection
390.355(d) states that a State savings association may obtain SARs and
the instructions from the appropriate FDIC region as defined in Sec.
303.2 of the FDIC's regulations. In this circumstance, Sec. 353.3 does
not have analogous language. However, FDIC-supervised institutions can
obtain SAR forms electronically. FinCEN converted to the BSA E-Filing
System for filing SARs for all financial institutions; \211\ therefore
this provision is now obsolete as forms are no longer available from
FDIC regions. With this proposed rule the FDIC proposes to make
conforming changes to Sec. Sec. 353.1 and 353.3 to make part 353 of
the FDIC's regulations applicable to all FDIC-supervised institutions,
including state savings associations. Therefore, the FDIC believes that
rescinding this subsection of Sec. 390.355 will have no effect on
small, FDIC-supervised state savings associations.
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\206\ Minimum Security Devices and Procedures, Reports of
Suspicious Activities, and Bank Secrecy Act Compliance Program, 61
FR 4332 (Feb. 5, 1996).
\207\ Membership of State Banking Institutions in the Federal
Reserve System; International Banking Operations; Bank Holding
Companies and Change in Control; Reports of Suspicious Activities
Under Bank Secrecy Act, 61 FR 4338 (Feb. 5, 1996).
\208\ Suspicious Activity Reports, 61 FR 6095 (Feb. 16, 1996).
\209\ Amendment to the Bank Secrecy Act Regulations; Requirement
to Report Suspicious Transactions, 61 FR 4326 (Feb. 5, 1996).
\210\ See 12 U.S.C. 1818.
\211\ See https://bsaefiling.fincen.treas.gov/main.html.
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Subsection 390.355(e) requires State savings associations within
the jurisdiction of a FHLB to provide data from the Call Report upon
the request of the FHLB. The FDIC is required under section 402(e)(3)
of FIRREA ``to take such action as may be required as may be necessary
to assure that the indexes prepared by the . . . Federal home loan
banks immediately prior to the enactment of this subsection and used to
calculate the interest rate on adjustable rate mortgage instruments
continue to be available.'' \212\ As noted above, the Dodd-Frank Act
provided the OCC with rulemaking authority relating to both State and
Federal savings associations.\213\ On August 9, 2011, the OCC published
in the Federal Register a final rule that contained a provision, Sec.
163.180(e), that is substantially similar to Sec. 390.355(e) and that
applies to both State and Federal savings associations.\214\ It
requires all savings associations within the jurisdiction of that FHLB
to report specified data items for the FHLB to use in calculating and
publishing an adjustable-rate mortgage index.\215\ Because the
provision contained in the OCC's regulation is applicable to all
savings associations and is substantially similar to the rule found at
Sec. 390.355(e), the FDIC believes that rescinding this subsection
will not have any effect on small, FDIC-supervised state savings
associations.
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\212\ See 12 U.S.C. 1437 nt.
\213\ See 12 U.S.C. 5412(b)(2)(B)(i)(II).
\214\ 76 FR 49047 (Aug. 9, 2011).
\215\ 12 CFR 163.180(e).
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As discussed previously in the Supplementary Information section,
Sec. 390.356 requires fidelity bond coverage for directors, officers,
employees, and agents of State savings associations. Neither the FDI
Act nor the FDIC's regulations for State nonmember banks contain
similar prescriptive language concerning fidelity bonds that would be
applicable to State savings associations. Section 18(e) of the FDI Act
authorizes, but does not mandate, that the FDIC to require an insured
depository institution to ``provide protection and indemnity against
burglary, defalcation, and other similar insurable losses.'' \216\ The
FDIC generally requires fidelity bond insurance for insured depository
institutions and considers whether fidelity bond insurance is in place
when analyzing the general character and fitness of the management of a
de novo financial institution applying for deposit insurance.\217\
However, other than expressing general guidelines regarding the
appropriate level of insurance coverage, the FDIC does not otherwise
impose requirements such as the ones contained in Sec. 390.356.\218\
There are no other relevant provisions concerning fidelity bond
coverage or the use of fidelity bond proceeds. And, there is no
analogous statutory or regulatory language for State nonmember banks
that mirrors Sec. 390.356. Therefore, rescinding Sec. 390.356 could
potentially reduce compliance costs for small, FDIC-supervised state
savings associations if they choose to make changes to their fidelity
bond coverage. The FDIC believes that this aspect of the proposed rule
is likely to pose relatively small effects on small, FDIC-supervised
state savings associations. However, it is difficult to estimate these
effects because it depends on the decisions of senior management at
small, FDIC-supervised savings associations.
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\216\ See 12 U.S.C. 1828(e).
\217\ See 12 U.S.C. 1816; Statement of Policy on Applications
for Deposit Insurance.
\218\ See Statement of Policy on Applications for Deposit
Insurance (``An insured depository institution should maintain
sufficient fidelity bond coverage on its active officers and
employees to conform with generally accepted industry practices.
Primary coverage of no less than $1 million is ordinarily expected.
Approval of the application may be conditioned upon acquisition of
adequate fidelity coverage prior to opening for business.'').
---------------------------------------------------------------------------
As discussed previously in the Supplementary Information section,
Sec. 390.357 provides that, in lieu of a bond for directors, officers,
employees, and agents of State savings associations referenced in Sec.
390.356, the State savings association's board may approve a bond for
its agents. This bond must be twice the average monthly collections of
such agent, and the agent is required to settle its account with the
State savings association at least monthly. Similar to Sec. 390.356,
there are not analogous statutory or regulatory requirements for State
nonmember banks that resemble Sec. 390.357. Therefore, rescinding
Sec. 390.357 could potentially reduce compliance costs for small,
FDIC-supervised state savings associations to the extent that they were
engaging in such bond coverage practices and choose to make changes.
The FDIC believes that this aspect of the proposed rule is likely to
pose relatively small
[[Page 58515]]
effects on small, FDIC-supervised state savings associations. However,
it is difficult to estimate these effects because it depends on the
decisions of senior management at small, FDIC-supervised savings
associations.
As discussed previously in the Supplementary Information section,
Sec. 390.358 prohibits persons including directors, officers, or
employees of State savings associations, or others who have power to
direct its management or policies or who otherwise owe a fiduciary duty
to a State savings association from advancing personal or business
interests, or those of others, at the expense of the State savings
association. The section also prescribes how these individuals should
interact with the board of directors of a State savings association if
they have an interest in a matter or transaction requiring board
consideration. While section 8(e) of the FDI Act authorizes enforcement
actions against directors and officers who breach their fiduciary
duties to the depository institution, the existence and scope of a
fiduciary duty is a matter of State law. Therefore, rescinding Sec.
390.358 is not likely to have a substantive effect on small, FDIC-
supervised State savings associations because applicable State laws
will continue to govern conflicts of interest and fiduciary duties,
relevant FDIC guidance on boards of director will continue to apply,
and the FDIC will have the same enforcement authority for violations of
law in this area.
As discussed previously in the Supplementary Information section,
Sec. 390.359 prohibits persons, including directors and officers or
others who have power to direct its management or policies or who
otherwise owe a fiduciary duty to a State savings association from
taking advantage of corporate opportunities belonging to the State
savings association. Such conduct is governed by either statutory or
common law. While section 8(e) of the FDI Act authorizes enforcement
actions against directors and officers who breach their fiduciary
duties to the depository institution, the existence and scope of a
fiduciary duty is a matter of state law. Therefore, rescinding Sec.
390.359 is not likely to have a substantive effect on small, FDIC-
supervised State savings associations because applicable State laws
will continue to govern conflicts of interest and fiduciary duties,
relevant FDIC guidance on boards of director will continue to apply,
and the FDIC will have the same enforcement authority for violations of
law in this area.
As discussed previously in the Supplementary Information section,
Sec. Sec. 390.360 through 390.368 require certain insured depository
institutions and insured depository institution holding companies to
furnish the appropriate Federal banking agency with at least 30 days'
notice prior to adding any individual to the board of directors or
employing any individual as a senior executive officer. It also permits
the appropriate Federal banking agency no more than 90 days to issue a
notice of disapproval of the proposed addition of a director or
employment of a senior executive officer. Subpart F of Part 303 of the
FDIC's regulations imposes similar notice filing requirements on
insured State nonmember banks. After careful review, for the reasons
described above in Section X. of the Supplementary Information section,
the FDIC proposes to amend subpart F of Part 303 so that it applies to
State savings associations as well as State nonmember banks and to
rescind and remove Sec. Sec. 390.360 through 390.368. Therefore, the
FDIC believes that rescinding Sec. Sec. 390.360 through 390.368 is
unlikely to have any effect on small, FDIC-supervised state savings
associations.
Based on the information above, the FDIC certifies that the
proposed rule would not have a significant economic impact on a
substantial number of small entities. The FDIC invites comments on all
aspects of the supporting information provided in this RFA section. In
particular, would this rule have any significant effects that the FDIC
has not identified on small entities?
C. The Economic Growth and Regulatory Paperwork Reduction Act
Under section 2222 of the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (EGRPRA),\219\ 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.\220\ 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 burden, 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 Part 390, subpart S, this
Proposed Rule complements other actions the FDIC has taken, separately
and with the other Federal banking agencies, to further the EGRPRA
mandate.
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\219\ Public Law 104-208, 110 Stat. 3009 (1996).
\220\ Public Law 104-208, 110 Stat. 3009 (1996).
---------------------------------------------------------------------------
D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act \221\ 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 Proposed Rule in a simple and straightforward manner.
The FDIC invites comments on whether the Proposed Rule is clearly
stated and effectively organized, and how the FDIC might make it easier
to understand. For example:
---------------------------------------------------------------------------
\221\ Public Law 106-102, 113 Stat. 1338, 1471 (codified at 12
U.S.C. 4809).
---------------------------------------------------------------------------
Has the FDIC organized the material to suit your needs? If
not, how could it present the rule more clearly?
Have we clearly stated the requirements of the rule? If
not, how could the rule be more clearly stated?
Does the rule contain technical jargon that is not clear?
If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes would make the regulation easier to
understand?
What else could we do to make the regulation easier to
understand?
E. Riegle Community Development and Regulatory Improvement Act of 1994
The Riegle Community Development and Regulatory Improvement Act of
1994 (RCDRIA) requires that each Federal banking agency, in determining
the effective date and administrative compliance requirements for new
regulations that impose additional reporting, disclosure, or other
requirements on insured depository institutions, consider, consistent
with principles of safety and soundness and the public interest, any
administrative burdens that such regulations would place on depository
institutions, including small depository institutions, and customers of
depository institutions, as well as the benefits of such regulations.
In addition, new regulations and amendments to regulations that impose
additional reporting, disclosure, or other new requirements on insured
depository institutions generally must 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
[[Page 58516]]
form.\222\ The FDIC invites comments that further will inform its
consideration of RCDRIA.
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\222\ 12 U.S.C. 4802.
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List of Subjects
12 CFR Part 303
Administrative practice and procedure, Bank deposit insurance,
Banks, banking, Reporting and recordkeeping requirements, Savings
associations.
12 CFR Part 326
Banks, banking, Currency, Reporting and recordkeeping requirements,
Security measures.
12 CFR Part 337
Banks, banking, Reporting and recordkeeping requirements, Savings
associations, Securities.
12 CFR Part 353
Banks, banking, Crime, 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.
For the reasons stated in the preamble and under the authority of
12 U.S.C. 5412, the Federal Deposit Insurance Corporation proposes to
amend parts 303, 326, 337, 353 and 390 of title 12 of the Code of
Federal Regulations as follows:
PART 303--FILING PROCEDURES
0
1. The authority citation for 12 CFR Part 303 is revised to read as
follows:
Authority: 12 U.S.C. 378, 478, 1463, 1813, 1815, 1817, 1818,
1819 (Seventh and Tenth), 1820, 1823, 1828, 1831z, 1831e, 1831o,
1831p-1, 1831w, 1835a, 1843(l), 3104, 3105, 3108, 3207, 5412; 15
U.S.C. 1601-1607.
0
2. Amend Sec. 303.2 by redesignating paragraphs (s) through (ff) as
paragraphs (t) through (gg) and adding a new paragraph (s) to read as
follows:
* * * * *
(s) FDIC-supervised institution means any entity for which the FDIC
is the appropriate Federal banking agency pursuant to section 3(q) of
the FDI Act, 12 U.S.C. 1813(q).
* * * * *
0
3. Revise Sec. 303.62 to read as follows:
Sec. 303.62 Transactions requiring prior approval.
(a) Merger transactions. The following merger transactions require
the prior written approval of the FDIC under this subpart:
(1) Any merger transaction, including any corporate reorganization,
interim merger transaction, or optional conversion, in which the
resulting institution is to be an FDIC-supervised institution; and
(2) Any merger transaction, including any corporate reorganization,
or interim merger transaction, that involves an uninsured bank or
institution.
(b) Related regulations. Transactions covered by this subpart also
may be subject to other regulations or application requirements,
including the following:
(1) Interstate merger transactions. Merger transactions between
insured banks that are chartered in different states are subject to the
regulations of section 44 of the FDI Act (12 U.S.C. 1831u). In the case
of a merger transaction that consists of the acquisition by an out of
state bank of a branch without acquisition of the bank, the branch is
treated for section 44 purposes as a bank whose home state is the state
in which the branch is located.
(2) Deposit insurance. An application for deposit insurance will be
required in connection with a merger transaction between a state-
chartered interim institution and an insured depository institution if
the related merger application is being acted upon by a Federal banking
agency other than the FDIC. If the FDIC is the Federal banking agency
responsible for acting on the related merger application, a separate
application for deposit insurance is not necessary. Procedures for
applying for deposit insurance are set forth in subpart B of this part.
An application for deposit insurance will not be required in connection
with a merger transaction (other than a purchase and assumption
transaction) of a federally-chartered interim institution and an
insured institution, even if the resulting institution is to operate
under the charter of the Federal interim institution.
(3) Branch closings. Branch closings in connection with a merger
transaction are subject to the notice requirements of section 42 of the
FDI Act (12 U.S.C. 1831r-1), including requirements for notice to
customers. These requirements are addressed in the ``Interagency Policy
Statement Concerning Branch Closings Notices and Policies'' (1 FDIC
Law, Regulations, Related Acts (FDIC) 5391; see Sec. 309.4(a) and (b)
of this chapter for availability).
(4) Undercapitalized institutions. Applications for a merger
transaction by applicants subject to section 38 of the FDI Act (12
U.S.C. 1831o) should also provide the information required by Sec.
303.204. Applications pursuant to sections 38 and 18(c) of the FDI Act
(12 U.S.C, 1831o and 1828(c)) may be filed concurrently or as a single
application.
(5) Certification of assumption of deposit liability. Whenever all
of the deposit liabilities of an insured depository institution are
assumed by one or more insured depository institutions by merger,
consolidation, other statutory assumption, or by contract, the
transferring insured depository institution, or its legal successor,
shall provide an accurate written certification to the FDIC that its
deposit liabilities have been assumed, in accordance with 12 CFR part
307.
0
4. Revise Sec. 303.64 to read as follows:
Sec. 303.64 Processing
(a) Expedited processing for eligible depository institutions--(1)
General. An application filed under this subpart by an eligible
depository institution as defined in Sec. 303.2(r) and which meets the
additional criteria in paragraph (a)(4) of this section will be
acknowledged by the FDIC in writing and will receive expedited
processing, unless the applicant is notified in writing to the contrary
and provided with the basis for that decision. The FDIC may remove an
application from expedited processing for any of the reasons set forth
in Sec. 303.11(c)(2).
(2) Under expedited processing, the FDIC will take action on an
application by the date that is the latest of:
(i) 45 days after the date of the FDIC's receipt of a substantially
complete merger application; or
(ii) 10 days after the date of the last notice publication required
under Sec. 303.65 of this subpart; or
(iii) 5 days after receipt of the Attorney General's report on the
competitive factors involved in the proposed transaction; or
(iv) For an interstate merger transaction subject to the provisions
of section 44 of the FDI Act (12 U.S.C. 1831u), 5 days after the FDIC
receives confirmation from the host state (as defined in Sec.
303.41(e)) that the applicant has both complied with the filing
requirements of the host state and submitted a copy of the FDIC merger
application to the host state's bank supervisor.
(3) Notwithstanding paragraphs (a)(1) or (2) of this section, if
the FDIC does not act within the expedited processing period, it does
not constitute an automatic or default approval.
[[Page 58517]]
(4) Criteria. The FDIC will process an application using expedited
procedures if:
(i) Immediately following the merger transaction, the resulting
institution will be ``well-capitalized'' pursuant to subpart H of part
324 of this chapter (12 CFR part 324), as applicable; and
(ii)(A) All parties to the merger transaction are eligible
depository institutions as defined in Sec. 303.2(r); or
(B) The acquiring party is an eligible depository institution as
defined in Sec. 303.2(r) and the amount of the total assets to be
transferred does not exceed an amount equal to 10 percent of the
acquiring institution's total assets as reported in its report of
condition for the quarter immediately preceding the filing of the
merger application.
(b) Standard processing. For those applications not processed
pursuant to the expedited procedures, the FDIC will provide the
applicant with written notification of the final action taken by the
FDIC on the application when the decision is rendered.
(c) Processing for State savings associations. Notwithstanding
paragraphs (a) and (b) of this section, the FDIC will approve or
disapprove an application filed by a State savings association to
acquire or be acquired by another insured depository institution that
is required to be filed with the FDIC within 60 days after the date of
the FDIC's receipt of a substantially complete merger application,
subject to the FDIC's discretion to extend such period by an additional
30 days if any material information submitted is substantially
inaccurate or incomplete.
(1) The FDIC shall notify an applicant that is a State savings
association in writing of the date the application is deemed
substantially complete. The FDIC may request additional information at
any time.
(2) Notwithstanding paragraph (c) of this section, if the FDIC does
not approve or disapprove an application within the 60-day or extended
processing period it does not constitute an automatic or default
approval.
0
5. Revise Sec. 303.100 to read as follows:
Sec. 303.100 Scope
This subpart sets forth the circumstances under which an FDIC-
supervised institution must notify the FDIC of a change in any member
of its board of directors or any senior executive officer and the
procedures for filing such notice. This subpart implements section 32
of the FDI Act (12 U.S.C. 1831i).
0
6. Amend Sec. 303.101 by revising paragraph (a) introductory text,
paragraph (b) introductory, paragraph (c) introductory text and
paragraphs (c)(3), (c)(4) and (d) to read as follows:
Sec. 303.101 Definitions
(a) Director means a person who serves on the board of directors or
board of trustees of an FDIC-supervised institution, except that this
term does not include an advisory director who:
* * * * *
(b) Senior executive officer means a person who holds the title of
president, chief executive officer, chief operating officer, chief
managing official (in an insured state branch of a foreign bank), chief
financial officer, chief lending officer, chief investment officer, or,
without regard to title, salary, or compensation, performs the function
of one or more of these positions. Senior executive officer also
includes any other person identified by the FDIC, whether or not hired
as an employee, with significant influence over, or who participates
in, major policymaking decisions of the FDIC-supervised institution.
(c) Troubled condition means any FDIC-supervised institution that:
* * * * *
(3) Is subject to a cease-and-desist order or written agreement
issued by either the FDIC or the appropriate state banking authority
that requires action to improve the financial condition of the FDIC-
supervised institution or is subject to a proceeding initiated by the
FDIC or state authority which contemplates the issuance of an order
that requires action to improve the financial condition of the FDIC-
supervised institution, unless otherwise informed in writing by the
FDIC; or
(4) Is informed in writing by the FDIC that it is in troubled
condition for purposes of the requirements of this subpart on the basis
of the FDIC-supervised institution's most recent report of condition or
report of examination, or other information available to the FDIC.
(d) FDIC-supervised institution means any entity for which the FDIC
is the appropriate Federal banking agency pursuant to section 3(q) of
the FDI Act, 12 U.S.C. 1813(q).
0
7. Amend Sec. 303.102 by revising paragraph (a), paragraph (c)
introductory text, paragraph (c)(1) introductory text, paragraph
(c)(1)(i), and (c)(2) to read as follows:
Sec. 303.102 Filing procedures and waiver of prior notice
(a) FDIC-supervised institutions. An FDIC-supervised institution
shall give the FDIC written notice, as specified in paragraph (c)(1) of
this section, at least 30 days prior to adding or replacing any member
of its board of directors, employing any person as a senior executive
officer of the institution, or changing the responsibilities of any
senior executive officer so that the person would assume a different
senior executive officer position, if the FDIC-supervised institution:
(1) Is not in compliance with all minimum capital requirements
applicable to the FDIC-supervised institution as determined on the
basis of the institution's most recent report of condition or report of
examination;
(2) Is in troubled condition; or
(3) The FDIC determines, in connection with its review of a capital
restoration plan required under section 38(e)(2) of the FDI Act (12
U.S.C. 1831o(e)(2)) or otherwise, that such notice is appropriate.
* * * * *
(c) Waiver of prior notice--(1) Waiver requests. The FDIC may
permit an individual, upon petition by the FDIC-supervised institution
to the appropriate FDIC office, to serve as a senior executive officer
or director before filing the notice required under this subpart if the
FDIC finds that:
(i) Delay would threaten the safety and soundness of the FDIC-
supervised institution
* * * * *
(2) Automatic waiver. The prior 30-day notice is automatically
waived in the case of the election of a new director not proposed by
management at a meeting of the shareholders of an FDIC-supervised
institution, and the individual immediately may begin serving, provided
that a complete notice is filed with the appropriate FDIC office within
two business days after the individual's election.
* * * * *
0
8. Revise Sec. 303.103 to read as follows:
Sec. 303.103 Processing
(a) Processing. The 30-day notice period specified in Sec.
303.102(a) shall begin on the date substantially all information
required to be submitted by the notificant pursuant to Sec.
303.102(c)(1) is received by the appropriate FDIC office. The FDIC
shall notify the FDIC-supervised institution submitting the notice of
the date on which the notice is accepted for processing and of the date
on which the 30-day notice period will expire. If processing cannot be
completed with 30 days, the notificant will be advised in writing,
prior to expiration of the 30-day period, of the reason for the delay
in processing and of the additional time period, not to exceed 60 days,
in which processing will be completed.
[[Page 58518]]
(b) Commencement of service--(1) At expiration of period. A
proposed director or senior executive officer may begin service after
the end of the 30-day period or any other additional period as provided
under paragraph (a) of this section, unless the FDIC disapproves the
notice before the end of the period.
(2) Prior to expiration of the period. A proposed director or
senior executive officer may begin service before the end of the 30-day
period or any additional time period as provided under paragraph (a) of
this section, if the FDIC notifies the FDIC-supervised institution and
the individual in writing of the FDIC's intention not to disapprove the
notice.
(c) Notice of disapproval. The FDIC may disapprove a notice filed
under Sec. 303.102 if the FDIC finds that the competence, experience,
character, or integrity of the individual with respect to whom the
notice is submitted indicates that it would not be in the best
interests of depositors of the FDIC-supervised institution or in the
best interests of the public to permit the individual to be employed
by, or associated with the FDIC-supervised institution. Subpart L of 12
CFR part 308 sets forth the rules of practice and procedure for a
notice of disapproval.
0
9. Revise Sec. 303.200(b) to read as follows:
Sec. 303.200 Scope
* * * * *
(b) Institutions covered. Restrictions and prohibitions contained
in subpart H of part 324 of this chapter apply primarily to FDIC-
supervised institutions, as well as to directors and senior executive
officers of those institutions. Portions of subpart H of part 324 of
this chapter also apply to all insured depository institutions that are
deemed to be critically undercapitalized.
0
10. Revise Sec. 303.203 to read as follows:
Sec. 303.203 Applications for capital distributions.
(a) Scope. An FDIC-supervised institution shall submit an
application for a capital distribution if, after having made a capital
distribution, the institution would be undercapitalized, significantly
undercapitalized, or critically undercapitalized.
(b) Content of filing. An application to repurchase, redeem,
retire, or otherwise acquire shares or ownership interests of the FDIC-
supervised institution shall describe the proposal, the shares or
obligations that are the subject thereof, and the additional shares or
obligations of the institution that will be issued in at least an
amount equivalent to the distribution. The application also shall
explain how the proposal will reduce the institution's financial
obligations or otherwise improve its financial condition. If the
proposed action also requires an application under Sec. 303.241 of
this part regarding prior consent to retire capital, such application
should be filed concurrently with, or made a part of, the application
filed pursuant to section 38 of the FDI Act (12 U.S.C. 1831o).
0
11. Amend Sec. 303.241 by revising paragraphs (a) and (e) to read as
follows:
Sec. 303.241 Reduce or retire capital stock or capital debt
instruments.
(a) Scope. (1) Insured State nonmember banks. The procedures
contained in this section are to be followed by an insured State
nonmember bank to seek the prior approval of the FDIC to reduce the
amount or retire any part of its common or preferred stock, or to
retire any part of its capital notes or debentures pursuant to section
18(i)(1) of the FDI Act (12 U.S.C. 1828(i)(1)).
(2) Insured State savings associations. The procedures contained in
this section are to be followed by an insured State savings association
to seek the prior approval of the FDIC to reduce the amount or retire
any part of its common or preferred stock, or to retire any part of its
capital notes or debentures, as if the insured State savings
association were a State nonmember bank subject to section 18(i)(1) of
the Act (12 U.S.C. 1828(i)(1)).
* * * * *
(e) Undercapitalized institutions. Procedures regarding
applications by an undercapitalized insured depository institution to
retire capital stock or capital debt instruments pursuant to section 38
of the FDI Act (12 U.S.C. 1831o) are set forth in subpart K (Prompt
Corrective Action), Sec. 303.203. Applications pursuant to section 38
and this section should be filed concurrently, or as a single
application.
* * * * *
PART 326--MINIMUM SECURITY DEVICES AND PROCEDURES AND BANK SECRECY
ACT COMPLIANCE
0
12. Revise the authority citation for 12 CFR part 326 to read as
follows:
Authority: 12 U.S.C. 1813, 1815, 1817, 1818, 1819 (Tenth), 1881-
1883, 5412; 31 U.S.C. 5311-5314, 5316-5332.2.
0
13. Revise Sec. 326.1(a) to read as follows:
Sec. 326.8 Definitions
* * * * *
(a) The term FDIC-supervised institution or institution means any
entity for which the Federal Deposit Insurance Corporation is the
appropriate Federal banking agency pursuant to section 3(q) of the
Federal Deposit Insurance Act, 12 U.S.C. 1813(q).
* * * * *
0
14. Revise Sec. 326.8 to read as follows:
Sec. 326.8 Bank Secrecy Act Compliance
(a) Purpose. This subpart is issued to assure that all FDIC-
supervised institutions as defined in 12 CFR 326.1 establish and
maintain procedures reasonably designed to assure and monitor their
compliance with the requirements of subchapter II of chapter 53 of
title 31, United States Code, and the implementing regulations
promulgated thereunder by the Department of Treasury at 31 CFR Chapter
X.
(b) Compliance procedures--(1) Program requirement. Each
institution shall develop and provide for the continued administration
of a program reasonably designed to assure and monitor compliance with
recordkeeping and reporting requirements set forth in subchapter II of
chapter 53 of title 31, United States Code, and the implementing
regulations issued by the Department of Treasury at 31 CFR Chapter X.
The compliance program shall be written, approved by the institution's
board of directors, and noted in the minutes.
(2) Customer identification program. Each institution is subject to
the requirements of 31 U.S.C. 5318(l) and the implementing regulation
jointly promulgated by the FDIC and the Department of the Treasury at
31 CFR 1020.220.
(c) Contents of compliance program. The compliance program shall,
at a minimum:
(1) Provide for a system of internal controls to assure ongoing
compliance;
(2) Provide for independent testing for compliance to be conducted
by institution personnel or by an outside party;
(3) Designate an individual or individuals responsible for
coordinating and monitoring day-to-day compliance; and
(4) Provide training for appropriate personnel.
PART 337--UNSAFE AND UNSOUND BANKING PRACTICES
0
15. Revise the authority citation for 12 CFR 337 to read as follows:
Authority: 12 U.S.C. 375a(4), 375b, 1463, 1464, 1816, 1818(a),
1818(b), 1819, 1820(d), 1821(f), 1828(j)(2), 1831, 1831f, 1831g,
5412.
[[Page 58519]]
0
16. Revise Sec. 337.3 to read as follows:
Sec. 337.3 Limits on extensions of credit to executive officers,
directors, and principal shareholders of FDIC-supervised institutions.
(a) With the exception of 12 CFR 215.5(b), 215.5(c)(3), and
215.5(c)(4), FDIC-supervised institutions are subject to the
restrictions contained in Federal Reserve Board Regulation O (12 CFR
part 215) to the same extent and to the same manner as though they were
member banks.
(b) For the purposes of compliance with Sec. 215.4(b) of Federal
Reserve Board Regulation O, no FDIC-supervised institution may extend
credit or grant a line of credit to any of its executive officers,
directors, or principal shareholders or to any related interest of any
such person in an amount that, when aggregated with the amount of all
other extensions of credit and lines of credit by the FDIC-supervised
institution to that person and to all related interests of that person,
exceeds the greater of $25,000 or five percent of the FDIC-supervised
institution's unimpaired capital and unimpaired surplus,\3\ or $500,000
unless:
---------------------------------------------------------------------------
\3\ For the purposes of section 337.3, an FDIC-supervised
institution's unimpaired capital and unimpaired surplus shall have
the same meaning as found in section 215.2(i) of Federal Reserve
Board Regulation O (12 CFR 215.2(i)).
---------------------------------------------------------------------------
(1) The extension of credit or line of credit has been approved in
advance by a majority of the entire board of directors of that FDIC-
supervised institution and
(2) the interested party has abstained from participating directly
or indirectly in the voting.
(c)(1) No FDIC-supervised institution may extend credit in an
aggregate amount greater than the amount permitted in paragraph (c)(2)
of this section to a partnership in which one or more of the FDIC-
supervised institution's executive officers are partners and, either
individually or together, hold a majority interest. For the purposes of
paragraph (c)(2) of this section, the total amount of credit extended
by an FDIC-supervised institution to such partnership is considered to
be extended to each executive officer of the FDIC-supervised
institution who is a member of the partnership.
(2) An FDIC-supervised institution is authorized to extend credit
to any executive officer of the bank for any other purpose not
specified in Sec. 215.5(c)(1) and (2) of Federal Reserve Board
Regulation O (12 CFR 215.5(c)(1) and (2)) if the aggregate amount of
such other extensions of credit does not exceed at any one time the
higher of 2.5 percent of the FDIC-supervised institution's unimpaired
capital and unimpaired surplus or $25,000 but in no event more than
$100,000, provided, however, that no such extension of credit shall be
subject to this limit if the extension of credit is secured by:
(i) A perfected security interest in bonds, notes, certificates of
indebtedness, or Treasury bills of the United States or in other such
obligations fully guaranteed as to principal and interest by the United
States;
(ii) Unconditional takeout commitments or guarantees of any
department, agency, bureau, board, commission or establishment of the
United States or any corporation wholly owned directly or indirectly by
the United States; or
(iii) A perfected security interest in a segregated deposit account
in the lending FDIC-supervised institution.
(3) For the purposes of paragraph (c) of this section, the
definitions of the terms used in Federal Reserve Board Regulation O
shall apply including the exclusion of executive officers of an FDIC-
supervised institution's parent bank or savings and loan holding
company and executive officers of any other subsidiary of that bank or
savings and loan holding company from the definition of executive
officer for the purposes of complying with the loan restrictions
contained in section 22(g) of the Federal Reserve Act. For the purposes
of complying with Sec. 215.5(d) of Federal Reserve Board Regulation O,
the reference to ``the amount specified for a category of credit in
paragraph (c) of this section'' shall be understood to refer to the
amount specified in paragraph (c)(2) of this Sec. 337.3.
(d) Definition. For purposes of this section, FDIC-supervised
institution means an entity for which the FDIC is the appropriate
Federal banking agency pursuant to section 3(q) of the FDI Act, 12
U.S.C. 1813(q).
0
17. Revise Sec. 337.11 to read as follows:
Sec. 337.11 Effect on other banking practices.
(a) Nothing in this part shall be construed as restricting in any
manner the Corporation's authority to deal with any banking practice
which is deemed to be unsafe or unsound or otherwise not in accordance
with law, rule, or regulation; or which violates any condition imposed
in writing by the Corporation in connection with the granting of any
application or other request by an FDIC-Supervised institution, or any
written agreement entered into by such institution with the
Corporation. Compliance with the provisions of this part shall not
relieve an FDIC-supervised institution from its duty to conduct its
operations in a safe and sound manner nor prevent the Corporation from
taking whatever action it deems necessary and desirable to deal with
specific acts or practices which, although they do not violate the
provisions of this part, are considered detrimental to the safety and
sound operation of the institution engaged therein.
(b) Definition. FDIC-supervised institution means an entity for
which the FDIC is the appropriate Federal banking agency pursuant to
section 3(q) of the FDI Act, 12 U.S.C. 1813(q).
PART 353--SUSPICIOUS ACTIVITY REPORTS
0
18. Revise the authority citation for 12 CFR part 353 to read as
follows:
Authority: 12 U.S.C. 1818, 1819; 31 U.S.C. 5318
Sec. 353.1 [Amended]
0
19. Amend Sec. 353.1 by removing the term ``insured nonmember bank''
and adding in its place the term ``FDIC-supervised institution''.
0
20. Amend Sec. 353.2 by adding paragraph (c) to read as follows:
Sec. 353.2 Definitions
* * * * *
(c) FDIC-supervised institution means an entity for which the FDIC
is the appropriate Federal banking agency pursuant to section 3(q) of
the FDI Act, 12 U.S.C. 1813(q).
Sec. 353.3 [Amended]
0
21. Amend Sec. 353.3 by:
0
a. Removing the term ``insured nonmember bank'' and adding in its place
the term ``FDIC-supervised institution'';
0
b. Removing the term ``bank'' and adding in its place the term
``institution''.
PART 390--REGULATIONS TRANSFERRED FROM THE OFFICE OF THRIFT
SUPERVISION
0
22. The authority citation for part 390 continues to read as follows:
Authority: 12 U.S.C. 1819.
Subpart S--[Removed]
0
23. Remove subpart S consisting of Sec. Sec. 390.330 through 390.368
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
[[Page 58520]]
Dated at Washington, DC, on October 15, 2019.
Annmarie H. Boyd,
Assistant Executive Secretary.
[FR Doc. 2019-23115 Filed 10-30-19; 8:45 am]
BILLING CODE 6714-01-P